MMPM-009

Retail Management

School of Management Studies

Indira Gandhi National Open University
New Delhi
COURSE DESIGN AND PREPARATION TEAM
Prof. K Ravi Sankar Dr. Chetan Bajaj
Director, Bapuji Institute of Management Studies
School of Management Studies, Davangere, Karnataka
IGNOU, New Delhi
Prof. Devashish Das Gupta
Prof. Pankaj Priya
IIM, Lucknow
BIMTECH,
Greater Noida Mr. Rajan Chibba
Prof. Nimit Gupta Intrim, New Delhi
NorthCap, University,
Gurugram (Haryana) Mr. Vinesh Chhabra
Director (SI & SBM)
Dr. Leela Rani NIESBUD
B.I.T.S. Pilani Noida, UP
Dr. Rajeshwari Malik
Woxen University,
Hyderabad T.V. Vijay Kumar
Dr. I. Rajesh (Course Coordinator & Course Editor)
IIT, Hyderabad, School of Management Studies,
Hyderabad IGNOU, New Delhi

Acknowledgement: Relevant parts of this course have been adapted and updated from the course MS
612: Retail Management. The course MS-612 was prepared by the experts (names mentioned above in
Italics) and their profile is as it was in that Material.

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 Indira Gandhi National Open University, 2023
ISBN : 978-93-5568-823-1
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 Course Contents
Pages

Block 1 INTRODUCTION TO RETAIL MANAGEMENT 5

Unit 1 An Overview of Retail Sector 9

Unit 2 Concepts of Retailing 21
Unit 3 Retail Environment 34

Block 2 RETAIL PLANNING AND FORMATS 47

Unit 4 Strategic Retail Planning Process 51

Unit 5 Models of Retailing 70
Unit 6 Based on Ownership 82
Unit 7 Store and Non-Store Based Retail Formats 99

Block 3 RETAIL MIX STRATEGIES 117

Unit 8 Retail Location Strategy 121

Unit 9 Retail Product Mix and Merchandise Strategy 135
Unit 10 Retail Pricing Strategy 147
Unit 11 Retail Communication Mix Strategy 168
Unit 12 Physical Evidence 184

Block 4 RETAIL OPERATIONS MANAGEMENT 197

Unit 13 Managing Store Operations 201

Unit 14 Sourcing and Inventory Management 217
Unit 15 Managing People and Processes 235
Unit 16 Customer Relationship Management 249
 Block-1
Introduction to Retail Management
BLOCK 1 INTRODUCTION TO RETAIL
MANAGEMENT
Retailing includes all activities involved in selling of goods and services to consumers
for their personal, family or household use.
Historically, the retail sector in India was highly fragmented yet, with passage of
time the sector has evolved and emerged as one of the key contributors to the Indian
economy. If you look at the retail sector in developed countries was also fragmented
at the beginning of the last century, but thanks to the emergence of major retail
chains like Wal Marts, Sears and McDonalds led to rapid growth of organised retail
and growing consolidation of the sector in the developed countries.
Today, in India we see a rise in income levels, a sharp increase in the number of
working women in India’ s urban centers have made goods and services more
attainable and enticing to large section of the country’s population. Concomitantly,
trade liberalization and more sophisticated manufacturing techniques create goods
that are less expensive and of a higher quality are being flooded in the market place
there by facilitating conditions, which are favorable and conducive for the consistent
growth of organised retail in India.
However the Indian retail scenario is much different from its western counterpart.
Since Indian cities including the metros are still congested and a large· part of the
population is still concentrated in rural and semi urban areas. Besides the Indian
houses/households are smaller and are not accustomed to by bulk on weekends.
Thus the Indian retail scene is very different from that prevailing in the developed
countries. As organised retail grows, western retail formats are being modified and
new formats suitable to Indian conditions are being adopted.
In spite of visible organized retail growing rapidly. Yet a large part of Indian retail
is still likely to be unorganized . Besides all this, the Indian retail sector is on the
growth phase of the sector’s life cycle thereby making it a sunrise industry contributing
amply to Indian economy.
This block includes 3 units.
Unit 1 : Covers a spectrum of issues ranging from what retailing is all about to the
trends and emerging challenges in the Indian context. The rural retail scene and
emergence of retail formats, the existence of online retailers are being touched upon
Unit 2 : The various concepts of retailing is the core of this unit. The changing pattern
of consumer behavior is discussed. The classification of retailers the evolution of
malls and other aspects such as merchandising , SCM, store location and layout
are part of this unit.
Unit 3 : Is fully devoted to the entire gamut of regulatory bodies their frameworks,
the ethical and security issues and the allied which are essential to commence in
staring retail business.
Introduction to Retail
Management

8
 An Overview of
UNIT 1 AN OVERVIEW OF RETAIL SECTOR Retail Sector

Objectives
After reading this unit you should be able to:
 appreciate the importance of retailing in the distribution channel.
 develop a broad view of retailing business in India as well as globally.
 the challenges faced by organized retailing in India
 career prospects in Retailing
Structure
1.1 An Introduction to Retailing
1.2 An Overview of Indian Retail Business
1.3 Rural Retailing Scenario in India
1.4 Modern Retail
1.5 Category Wise Retail Penetration in the Indian Market.
1.6 Emerging Rural Retail Formats
1.7 Key Growth Drivers for Indian Retail : A Snapshot
1.8 Online Retailers
1.9 FDI in Indian Retail
1.10 Challenges Faced by Indian Retailers
1.11 Factor Essential for Successful Retailing
1.12 Outlook of Indian Retail
1.13 Global Retailing : A Glimpse
1.14 Career Prospects in Retailing
1.15 Summary
1.16 Self- Assessment Questions
1.17 References/Further Readings

1.1 AN INTRODUCTION TO RETAILING

Retailing encompasses sale of goods or services to the end customer for personal
consumption or household usage. Retailing can also be viewed as the last leg of the
distribution system for consumer goods or services. It includes range of products from
small stitching needle to a luxury car. Retailers collect assortment in bulk from various
manufacturers or marketers and break down into small quantities as per the demand
from end customers.
Retailers interface with the end customer provides them with an opportunity to offer
the exact quantity and quality of products / services at a price acceptable to the end
customer. Thus retailers convey the demand pattern of the customers in their
geographical area of operation to the marketer or manufacturer who can accordingly
plan their production and marketing strategy. The characteristics which differentiates a 9
Introduction to Retail retailer from a marketer is their low average sales per customer, impulse purchasing by
Management
the customer and customers’ inclination for satisfying experience during their shopping
trip to the store. Therefore the stores’ capability to provide an enhanced experience is
the key factor for their success.
Retail business has been traditionally carried out by Kirana stores (also called “Mom
and Pop “stores ) in FMCG sector and Multi brand dealers or Exclusive Brand
franchisee / company owned outlets in the case of consumer durables.
It is evident that over the years some retailers expanded their business by opening their
own chain of outlets and gradually retailing became an independent business moving
away from the influence and control of marketers. This category of retail businesses
are referred to as “organized retailers ‘compared to traditional retailers or any private
enterprise who are known as being part of “unorganized retailing” business. Thus they
are known as organized retailers as their business processes and systems are well
defined and operate under the various legislations related to business establishments.
These new retail businesses require huge capital investment, therefore large business
houses or large investors entered this domain.
Historically, the organized retailing concept started in 1980s in the western economy
and is now being implementing in India since the last two decades. Walmart, Amazon
and Best Buy of USA, Carefour of France, Aldi and Lidl from Germany, Tesco and
Spencer from U.K. are some of the famous retailing firms spread across many countries.
This does not mean that unorganized retail had disappeared, but their numbers have
reduced with advent of the above mentioned large retailers.
It is to be noted that the classification for retail business was carved over the years is
referred to as offline or “Brick and Mortar” retail model, “Click only” or online model
and “Brick and Click” model which is a mix of both. The online retail has grown
drastically in post pandemic era and it is expected to capture 7% market share of the
modern retail business (statistica 2022)

1.2 AN OVERVIEW OF INDIAN RETAIL BUSINESS

India, being a vast country with large population, has a huge retail sector. Its contribution
to the GDP is staggering 8-10% and it is the second largest employment generation
activity after agriculture in India and employs about 8% of the country’s workforce.
The retail market’s anticipated size was 1.2 trillion dollars in 2022, with the majority of
sales coming from the food and grocery segments. India’s retail sector is growing
exponentially, with retail growth extending to tier II and III cities.
The uorganized sector in India is accounting for the 88% of retail business is constituted
by an estimated 12 million small retailers and kirana stores (mom and pop stores) and
numerous vendors and hawkers. Though, no literature has been able to convincingly
claim these figures due to their sheer enormity and lack of systematic survey by any
credible agency.
Predominantly, there are two types of traditional retail formats, namely
1. Kirana and Independent stores.
2. Cooperative and Government owned stores.
10
Kirana Stores An Overview of
Retail Sector
Kirana stores are the Indian counterpart of Mom and Pop stores selling all household
and personal goods and general merchandise to Indian masses. The Kirana’s and the
general stores are spread all over the rural and the urban places in India and they
reflect a good amount of retail business albeit (in spite of) being unorganized and poorly
maintained. These shops have small areas with limited stock of daily commodities
according to the demands of the clientele. It also varies from region to region according
to the functioning style of the owners. The general stores have only packaged FMCG
products and branded products which are high in demand, but the scenario may be
different in small towns and villages where loose or unbranded items are sold in large
numbers. People find these types of stores prominently in their neighbourhood and
residential areas. The chemists selling the pharmaceuticals products in the residential
areas are dispensing the branded FMCG products, especially the health foods and the
personal care products.
Most retail stores are family owned business in which the household efforts are being
used to run the stores. They are also a reflection of unemployment in disguise or additional
source of family income in small towns and villages. In various traditional retail outlets
branding is not the criteria as sometimes these traditional store keepers sell the products
on the basis of their relationship with their clients, particularly in Small Township and
the rural areas. These retailers influence the brand perception and products of the
clients. At present these traditional retailers are facing the new wave of competition
from modern retailers. Hence, they are providing value based services to the customer
such as free home delivery of the products, even the telephone based delivery, and self
service formats and so on. They are trying to improvise the shopping experience as
well as competing with their rivals by providing such services. This has been termed as
the new wave in retailing by industry. In the entire chain of the value based developments,
the small independent retailers play a crucial role in India. The importance of these
small retailers has been acknowledged by the sellers and the customers. The increase
in stock keeping units over the years has been the key factor for the rising trust on the
small retailers in India. The increasing trend of the stock keeping units has pressurized
the shelf space. The demand in width of distribution instead of depth has been sought
by the marketers over the years. Hence a significant role is being played by the small
retailers as the circulation channel for the FMCG products in existing as well as new
settlements in the urban areas.
Co-operative and Government Bodies:
The cooperative bodies and the Government are running a number of retail stores in
India dealing with various commodities. These initiatives were conceived for the purpose
of creating employment opportunity by boosting up the creeping industries keeping the
socio economic development and welfare of the state in mind. The stores which are
the examples of the government sponsored organized retailing are Super Baazar,
Kendriya Bhandars, (KVIC) Khadi and Village Industries Commission along with the
controlled price Public Distribution System(PDS). These outlets were created as user
friendly units, as its price suited the pocket of the customers. They were stocking large
variety of products and trustworthy materials, yet it couldn’t receive the desired footfall
of the customers as they were characterized by average customer service, poor upkeep
of the stores and lacking sincerity. Some of the successful retail institutions managed by
the cooperatives and government institutions are as follows:
11
Introduction to Retail  Mother Dairy and Safal
Management
 Public Distribution System
 Central Cottage Industries Emporium

1.3 RURAL RETAILING SCENARIO IN INDIA

Rural areas having a population of more than 1500 enjoy a strong parallel retail format
set up such as Periodic markets (Shanties, Haats, Jatras) and the allied.
Periodic markets are traditional places where rural customers congregate for their
weekly or daily purchases. They are called by different names i.e. Shanties/ Haats/
Jatras by people in different parts of the country. While shanties/Haats/ Jatras are
held on a particular day of a week, periodic markets are normally tied with religious
festivals. These places attract a large number of itinerant merchants and temporary
shops are set up to sell variety of merchandise. The popularity of Haats can be gauged
by the footfalls and turnover which suggests that more than 80% of the buyers are
regular visitors. 58% visit Haats to buy specific products, although more than half of
the shops have similar products in their villages.

1.4 MODERN RETAIL

Indian retailing has been witnessing the emergence of organized retailing quite late and
it is still at nascent stage as organized brick and mortar retail only constitutes a meager
12% of the total retail business amounting to $ 836 billion. A crisil report of 2020
claims organized retail to be generating a business worth 4.7 lakh crores. Apart from
the kirana stores, Indian retail market boasts of various versions like, road side dhabas,
street hawkers, and flea markets in various parts of cities operating on a specific day of
the week and village mandis operation on daily or may be weekly basis.
A report by BCG claims that Indian organized retail is expected to grow by 9% from
2019 to 2030, whereas “statistica” claims that unorganized sector has fallen by 10% in
the last three years from 2001 to 2021. Further, the online retailing is estimated to
grow by 25-30% p.a. over the next 5 years till 2026 (A report by Bain &
company).There is a sharp variation among the four regions of India, with North India
having 32.8 % and East India having just 9 % market share in the organised retail
(IRIS primary research). The major players in the modern retail are Reliance Retail,
Aditya Birla Retail, Spencers’ (from Goenka group), Shpppers Stop from Raheja
Group and Tata group. It is evident that the large and established business houses are
the major investors in this sector, the reason being it a capital intensive sector with long
gestation period. This apart there are other foreign brands like Ikea, H&M, Allen
Solly, Van Heusen, Zara and Sarwosky which have set up their chain either independently
or in collaboration with local Indian players.

1.5 CATEGORY WISE RETAIL PENETRATION IN

THE INDIAN MARKET
The highest share of organized retail is accounted by Food & Grocery (68%), followed
by Electronics and then lifestyle products, but if the data for category penetration is
12
observed, food and grocery has the last penetration(2.7 % ) followed by pharmacy An Overview of
Retail Sector
(5.4 %), whereas Consumer durables and IT have been able to penetrate nearly
30.8% of the Indian market. This reflects the realities of the Indian economy where a
large percentage of population still spends a sizable portion of their disposable income
on Food and Groceries.
Major players in India retail business
Company Stores Revenue Sales Growth Stores
(crore) (Y-o-Y)
Reliance Retail 1,62 37 10,901
Future Group 2021 48 1511
DMart 21137 32 176
Aditya Birla Fashion Retail 8787 15
Shoppers Stop 19,487 - 3000 +
Trent ( Tata Group) 2708 - 86 +
Infiniti Retail 5208 - 264
V Mart 1674 - 170
Source: Crisil rating, 2020

Some other players which forayed in this market resorted to early exit due to non-
sustainability of their business, such as the likes of Subhiksha in South India. Some
retailers like ABRL’s apparel stores ‘Pantaloons’ and online retailer like “Big basket”
sold out their business to large business houses of India like Reliance and Tata group
respectively.
Once the retail industry moves towards maturity stage very few, but retail outlets owned
by large business houses like Ambani, Adani, Raheja, Goenka, Tata and Birla would
be operating in this industry.

1.6 EMERGING RURAL RETAIL FORMATS

Currently, large players like ITC (Indian Tobacco Company), Godrej, DCM Shri
Ram Consolidated Limited are expanding their presence in rural areas. They have not
restricted themselves to agricultural products, but have added various consumer
household products and telecommunication services. The reason being the realization
that 25 percent of rural consumers are not dependent on agriculture business, but
account for over 50% of the income in rural areas.

Another important consideration is the increased expectations and awareness among

the rural customers about the large choice set available in urban areas. ITC has diversified
its portfolio in the rural market by adding cookies, garments, incense sticks and matches.
This initiative now comprises about 6100 installations covering over 35000 villages
and serving over 4 million farmers. Currently, the ‘e-Choupal’ website provides
information to farmers across the Ten Indian States of Madhya Pradesh, Haryana,
Uttarakhand, Uttar Pradesh, Rajasthan, Karnataka, Kerala, Maharashtra, Andhra
Pradesh, and Tamil Nadu. It had set up around 80 retail outlets called Choupal Fresh
13
Introduction to Retail and plans to expand its rural supermarket ChoupalSagar to 23 by 2020. Godrej Aadhar,
Management
the rural initiative of Godrej Group (later purchased by Future Group) has 133 stores
across rural India. DSCL’s HariyaliKisan Bazaar was doing quite well till 2009 having
160 outlets, and plans to scale it up to 300 in the next two years. They were selling the
same merchandise as being available with their urban counterparts. All these stores are
facing the problem of sustainability as the footfall is not enough to recover the
infrastructure cost. Availability of trained manpower is a major problem, but still these
rural initiatives are trying to become self reliant by shedding the image of parent companies
in agri business
These understandings are necessary for the organized retailers to plan out their strategy
for Indian hinterland.

1.7 KEY GROWTH DRIVERS FOR INDIAN RETAIL:

A SNAPSHOT
Modern retail has entered India through sprawling shopping centers, multi-storied malls
and huge complexes offering shopping, entertainment and food courts under one roof.
The increasing numbers of nuclear families, easy financing options, increase in the number
of working women and emerging opportunities in the service sector during the past
few years have been the key growth drivers for the organized retail sector in India. The
following factors additionally contribute to the growth of modern retail:
 Change in demographics towards more young customers, with an average
age of 27 years in 2015 ([Link]).
 Increased credit friendliness by financial institutions
 Consumer Pull
 Influence of western culture
 Increase in double income no kid’s household.
 Hectic lifestyle encourages customers to seek ready made products/ services
 Low penetration of organised retail
 Increase in demand for ‘non-essential’ products
 Advent of packaged food products requiring adequate shelf space and
refrigeration in the retail outlet
 Increased disposable income changing consumer preferences, seeking
everything under one roof
 Organized retail is able to provide a unique shopping experience through its
ambience
 Increased awareness by the consumers leads to a desire for empowerment in
taking purchase decision.
 Entry of Corporates: With the entry of large conglomerates, such as Bharti,
Reliance, Tatas, Aditya Birla and ITC, in retailing – along with the existing
14
 small and regional players- the Indian consumer today is in a position to avail An Overview of
Retail Sector
and enjoy the shopping experience and satisfaction, entertainment, quality
products aided by polite salespersons providing product information and
discounts. The competitive environment will throw open new innovations,
improvements and niche markets.
 New Entrepreneurs: The growing attractiveness of the retail trade has begun
to attract new entrepreneurs with ideas.
 Foreign Retailers: The increasing attractiveness of the sector had drawn
the interest of a number of global retailers like Zara, Sarwosky etc. With
the opening up of the economy, more and more MNCs have entered the
Indian business arena through joint ventures, franchisees or even self-
owned stores.
 Technology: Introduction of RFID, interactive kiosks at the store, Augmented
Reality and Virtual Reality (AR &VR ) have revolutionized the retail operations
and enhanced shopping experience.
 Trained manpower: The last decade has witnessed many professional institutes
and private colleges sprung up offering retail courses and training modules.
The industry’s need of qualified and trained manpower is being met by these
professional institutes.

1.8 ONLINE RETAILERS

Increased usage of smart phones and availability of internet services at peanuts has
contributed to the growth of online retail in many developing countries across the globe.
There are few other factors impacting online retailing are listed below:
 Changing lifestyle
 Time constraints
 Vast availability of options to choose from
 Convenience of time and place of purchase
 Easy payment options though UPI (Unified payment interface)
 Promotion on social media due to their popularity
 Availability of door delivery of products / services
Amazon and Flipkart have been two successful players in e-marketplace offering
merchandise in all categories. This apart, there are category specific retailers like,
Nykaa, Myntra, snapdeal, Ebay, clovia, Meesho, Mamaearth and shopify operating in
Indian e-space with different business models. The online businesses received a
boost during pandemic, but the experience availed by Indian consumers, even in Tier 2
and 3 cities have encouraged consumers to explore online sites for options and deals
before taking their purchase decision. Therefore, they have evolved as new competition
for brick and mortar retailers who are lobbying with the government for implementing
strong policies for operating in e-marketplace. The offline retailers are additionally
ensuring their presence through their own portal or microsite for better brand visibility
and direct access to the customers.
15
Introduction to Retail
Management 1.9 FDI IN INDIAN RETAIL
FDI in single brand retail was allowed by the Government of India with foreign
stakeholders having 51% share and 100% FDI in wholesale cash and carry format
through automatic route in the year 2006. After many deliberations among various
stakeholders and no consensus emerging across the country, Indian government has
cleared the proposal for 51% FDI in multibrand retail in the year 2012. This move is
expected to attract many famous retailers like Tesco, Wal-Mart and Carrefour to
India thus bringing in the much required capital to boost this sector. Yet, given the
complexity of the India market due to fragmentation, supply chains functioning on very
low margins, a weak back end; it is difficult to present a rosy picture of Indian retail in
near future.

1.10 CHALLENGES FACED BY INDIAN RETAILERS

 Customer’s empowerment has increased the expectation of Indian customers.
Retailers are putting every effort to capture the consumer’s wallet share and are
on an experimental spree, thereby creating a situation where compromising with
image and quality, heavy discounts, venturing into new business models and vying
new markets are becoming rampant. This is not letting them consolidate the business
in a competitive market. The industry needs to evolve in a way where every player
has a room to sustain and grow.
 Due to the high rental cost, a major component of the operating expenditure, the
operating cost of retail is still very high. The industry tried to counter this problem
during the downturn by renegotiating with the developers, but this was confined to
mall retailing.
 The other issues related to real estate are the time consuming process in title
clearance, requirements of numerous lease deeds in the case of multiple ownership
and difficulties in conversion of normal land into commercial use are some of the
basic difficulties encountered by the retail community. To open a store with all
facilities, the retailer has to seek as many as ten to fifteen clearances from several
government agencies that are plagued with red tape, inefficiency and corruption.
 The changing consumption pattern in a developing economy like India is also one
of the biggest challenges for the retailer. The days of brand loyalty are few and the
demand for exclusivity and consistent service provider is gaining momentum. To
meet these demands, the industry needs to react in time.
 Challenges on the labor front include limited supply of trained workforce and
laws, which hinders smooth operations as per the standard operating procedure
(SOP) of the organization. The existing labor laws prohibit extended working
hours, therefore the only way out is to engage employees in shift, which increases
the cost of labor drastically. In situations of seasonal demand cycle, the stores
would prefer to employ part timers, which is again contrary to the existing laws.
 Consumer goods marketers require a drastic change in their mindset and hence
their strategy while dealing with modern retailers as against the traditional kiranas.
Indian marketers are still low on the learning curve and have not been able to
participate in category management of various retailers as modern retailers are
supposed to sell assortment of products and not just a brand. Moreover shopping
16
 habit differs with formats; hence different category management strategy has to be An Overview of
Retail Sector
pursued in different formats.
Post covid, customers are frequently resorting to online space for comparing the offer
in offline space and this has further put pressure on the margins of retailers as well as
marketers.

1.11 FACTORS ESSENTIAL FOR SUCCESSFUL

RETAILING
 Identifying the most important factors of success and prioritizing them accordingly.
This may vary with the business model and the dynamics of the local market.
 Good understanding of competition, as competitive scenario is specific to location
and business model.
 Regular updates about changing taste and preferences of customers in the catchment
area. This may be the consequence of changing demographics in the catchment
area or evolution of the broader consumer ecosystem
 Updating inventory on regular basis based on changing market dynamics and
customer preferences.
 Conduct third party audit once a year for an unbiased identification of the lacunae
in the function of the store
Examples of Successful retailers : Lifestyle, Dubai based fashion retailer, McDonald’s
an American fast food retail chain, Ikea, self-assembling modular furniture retailer are
some examples of foreign retailers who understood the Indian retail ecosystem and are
viewed as success stories.

1.12 OUTLOOK OF INDIAN RETAIL

The Government’s aim to make India a 5 trillion economy and push for “Make in
India” and “Vocal for Local” campaign is bound to increase the demand for consumer
products. On the supply side, “ease of doing Business” would encourage small
entrepreneurs to invest in this sector. This would lead to opening of new stores in
different formats for different categories of products and services. This explains the
success stories of smaller players like, Vishal Mega Mart Vmart and DMart whose
growth in urban and rural areas over the years have been phenomenal.
Similarly, much smaller players like ‘Chayos’, “cafe coffee day”,”Haldiram”, “Bikaji”
have established their dine-out stores across India. The new ecosystem would witness
the major players listed above having their presence in new categories with different
formats and many small players competing with them in each category in online as well
as offline space. Like Blinkit competing with Reliance jio Mart.

1.13 GLOBAL RETAILING: A GLIMPSE

As mentioned in the introductory section, some retailers have not only established a
strong foothold in their country of origin, but have also expanded their footprints across
many other countries and global markets as well.
17
Introduction to Retail The top ten retailers (as per their financial performance during FY 2020) across nations
Management
are:
 Walmart Inc.  Walgreen Boots
 Amazon Inc.  Aldi GmbH
 Costco wholesale corp.  [Link]
 Schwarz group  Target Corporation
 Home Depot inc.
 The Kroger Co.
Source: Deloitte Global Report (2022)

A major shift among the global retailers’ offerings has been the focus on sustainable
products or services since 2020 (Deloitte Global report). Africa, Middle East and
Latin America regions, in that sequence, were worst hit during the pandemic in terms
of profitability. (Deloitte global report of 2022) FMCG segment followed by Hardlines
and Leisure goods were the focus of major categories for retailers across the globe in
FY 2020. The new entrants in the top 250 list for FY 2020 included retailers from
other countries like Russia, Ukraine, Israel, Japan, and Greece apart from U.S. as
well, but the current infighting between Russia and Ukraine and a stagnant economy in
Europe would result in drastic change in the above list for 2022.
Concerns for Global Retailers:
 Inflationary trend across the globe
 Disrupted supply chain due to war and pandemic
 Tough monetary policy of leading economies to control inflation
 Short supply, but increased expectations from the labor market in many
countries.
Therefore, the global retailers are increasingly shifting their focus to emerging economies
due to their better growth prospects when compared to mature economies in Europe
as well as U.S.A.

1.14 CAREER PROSPECTS IN RETAILING

There are ample prospects of employment opportunities and jobs in retail industry
across formats and locations. But one should be aware of the fact that the kind of
education, experience and exposure that one possesses should be in line with the
positions available and match to the requirements of the retail organization. Just to
make a mention that one can build a career and grow with the industry in different
sections/ departments etc. For the benefit we below mention a couple of positions that
one can look into and pursue.
Profiles in Back end Operations:
 Vendor management executive: Are responsible for handling vendors who
supply merchandise to the outlet(s). They maintain a list of vendors who can
18
 be approached to supply quality merchandise at the right time to the store so An Overview of
Retail Sector
that the store is not only able to meet the demands of the customers but also
avoid any stock outs.
 Warehousing executive: Is one who works closely with vendor management
team to ensure that right type of merchandise in right quantity is maintained in
the store warehouse or at redistribution centre (RDC). This merchandise can
be delivered to the store in the least possible time so that the store is neither
overstocked or is out of stock at any given point of time.
 Category management executive: is responsible for generating profitability
of one or more categories in the store, depending on the store size as well as
the category in question. The profile suggests in ensuring the placement of the
right mix of products, brands and SKUs in the assigned category. They also
coordinate with the backend teams for timely availability of the required SKU
(stock keeping unit)
Operation Profile:-
 Department Executive /Manager: A department manager is responsible
for one department, floor or maybe even a category, if that category is too
big, in the store and reports to the store manager. A department executive
would be reporting the department manager in very large stores (hypermarket
format) as the departments is too huge to be managed by one DM.
 Manager- Retail operations: The role is to plan and coordinate the functioning
of the store as per the SOP (standard operating procedure) laid down by the
Head office. It includes store opening and closing activities, inventory audit,
supervising visual merchandising scheme and handling store level human
resources issues.
 Visual Merchandiser: As the name suggest they are responsible for giving
the desired ‘look’ to the store’s brand by coordinating with retail communication
team, back end operations team and brand management team.
 Business Development roles include setting up new stores in the chain or
may be closing/ relocation of the poor performing stores.
 Business Development (BD) Executive/ Business Development Manager:
In order to set up new stores, BD teams conduct locational analysis, negotiate
land owner for lease of space, work out the plan of the store, its merchandise,
positioning in the local market and stocking the relevant merchandise. Once
the store is operational, they hand over the charge to the concerned store
manager and proceed to set up another store.

1.15 SUMMARY
Retailing has been in existence since times immemorial for decades but its structure has
changed in the last couple of decades with onset of modern retailing. These retail
businesses are big and function in a systematic manner but that does not reduce the
importance of traditional retailers. Both the categories coexist and each has their own
significance and clientele to cater to.
19
Introduction to Retail The evolution of internet and online payment interface has further revolutionized this
Management
sector. At present most retailers are present in offline and online space to tap all possible
segments. The propensity of being present on all possible platforms increases the cost
of operations and does put pressure on retailers to be sustainable in long run. The
critical issue to be successful in retailing is to adapt to local conditions in different ways.
Therefore retailers are experimenting with new strategies to be viable, but all this is
beneficial for the customers who are better placed to make their purchase decision.

1.16 SELF -ASSESSMENT QUESTIONS

1) Discuss the importance of retailing and its role in Indian economy.
2) Name and discuss the two types of retail formats which were operating in the
Indian scene.
3) What is modern retail? Discuss its features, scope and growth in the Indian context?
4) Define rural retailing and highlight the rural retail formats that you are familiar with.
5) Enumerate and explain the key growth drivers for Indian retail.
6) What are the major challenges faced by that Indian retailer? Substantiate.

1.17 REFERENCES/FURTHER READINGS

Managing Retailing: Piyush Sinha & D.P. Uniyal, Third edition OUP.
Retail Management: J.K. Nayak& Prakash. C. Dash Cengage Publications, 2018

20
 An Overview of
UNIT 2 CONCEPTS OF RETAILING Retail Sector

Objectives
After reading this unit, you should be able to:
 aware of the basic theory of retailing.
 have an exposure to classifications of different types of retailing.
 appreciate the significance of each type of retailer.
 possess knowledge of the various concepts of modern retailing.
 discuss the significance of planning store operations.
Structure
2.1 New/Emerging Customer and their Behavior: A Snapshot
2.2 The wheel of Retailing
2.3 Classification of Retailers
2.4 Brick and Click Model of Retailing
2.5 Evolution of Malls vs. Standalone store
2.6 Identifying Retail Store Location
2.7 Store Layout and Design
2.8 Supply Chain Management (SCM)
2.9 Merchandising
2.10 Private Labels
2.11 Retail Store Operations
2.12 Summary
2.13 Self – Assessment Questions
2.14 References/Further Readings

2.1 NEW/EMERGING CUSTOMER AND THEIR

BEHAVIOR: A SNAPSHOT
Indian consumers behavior is changing at a very fast pace with the advent of broad
band connectivity, infrastructural improvements, more disposable incomes, offer of
personal loans and EMI’s on purchases, door delivery of goods and services. The
complexities arising out of these changes are further catalyzed by the experiences of
lockdown during COVID and visiting the store after the end of pandemic.
Indian society is largely depicted as a trapezium with a burgeoning middle class. The
middle class can itself be characterized as upper, middle and lower middle class who
vary in terms of their disposable income and expectations. The attitude and lifestyle of
an average Indian has changed considerably in the last two decades impacting their
purchase behavior. The phenomena of sharing accommodation in metros and large
urban cities, during college days and initial career phase, hectic lifestyle focused on
building career with new acquired skills in unconventional domains, increased social 21
Introduction to Retail engagements on social media and less personal interactions, warding of many social
Management
taboos and embracing new social engagements, late marriages and working actively till
70 years of age, aged parents living away from their children, increased longevity of
average Indian have all contributed to change in the demand pattern of Indians. Indians
have become more aspirational in a world connected through digital networks.
The earlier generations including people born till 1990s had been exposed to shopping
at traditional kirana stores, but the generations born post 90s have been gradually
exposed to shopping in modern retail outlets.
The traditional shoppers, still prefer shopping at kiranas which was characterized by
offering few but relevant options related to product, brand and SKUs, were present in
proximity, offering credit as per their level of comfort, providing options of buying in
loose and being friendly and trustworthy due to familiarity over generations. They are
attracted by their acquaintance and personalized behavior of the kiranawala, expect
easy credit facility, are comfortable with close proximity of the retail outlet and have a
tendency to buy loose/unpacked products and commodities as per their immediate
requirements.
On the contrary the modern shoppers have different priorities. They view shopping as
leisure and entertaining activity, but also may settle for convenience if that seems to be
more desirable in a specific situation. They are attracted by ‘brands’, expect fresh and
quality stock, that too in huge variety. They prefer to indulge in credit/ debit card
payment Therefore the modern retailers are characterized by offering fun and leisure,
providing all avenues of online transactions as well as credit facility, providing large
number of merchandise options with attractive promotional offers and discounts on
multiple issues and occasions.
The starting point for crafting retail strategy is an in depth understanding of the new and
modern customer. Thus the pressing need of the hour is a detailed understanding of the
consumer behavior in every region, be it city, state or region or country, helps the
retailer in customizing their services. Accordingly, retailers can plan their positioning in
the concerned market which leads to designing their merchandise, communication and
add-on services.
McDonalds offering soup, potato or paneer burger or salads and other vegetarian
dishes as part of its menu in Asian countries, whereas McDonalds selling beer and
meat pies in European countries are a classic example of the same.
Emerging pattern of consumer behavior in era of Omni channel retailing:
Shoppers are involved in the utilitarian shopping for any high involvement category like
Air Conditioner or experimenting with a new category or product as they have easy
access to all relevant information online which they may supplement by store visit, but
may end up buying online due to better price based offers.
While customers purchasing offline prioritize hedonic benefits over utilitarian or may
be both benefits. They value the services being offered in the store and the overall
experience of relaxed and satisfied shopping. Yet, the cultural, psychological and
demographic diversity impacts the purchase behavior and therefore retail chains have
to be sensitive to these issues while operating across different cities or countries. A
classic example would be that of famous designer jewelry retailer ‘Sarwosky’. The
retailer had introduced special earrings for Indian women which could be worn on
22
pierced ears as per the tradition in India. This was entirely different from the earrings Concepts of Retailing
being sold by them in western world where earrings are worn with clips, as ladies do
not pierce their ears.
The ability to ‘try out’ or experience the product at modern retail has in turn impacted
consumer behavior. The ‘situation’ created by the retailers in store provides an
overwhelming environment for availing that experience. This is relevant to categories
like apparels, shoes and jewelry where hedonic benefits are the more important. The
ambience of the store further acts as an influencer in swaying customers’ decision.
Some retailers provide an additional space for children in store to play, thus providing
a stress free shopping to young parents. This turns out to be an outing for the whole
family. The trial room with full size mirror for trying out apparels, footwear, jewelry,
spectacles frames and personal care products like cosmetics are examples of
‘experiences’.
The shop floor salesperson’s role cannot be underestimated as they are able to get full
attention of the customers without any distractions from any competitor’s message.
The experience is not limited to brick and mortar stores but are being attempted by
online retailers through augmented reality / virtual reality (AR/VR). Once these
technologies mature it will be easy for online retailers to imitate offline retailers to a
great extent. The future trend would be more customers only buying online, that too
across more number of categories. For instance, a customer can gauge at a virtual
magic mirror at the retailer’s site and decide on the type of facial care product to be
used, based upon the feedback of this magical mirror on the skin texture of the
individual. Similarly a customer looking to buy a matching pair of trousers for his
upperwear which may be most appealing for his personality may use the services of
virtual mirror which would offer the best match through artificial intelligence (AI) based
programme.
It is to be appreciated that retailing is inherently a service. Therefore the retailer
offering the best level of service in all forms i.e. touch and feel, social interaction,
personal attention, no wastage of time while shopping, convenience of looking for
the right product, support for making fast purchase decision, ease of payment, fast
resolution of customer complaints and sundry services like parking space, availability
of children’s playing arena and shopping trolley or escorts till vehicle parking would
be the key success factors for any retailer in the offline format. Similar factors would
be applicable in the case of online retailing barring some of the services mentioned
above.

2.2 THE WHEEL OF RETAILING

Wheel of retailing is a concept which proposes that a retail business by and large will
go through four phases of transformation starting from being a small and micro player
based on price discounts to a big well-known and prominent store. These four phases
- Entry, Growth, Stabilization, and Compete happen in a circular fashion for a retail
player. Most of the retail businesses start on low cost, low price and low margins but
as their sales start increasing they quickly shift to a high cost, high revenue model.
It is to be noted that, wheel of retailing is more of a business trend/development which
happens usually but it is not a rule. It may not happen to many players but it is more of
a concept which is observed in the market.
23
Introduction to Retail
Management

Retail business evolution at any place starts with a retailer offering value to customers
through low price, low margins limited facilities and few merchandise. As the area
develops with increasing population having higher expectation due to increased trading,
upmarket retailers, offering elite products are attracted to set up their business. Gradually
that area becomes too crowded due to large number of retailers targeting fixed number
of buyers, leading to lower ROI for the retailers. Thus the retailers further move on to
set up their business in upcoming new market / location where competition is less at the
moment, so that they can avail first mover advantage. Therefore, the wheel of retailing
has completed one circle and the repeat evolution of retail structure is witnessed afresh
in this new market/ location. This is the basic and foremost theory of retailing. Famous
home grown retailers, like Haldiram restaurants, SarvanaBhavan, Agarwal sweets,
Café coffee day and foreign retailers like Walmart, McDonalds, Best Buy, Zara, Lara
etc. started their outlet in one city and then gradually entered new cities eventually
crossing domestic borders. At present their footprints are present across the globe in
countries providing enough opportunities for setting up their retail business.

2.3 CLASSIFICATION OF RETAILERS

Based on Ownership:
1. Independent store having one single outlet. In India 98% of the stores belong
to this category.
2. Chain of stores across cities and towns. This category account for 25% in
advanced economies but are very less in number in India.
3. Leased departmental stores where a department in the store is rented by the
manufacturer in lieu of rent for utilizing that space.
4. Franchising, the franchisor lays down norms for the franchisee to operate the
outlet in lieu of royalty to be paid to the franchisor for utilizing their business
model.
5. Vertical marketing system, where the manufactures has a stake in the business
of all channel members till the retailing stage.
Store Formats
They are generally classified in two segments; Food oriented or General merchandise
oriented stores
24
Food oriented Concepts of Retailing

1. Convenience stores: As their name suggests they are located in every possible
nook and corner of the city and carry over 1000 SKUs. They are generally
over the counter service outlets, known as kiranas in India.
2. Supermarket: large food store of 4K -5K square feet, but sells other daily
needs consumables as well. E.g.; Delhi’s super bazaar (closed now), Reliance
Fresh outlets in some cities.
3. Box Stores: They are essentially discount stores but also sell lower priced
private labels (own brand of the retailer) e.g.: D-Mart
4. Hypermarket: Very large sized stores with an area of 50K -100K sq. feet
like Pantaloons, Hyper city and Trent. They offer huge range of merchandise
from, grocery, household items, apparels, footwear etc.
General Merchandise:
Department stores: They are huge stores of over 10K sq. feet largely dominated by
apparels.
Brand Oriented: Stores can be classified on the basis of vaiety of ‘brands’ stocked by
them. They can be exclusive brand outlets known as “EBOs”. Merchandising decision
of stocking exclusively store brands can be a key differentiator in itself. Ikea, with its
own brand of furniture, Zara the garment retailer of Spain and Gap are popular examples
of this strategy. This strategy gives a lot of flexibility to the retailer regarding its positioning.
This subsequently translates into the breadth and depth of assortment on offer, as well
as the promotions surrounding them. Customers, who are brand conscious, prefer to
visit these stores.
EBOs of some known marketers which were largely franchisee owned and operated
had been in existence in past as well, but their significance increased with the advent of
modern retail. Now the modern and large players prefer to have their own outlet so as
to have better control on the services being rendered to the end customers.
Multi Brand Outlets or “MBOs” stock multiple brands, may be, including their own
brands like Reliance Retail, Croma, Vijay Sales. The objective is to provide more
variety to the customers in terms of brands. This apart, the traditional retailing i.e
“General Trade” mostly are MBOs. Their overheads are low, which translates in their
offering lower selling price, their locational convenience and familiarity of local population
with these retailers have been the main stay of the traditional MBOs.
Store Based Retailing: Retailing was largely store based till 2010. Apart form the
various formats mentioned above some other offline formats have evolved over the
years.
Offline Formats:
Cash and Carry
Cash and Carry is primarily a wholesaler specifically catering to small retailers who
buy on cash. Thus this is a B2B business model offering merchandise in bulk. It is
convenient for the mom and pop retailers as large set of merchandise are available under
one roof and operational hours are long without any weekly off. They pose a new threat
25
Introduction to Retail to the traditional wholesalers and distributors. As 100% foreign direct investment (FDI)
Management
is allowed in this format, Metro AG of Germany is one such format operating in India.
Tata’s have their outlet known as ‘Khet-se’ to provide fresh farm produce. Other
players planning to enter in this business are India Bulls and Videocon group.
Non- Store Based Retailing: The fast paced advancement in IT, AI and related
emerging technologies paved way and contributed to the robustness of transacting
online business resulting in fast development of non-store retailing on online platform.
It is to be noted here that non store retailing existed prior to the emergence of online
retailing.
Catalogue Retailing: is a format where merchandise is sold by offering product
catalogues through salesman. The customers can go through the catalogue as per their
convenience and place orders with the salesman. Most popular examples have been
Amway, Tupperware, Modicare, Avin, Herbalife and Oriflame. With the emergence of
online even they have now switched to hybrid marketing strategy involving their online
as well as offline channels.
Automated Vending Machines
Very similar to Bank ATM’s these automated vending machines are impersonal form of
retailing meant to sell lesser priced routine products like cigarettes, tea, coffee, cold
drinks, mineral water, etc. They are very common and popular in western countries,
but in India they generally found in airports, metro stations and some big stations or
malls but the most popular services provided by them in India is related to dispensing
cash to retail customers of banks.
Video Kiosks
These are interactive video terminals connected to retailer’s server. A customer can
surf through the merchandise offered by the retailer and place orders and even make
payments for the same instantaneously. The ordered merchandise is delivered at the
customer’s doorstep. They are generally found in lobby of premium hotels and high
traffic areas like railway stations.
Activity 1
Visit any six stores randomly in your location and prepare a list of the stores having
similar and different formats. Which type of stores exhibit similarity or dissimilarity in
their format? Can you infer the reasons for the same?
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2.4 BRICK AND CLICK MODEL OF RETAILING

Advent of internet technologies and services resulted in the emergence of ‘Brick and
Click ‘model which could be visualized as retailers resorting to multi-channel activities.
26 Customers feel more empowered to decide their purchase and are increasingly resorting
to online purchases, however, a large section of the population find it convenient to Concepts of Retailing

purchase through the traditional Brick and Mortar stores (offline stores) either due to
their lack of comfort with online activities or transactional security or being comfortable
with the “touch and feel’ before deciding their purchase.
With passage of time the current generation and Generation Z which is more accustomed
to online activities would lead to extensive utilization of virtual reality (VR) and augmented
reality (AR) by the retailers to add value to the purchase experience of the customers.
The power equation has been gradually shifting towards customers who have ample
choice available and can do detailed comparative analysis before making the purchase,
thus putting the retailers under strict profit margins. The situation in prevalent in emerging
economies like India is further compounded by the erratic availability of internet
connections, low band width or may be affordability of gadgets like smart phones or
iPods, though the government is trying to remove these bottlenecks and with the advent
of 5G online business will witness a major boost.
With the introduction of Web 3.0 whose strength is on utilizing Block Chain Technology,
retailers are in a better position to understand their customers throughout their journey.
This will further revolutionize the retail business model where the retailers would have
to be more transparent across their value chain. Online space has led to the emergence
of different genres of e- marketplace like Amazon, Flipkart. Myntra, Nykaa, Meesho
etc. Apart from this third party market place, retailers are also setting up their own
portals for gaining better margins as well as increasing the emotional attachment of
their customers. The brick and click channel has resulted in emergence of new shopping
behavior: “showrooming “where customers visit offline stores and end up buying online
and “webrooming” which is vice versa. Therefore, what started as multi channel activities
has now evolved into omnichannel retailing, because the sustainability of the retailer
depends on how efficiently it is being managed the various offline and online channels
so as to enhance the customer shopping experience.
Activity 2
Talk to some of your acquaintances about their shopping behaviors in post pandemic
period. Try and gather info about their behavior and the reasons for the same.
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2.5 EVOLUTION OF MALLS VS. STANDALONE

STORES
Structure and constituents of Malls:
Retail FDI in real estate had doubled during the year 2021 and Malls have been a
significant chunk of this retail. Most of the famous real estate players have invested in
this sector which includes the following: 27
Introduction to Retail Godrej Properties, DLF, Tata Housing, Raheja Group, L&T realty Ltd. India
Management
Bulls Real Estate, Omaxe Group, Mahindra Life Space Developers, Hiranandani
Communities, Ansal API and Unitech group .
The latest one to join this elite club is the famous LULU group which set up one
of the Asia’s biggest mall in Lucknow (U.P.) in 2022.
Malls constitute the new shopping destinations for shoppers in Tier I and Tier II cities
as they provide whole some experience to visitors due to variety of offerings. A typical
mall comprises of:
 Anchor stores, which are the large departmental stores of hypermarkets,
located at the prime position of the mall. They are also referred to as signature
store specific to a mall.
 Smaller departmental/ apparel stores: These may be multi brand outlets (e.g.
Pantaloons, Globus etc.) or exclusive brand outlets (e.g. Zara, Van Heusen,
Louis Philips etc.)
 Food court, showcasing varied type of eateries including national, regional
and hyper local brands.
 Common maintenance area, meant for usage of all tenants of that mall as well
as for showcasing specific promotional events of the tenants on payment of a
nominal fees.
Laws/Acts governing the Malls:
As malls are huge structure hosting many stores and shoppers at any time under one
roof, various laws are applicable to them. Some of the important laws are:
 National forest policy, 1988
 National conservation strategy and policy statement on environment and
development, 1992
 Policy statement on abatement of pollution, 1992
 National environment policy, 2004
 The environment protection act 1986,
 The Water (prevention and control of pollution) Act 1974
 The water cess act, 1977: for sourcing domestic water,
 The Central/State groundwater regulations, 1981
 The Air (Prevention and control of pollution) Act 1981
 The Noise Pollution Rules, 2000
 The Municipal Solid waste rules, 2000
 The minimum wages act, of 1948
 The payment of wages act, 1936
 The workman compensation act, 1923
28
  The industrial employment (standing order) act, 1946 Concepts of Retailing

 The maternity benefit act, of 1961

 The child labor (prohibition and regulation) act, 1986
All acts related to manpower /labor presently being clubbed in four broad codes to be
adhered by all business establishments including retailing units.
Stand Alone Stores, refer to those stores which are present on high streets but are not
a part of any mall. The choice of being present in a mall or standing alone depends on
various factors like the strategic location, amount of visibility available to the store, its
size, rental issues or the store’s intended positioning. The whole issue boils down to
the profitability of the store.
Activity 3
Make a visit to a mall in your location/city. Note the names of the stores present in the
mall. Ascertain which brand of stores is not present in the mall you visited, but these
stores may exist in some other parts of the city as ‘standalone’ outlet/store. Talk to the
store manager concerned and find out the reason for not being part of the mall and the
reasons thereof.
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2.6 IDENTIFYING RETAIL STORE LOCATION

Setting up retail store at the most appropriate location is the most critical component of
retail strategy. It starts with identifying the target markets the retailer wishes to serve.
The next step involves segmenting the residents on the basis of various demographic,
behavioral and psychographic variables in a particular geographical area. The span of
the geographical area to be served by the retail store, known as “catchment area’ of
the concerned store is based on various factors like the number of potential customers
having the targeted profile, the present and future demand and supply scenario, the
intended communication of the brand’s positioning, the nature of competition and
locational characteristics which influences the accessibility to the store, the rentals and
its presence, either on high streets or back lanes etc.
There are some retail gravitational theories which have been suggested by researchers,
the details are not being discussed as it inappropriate at this juncture. Yet, the decision
to locate the store does not depend only on the distance to be covered by a customer.
The actual location of the store requires deeper analysis. The location decision further
involves meticulous planning regarding its presence either in Shopping centre or Business
district or maybe totally isolated from these centers. If the store is to be located in a
mall or shopping centre, then which floor would be most suitable, considering the
various factors stated above. Even the size and format of the store may differ across
locations, based on the expected business from a concerned store.
29
Introduction to Retail
Management 2.7 STORE LAYOUT AND DESIGN
The purpose of shopping in a modern retail store is to shop in a relaxed environment
which can also be construed to be a leisure trip. The shopping experience at any store
itself acts as key differentiator for that store. Therefore the store layout and design
should aim at enhancing the customer experience (CX). In the digital age this CX
becomes all the more crucial to attract the customers away from indulging in online
[Link] layout and design impact all sensory organs of the customer and therefore
should incorporate elements which can stimulate customers’ senses in a positive
manner.
The visual communication includes the name, logo, lighting, exterior of the store and
fixtures design inside the store. The background music should be soothing enough to
evoke olfactory senses. The store layout or planogram should ensure comfortable
movement and location of required product / brand on the shelfs while shopping. The
merchandising element includes selecting the right type of fixtures so that the relevant
merchandise is presented in a visually appealing manner. The merchandise mix, which
incorporates the categories present in the store, products varieties in each category,
availability of different brands in different SKUs (stock keeping units) should be in
tandem with the preference of target customers residing in the catchment area of a
store.
Even the POS signage announcing any promotional offer on the merchandise should
be visually appealing and communicative so that customers can avail maximum
advantage of the same during their shopping trip. Overall the store ambience should be
such that it should lead to an enjoyable trip worth investing the time and money by the
customers during their store visit. Architects are hired to come up with innovative
designs based on the available retail space, the best possible entrance and exit pathways
and the amount and type of merchandise to be displayed.
Activity 4
While visiting different stores in your city observe and note of their layout and design.
Try to correlate these designs with the type of customers, merchandise and available
space. Offer your reasons and opinions and justify.
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2.8 SUPPLY CHAIN MANAGEMENT (SCM)

SCM refers to the effective movement and tracking of the materials from the stage of
raw material to semi finished and subsequently finished goods and finally ensuring that
it reaches the right customers at the right time and place at a cost affordable by them.
In the context of retailing business the vendors are referred as the companies the
company’s marketing their brand or vendors supplying the private labels to the retailers.
30
Retailers while operating in offline mode, the focus of SCM is to ensure the procurement Concepts of Retailing
of the right merchandise for the customers residing in the catchment area so that they
meet the expectations of the customers during their shopping trip following Just-in-
Time (JIT) inventory system. This ensures optimal logistics and inventory carrying cost,
thus impacting the profitability of the store. With the retailers catering to online as well
as offline customers in the digital age, SCM has taken a primal role. Procurement of
merchandise from different vendors and its distribution to customers across vast
geographical span demands a very lean and efficient SCM system in the organisation.
For instance Reliance Jio mart, Shoppers Stop, Aditya Birla Retail follow the above
model of business thus having a robust system in place. Retailers have the option of
either maintaining their own redistribution centres (RDCs) where they temporarily stock
their merchandise in different localities after procurement from different vendors and
till the time they receive any order from a customer in that region or nearby areas. The
transportation activities could be handled by the retailer or outsourced to the third
parties, popularly known as 3PLs.
Some small retailers prefer to totally outsource the warehousing and physical distribution
to third parties. Walmart, a known retailer from U.S.A. with stores spread across all
over the world follows the concept of Vendor managed inventory (VMI), wherein the
vendors are given the responsibility of managing their inventory at Walmart outlets.
The advantage of this system is that the vendors stock and supply only those inventory
which have a high turnover. This ensures not only their profitability, but that of Walmart
as well. This system is now being followed by many retailers.

2.9 MERCHANDISING
Merchandising refers to planning the procurement and selling of merchandise or goods.
As retail is the last stage of any organisation’s supply chain, merchandising can also be
perceived as the SCM system applicable to retailers. As in the case of any production
company, if the raw materials procured are of standard quality, they will translate into
quality output. Similarly, if quality products are procured by the retailer, it will translate
into good sales, thus impacting the brand image of the retailer in the long run.
It is not just restricted to procuring quality product, but also planning the categories
under which variety of products would be stocked. The merchandise to be stocked
would depend on the target segments’ preferences and the positioning of the store in a
particular market for e.g. a well-known retailer like Bata operates two branded chain
of stores, one by the traditional name of ‘Bata’, other by the name of ‘HushPuppies’.
Bata caters to value for money segment and hence stocks mid priced and lower priced
multi branded merchandise, whereas HushPuppies cater to premium segment and hence
stocks high priced Hush Puppies brand exclusively.
Another retailer “W” caters only to women’s clothing and hence stocks variety of
women’s clothing for all seasons, occasions, age and size. Once the products are
decided upon, vendors are involved in working out the set of “national brands” and
“store brands” also known as ‘private labels’ of the retailer as well as SKUs of each
brand. The SCM system in collaboration with the concerned vendors and the
merchandising team calculates the inventory to be displayed in the store as well as
stocked in warehouse or RDCs for fast and continuous replenishment. The
merchandising team may add or drop a product, brand or SKU from the store’s portfolio
depending on the emerging demand or their turnover at the store. They may change the
31
Introduction to Retail position of the category or the placing of the categories or products if the current
Management
planogram is not achieving the store’s objective.

2.10 PRIVATE LABELS

Private labels or store brands are unique to retailing business. They refer to those
brands which are owned by the retailer and are exclusively sold at their outlets. These
brands are manufactured and marketed or only marketed by the retailer with their own
brand name. Some popular examples could be “croma’ brand of small appliances
marketed by Tata Croma store or ‘Tasty treat’ brand of processed and packaged
foods marketed by Future Group or ‘Spencers True Value’ brand of packaged grocery
and food items marketed by Spencers.
The advantages of marketing private labels are many. The squeezed supply chain,
because of direct procurement from the vendor or manufacturer results in generating
more profit margins. Moreover, if a retailer has a strong private label portfolio it can
dictate terms to large marketers, selling their ‘national brands’ Private labels are the
crux of modern retailing as this is where the retailers earn maximum profitability.
Activity 5
During a visit to any large store or retailer list down the private labels available in any
four product categories. Offer your reasons how these categories are similar yet different
from National brands.
...............................................................................................................................
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...............................................................................................................................
...............................................................................................................................
...............................................................................................................................

2.11 RETAIL STORE OPERATIONS

Modern retail refers to big size stores compared to traditional retail and stocks much
larger inventory. Accordingly, they require huge amount of resources, capital as well as
manpower. In order to ensure smooth 24 X 7 operations of the store, retailers draft a
standard operating procedure for all the stores across the chain. There may be minor
variations in the operational procedure for each store based on its specific situation
which is decided by the concerned store manager only after prior approval of head
office. It starts with laying down the procedure for opening the store every morning,
conducting inventory audit and following up with specified process of billing, replacement,
replenishment, after sale service, till the closing of the store at the end of the day.
A standardised operating procedure ensures that there is consistency in the functioning
and clarity among all employees of the retailer. Various policies related to business
hours of the stores throughout the year, placing of products on the basis of Last in-
First out (LIFO) or First in First out (FIFO) on the shelves, returning / replacement of
goods by the customers, visual merchandising, floor personnel’s responsibilities during
business hours are drafted and communicated to the personnel for smooth functioning
32 of daily operations at the stores.
 Concepts of Retailing
2.12 SUMMARY
A modern retailer has to consider multiple basic factors for running a successful business.
It has to decide what format, type of merchandise, their style of display and store
location would we best suited for it, given its target customers and positioning in the
marketplace. Post covid time has seen a growth in a hybrid retail model comprising
online and offline retail platforms as the customer’s behavior has changed over the last
few years. The other critical success factors for retailers are the successful implementation
of their private label programmes and a lean supply chain management which ensures
that they are able to offer right products/ brands at the store at the right time for a
segment of customers at an optimal cost borne by the retailer.

2.13 SELF-ASSESSMENT QUESTIONS

1) What is the concept and the essence of the theory of “wheel of Retailing”?
2) Why is retailing done through different formats?
3) Explain the uniqueness of “Click and Mortar” model of retail business.
4) Discuss a private label that you are familiar with make a SWOT analysis and
report the key success factors that the private label enjoys.

2.14 REFERENCES/FURTHER READINGS

Managing Retailing: Piyush Sinha & D.P. Uniyal, Third edition OUP.
Retail Management: J.K. Nayak& Prakash. C. Dash Cengage Publications, 2018

33
Introduction to Retail
Management UNIT 3 RETAIL ENVIRONMENT
Objectives
After reading this unit you should be able to:
 have an understanding of store as a part of social framework
 be familiar about the regulatory framework pertaining to retail business
 discuss the legal framework and all the guidelines contained in it
 talk about the importance of ethics and the ethical framework in retailing
 gain knowledge on the various security issues and their significance
 have a clear understanding of the above aspects in driving sustainability of
retail sector
Structure
3.1 Retail Environment: An Overview
3.2 Retail Store as a Social Entity: An Introduction
3.3 Regulatory Framework for Retailers
3.4 Legal Framework of Retail Business
3.5 Legal Issues Related to Employee Include
3.6 Ethical Considerations and Responsibilities in Retailing
3.7 Security Considerations in Retailing
3.8 Sustainability of Retail Organization
3.9 Summary
3.10 Self – Assessment Questions
3.11 Further Readings

3.1 RETAIL ENVIRONMENT: AN OVERVIEW

Worldwide, the retail environment is exposed and influenced by the external factors
and forces that affect the retailer’s ability to build and sustain meaningful transactions
and relationships with its target customers.
The environment in which retailers operate can be conveniently categorized as micro
and macro environment. While the micro environment confines itself to the main actors
who help enable to drive and achieve their goals and objectives of the business. These
actors include the suppliers, intermediaries, customers, competitors and publics at large.
All these actors have been touched upon and discussed in other units of this course
where ever they are deem fit and relevant
As the macro environment constitutes the legal, social, economic and technological
forces. The major focus of this unit is only on all these constituents of macro environment
which are inter connected in different situations and their strategic importance in every
retail business
34
 Retail Environment
3.2 RETAIL STORE AS A SOCIAL ENTITY: AN
INTRODUCTION
Customers residing in a catchment area tend to shop in stores which fit well in the
realm of their social environment. This implies that different customers may shop in
different stores even if the product is same. It can also happen that customers may
shop in different stores at different times depending on their acquaintances during their
different shopping trips. Even their interaction with shopkeeper or store personnel
would depend upon the sociocultural milieu of the city as well as their own social
network.
Thus customers shopping in a modern format would be more formal in their approach
than when dealing with kirana walas. Even the shoppers visiting a high end store would
behave differently as compared to those visiting mass merchandisers. These phenomena
are mere reflections of the social framework in a particular area.
Every store is an element of larger social system in a given geography, known as
markets. These markets are places of high traffic commercial transactions. Yet, the
nature of transactions differs in the form of emotional and behavioural reactions of
different customers or may same set of customers in different retail environment. A
crowded or heavy traffic environment generally encourages lower prices. The shopping
objective is largely driven by tendency to spend less time in shopping but buying lower
priced products. Asian shopper has been found to be more comfortable with shopping
in crowded markets than majority of their European counterparts.
This phenomenon is reflective of the fact that Asian countries are more populated than
European countries and therefore, the tolerance to “crowded life ‘is high. The concept
of crowding is also observed in the formats and the stocking of merchandise, especially
in traditional stores. The stores are extended beyond the permissible limits as sanctioned
by the city’s municipal corporation. These issues are not observed in modern stores in
the same locality as one section of the society which prefers avoiding the crowd in
everyday life, popularise these stores. These customers are more attuned towards the
“shopping experience” and therefore, are provided that opportunity to spend quality
shopping time by getting more involved in their shopping exercise and thus derive
satisfaction. These set of customers are additionally looking forward to better store
ambience and more personalised attention from the retailers.
As a result the POPs, visual merchandising (VM) and salesperson’s interactions are
stressed upon to enhance the customers’ level of involvement. Even the processes are
to be kept very customer friendly and minimal so as not to offend the customers. The
modern retail also provides an opportunity for group shopping, which has been observed
to be an added attraction for customers in Asian countries which are collectivist in
nature as opposed to the western societies which are individualistic in nature. Therefore,
the quantity and variety of stores operating geography is highly dependent of the socio
cultural milieu of the concerned catchment area.

3.3 REGULATORY FRAMEWORK FOR RETAILERS

The Department of Promotion for Industry and Internal Trade (DPIIT), which falls
under the aegis of Ministry of Commerce and Industry, Govt. Of India is primarily
35
Introduction to Retail responsible for drafting the regulatory framework of retailing business in India. This
Management
department has been instrumental with proposing foreign direct investment (FDI) in
retail business in India over the years. Later as e-commerce picked up, it has drafted
policies related to e-commerce business as well, so as to ensure common playing field
for all stakeholders in this industry.

3.3.1 FDI in Retail

This policy envisages up to 100% FDI in cash and carry/ wholesale trade business as
well e-commerce (B2B) business. The policy also allows 100% FDI in single brand
retailing. All the above investment could be made through direct route. In the case of
multi brand retailing a cap of 51% FDI is in place with the condition that it could be
achieved only through Government approval.
The other important and strict conditions for attracting FDI in multi brand retailing are
as follows:
1. Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses,
fresh poultry, fishery and meat products, may be unbranded.
2. Minimum amount to be brought in, as FDI, by the foreign investor, would be
US $ 100million.
3. At least 50% of total FDI brought in the first tranche of US $ 100 million,
shall be invested in ‘back-end infrastructure’ within three years, where ‘back-
end infrastructure’ will include capital expenditure on all activities, excluding
that on front-end units; for instance, back-end infrastructure will include
investment made towards processing, manufacturing, distribution, design
improvement, quality control, packaging, logistics, storage, ware-house,
agriculture market produce infrastructure etc.
4. At least 30% of the value of procurement of manufactured/processed products
purchased shall be sourced from Indian micro, small and medium industries,
which have a total investment in plant and machinery not exceeding US $
2.00 million.
5. Retail sales outlets may be set up only in cities with a population of more than
10 lakh as per 2011 Census or any other cities as per the decision of the
respective State Governments, and may also cover an area of 10 kms around
the municipal/urban agglomeration limits of such cities.
(Source: Consolidated FDI policy 2020, Govt. of India)

Likewise, DPIIT has circulated draft national e-commerce policy for wider discussion
among all stakeholders. The proposed policy is being drafted considering the efficient
use of cyberspace in facilitating all types of e-commerce activities as well as protecting
the interests of offline players.
The FDI policy in this case invites interests from ‘marketplace model” alone. This
ensures that foreign investors investing in e-commerce platforms cannot exercise
ownership to stocks being sold on the platform. This clause protects the small
offline retailers of multi-branded products. It additionally considers the case of
local manufacturers/MSMEs, stockists and traders so as to create a level playing
field.
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3.3.2 Regulatory framework for E-commerce Retail Environment

The proposed E-commerce policy is looking into many facets of e-commerce business.
The uniqueness of e-commerce business is the fact that apart from the customers who
benefit from lower prices, the actual owners, who may be operating from foreign land,
are the other beneficiaries in terms of their access to the vast set of customers’ confidential
data and low accountability of their services to the end customers. The return to the
hosting country is also limited. Given the interdisciplinary nature of e-commerce business,
statutes related to Information act and rules, the consumer protection acts, the
competition acts have to be considered while formulating the e-commerce policy. Since
it falls under the interstate trade and commerce, e-commerce policy formulation is the
responsibility of the centre under schedule VII of the constitution.
The foremost issue to be addressed here relates to data. Internet facilitates creation
and circulation of data. Greater access to data ensures faster growth of business. This
creates a monopolistic situation for first movers and these are generally IT giants who
already have infrastructure i.e. networks in place to capture and utilise the data for
their benefits. Therefore the Govt. is formulating policy to control the source of data to
prevent its manipulation for the benefit of few big players. Data privacy and its misuse
have ramifications for law and order problem as well. Integration of MSMEs and
start-ups to e-commerce network for achieving ‘Atmanirbhar Bharat’ is another essential
component for policy framework. As the returns to the hosting country are not
commensurate with earnings of the owners, taxation issue needs a thorough revision.
Rules related to protection of consumer rights need to be strengthened by incorporating
electronic redressal mechanism and regulating unsolicited commercial messages. The
responsibility of commercial content on these platforms would lie with the owners of
the platform. The Govt. also plans to rope in the services of promoting an ecologically
sustainable environment through these platforms by promoting the concept of ‘reduce,
reuse and recycle”.

3.3.3 Role of ONDC

Open network for Digital Commerce (ONDC) envisages creating an open network
where buyers and sellers can interact across platforms as against the present platform
centric model where only buyers and sellers present on any one platform can interact
with each other. It is an open network similar to internet as compared to intranet. Once
it is fully operational, the amount of e-commerce would increase manifold just as
introduction of Unified payment interface (UPI) by Government resulted in increase
the number of digital wallet transactions in India. Launch a robust ONDC is another
step towards creating an enabling ecosystem by Govt. of India.

3.4 LEGAL FRAMEWORK OF RETAIL BUSINESS

The laws related to functioning of corporate body, IPR, trade, tax and employment are
also applicable to retail industry. The legal framework is formulated under the overarching
FDI policy (discussed earlier) and FEMA (Foreign Exchange Maintenance Act 1999).
The FDI policy lays out two means of investment: The automatic routes and Government
route. Under the latter, prior approval of Foreign Investment promotion Board (FIPB)
is essential.
Competition in India is governed by the Competition Act. 2002, amended further in
37
Introduction to Retail 2007. This act seeks to promote fair competition as well protect the rights of consumers
Management
under the watchful supervision of Competition Commission of India (CCI).
CCI may review any agreement between business which may have adverse impact on
the players in the market and/or the consumers.
The Competition Act seeks to:
 Prohibit any abuse of dominant position by any player in the industry.
 Prevent any anti- competitive pact entered into, by two or more players.
 Regulate any type of conglomeration (mergers, acquisitions and
amalgamations) that may have an adverse effect on fair competition.
 Provide a redressal forum to adjudicate over claims and disputes
The amendment bill, 2007 ensures that parties entering into any combination of their
respective entities would have to seek prior approval from the CCI. In 2012 prior
approval of CCI was sought before the takeover of Future Group’s Pantaloon business
by Aditya Birla Retail Fashion Ltd. (ABFRL). In 2020, when Future Retail ltd. wanted
to sell their whole business to Reliance Retail they sought the permission for the same
from CCI.
The other significant acts to be considered are:
 The Trademark act
 The Indian Contracts act
 The Sale of Goods Act
 Acts pertaining to Central Sales Tax and Central excise duties
If we look at the various elements of any retail business, then any law related
to: -
 Procurement of merchandise
 Store operations
 Sale of merchandise
 Employee
 Consumers
are to be considered in detail. The existence of several enforcement and regulatory
authorities, at central, state and locals levels, governing a business entity requires a
number of licensing and approvals to be obtained before commencing operations.
List of Licenses required for starting a retail business in India include:
 Shops and Establishment licenses
 Trade License
 Cold Storage licenses
 Contract labour Registration
38
  Signboard license Retail Environment

 Forecourt License (for out of store sales, if any)

 Health and Sanitary License
Depending on the specific categories being retailed there may be other licenses
to be availed like:-
 Food License
 APMC license
 Eating House license
 Essential commodities Act –Storage control order
 License under Drug and commodities act.
Approval from the concerned authorities include:-
 Fire Department NOC
 License for ground water usage
 State wise Service Tax registration
 DG set approval from Local electricity board
 Registration of manufacturers, packers and importers under Rule 35 of
Standard of weights and measures (Packaged commodities) rules
The above licenses and permits are required besides other basic registrations such as
registration for PAN, VAT, GST, TAN, ESI, PF etc.

3.5 LEGAL ISSUES RELATED TO EMPLOYEES

INCLUDE
a) Employee state insurance act (ESIC) 1948, seeks adequate social security
for employees during sickness, health related issues and mortality due to work
related injury. These benefits are meant for employees drawing a salary of less
than INR 3000/- per month. This scheme is financed by contributions raised from
employers as well as the employees, in the ratio of 4.75: 1.75 of the wages earned.
b) Payment of Bonus act, 1985 as a section of Factories act is applicable to
establishment employing 1o to 20 workers and covers all employees earning less
than INR 2500/- per month.
c) Employee Provident Fund Act is meant to secure the future of the employee
once he/she retires or for his dependents in case their demise. It is applicable to
establishment employing 20 or more persons.
d) The Minimum Wages Act. 1948 determines the minimum wages in industry and
trade where labour organisations are non- existent or ineffective.
e) The trade union Act. 1926 aims to confer a legal status to registered trade
unions in the organisation and defines their rights and obligations.
39
Introduction to Retail f) The employment of women is a significant issue as half of the working force is
Management
women in retail industry therefore the below mentioned laws/acts are applicable
for women.
 The Contract labour Act, 1970,
 The Interstate Migrant workmen Act, 1979,
 The maternity Benefit act (upon completion of 80 working days),
 Equal Remuneration Act, 1976
g) The payment of wages Act, 1936 ensures that employees are paid regularly and
prohibiting employers from imposing arbitrary fines.

3.5.1 Legal issues in Store Operations

a) The Shop and Establishment license is issued by local Municipal Corporation
only when the store operation commences and is renewed every year. It provides
rights and obligations of the retail establishments. The shop has to get it registered
within 30 days of commencement of operations and apply for closure of the
establishment within 15 days of its closure. It also states business hours per day
and guidelines for holidays, leaves, rules for employing children and women and
termination of the services of the employees.
b) The Prevention of Food adulteration (PFA) license has to obtain for selling
food products. If required, obtaining a machinery license for freezer/ chiller permit
is mandatory. These licenses are issued by Regional Food & Drug Administration
and Health officers in the name of the directors of the company, generally for a
period of five years. This act also specifies the manner of labelling food or non
food products.
c) The Industrial Disputes Act, 1947 provides machinery for peaceful resolution
of disputes between employers and workers. It is applicable to all industrial and
commercial establishments and covers employees earning INR 1600/- per month.
It excludes managerial staff. The act also serves as a reference of dispute for
adjudication and award of labour courts.
d) The Consumer Protection Act, 1986 is meant to protect the interests of the
consumers. It makes provisions for establishment of consumer council for settling
consumers’ disputes. It has been enacted to facilitate fast and low cost remedy to
the consumers and protect them from any intended exploitation by traders or
service providers. Complaints can be filed by aggrieved consumers in writing with
District Forum for compensation up to 20 lakhs, scale it to State commission for
compensation of 1 crore and National Commission for amount exceeding 1 crore.
e) Essential Commodities Act. 1955 administered by the Union ministry of Food
processing to regulate quality manufacturing, commerce and distribution of essential
commodities like food.
f) The standards of weights and measures Act. 1976 and the standard of
weights and Measures (Packaged Commodities rules) 1977, governed by
ministry of law and justice and department of company affairs is applicable to any
packaged commodity. It defines a pre packaged commodity as any commodity
40 whose value is fixed in the absence of the purchaser which cannot be altered
 without opening the package. It requires detailing complete list of ingredients, their Retail Environment
month of manufacture, packaging and expiry. It should also list details of the person
to be contacted in case of any complaints. In case of vegetarian food products,
the packaging should indicate a green colour filled circle and a non-veg food
should exhibit brown colour filled circle.

3.5.2 Other product specific certifications

The Bureau of Indian Standards (BIS), a national standards body of India working
under the Ministry of Consumer Affairs, Government of India provides certification on
consideration of health and safety like LPG cylinders, electrical and electronic
instruments, milk powder, packaged drinking water etc., but it is voluntary for other
categories. It has provided nearly 35000 licenses to manufacturers covering all industrial
discipline from agriculture to electronics.
Hallmarking of Gold was introduced by BIS to prevent adulteration in sale of gold
items as gold is a most sought after metal in India. This benchmarking ensures that
manufacturers and retailers of gold jewellery maintain legal standard of fineness.

3.6 ETHICAL CONSIDERATIONS AND

RESPONSIBILITIES IN RETAILING
1. Ethical practice of any business is driven by the value system of the organisation.
Retailer’s prime motive is profitability, yet these are very closely linked with the
social responsibility of their business venture. Therefore the retailer must develop
a set of values which acts as a guide to their appropriate behaviour.
2. Their core responsibility is towards recognising the rights of their customers. Retailers
should provide them ample freedom of choice during their shopping trips, be
transparent in their dealings, deliver as per their promises and be supportive of
their customers’ grievances. Protecting the privacy of the customers’ have become
critical in this age of online transactions and in the absence of stringent laws some
retailers tend to flout the norms, but ethical retailers would always strive to follow
some unwritten norms for protecting their customers’ privacy.
3. The other significant stakeholders are the general public. Legislations to prohibit
hoardings and black marketing exist in the system, yet socially responsible retailers
strive to achieve the expectations of the society. Actions like providing recycled
packaging and baggage, donating to a cause, not participating in endorsing products
like tobacco or discriminating activities and taking a stand against any illegal activities
are reflection of their ethical behaviour.
4. As retailing is essentially about providing a good service to the customers, the
onus lies on its employees for satisfying the customers. Therefore, fair treatment of
the employees by implementing appropriate employee policies as enacted by the
law of land. A trustworthy relationship between employers and employees based
on ethical policies and related reward for good behaviour prevents pilferage by
employees.
5. Retailers have to deal with multiple vendors, logistics partners, bankers, chartered
accountants, legal advisors and lenders. Their interaction with each in a transparent
manner results in delivering value to all these business partners.
41
Introduction to Retail 6. Shareholders look forward to steady earnings from the retailer. Hence maintaining
Management
high standard of governance is a strong protection from any regulatory or
prosecuting agency, whose penalising action can disrupt the smooth functioning of
the retailer.
7. Apart from the above actions, retailers should be ethical in selling, pricing, storing
and distributing quality products /services. The top management’s actions should
be seen as ethical in every aspect. In case of any genuine lapses on their part or
grievances by the customer, retailer should be ready to recall their product and
replace it with equally good product. Ethical retailers have a robust “goods return
policy” in place to handle this issue.

3.6.1 Green tailing: As an Ethical Practice

With the danger of global warming and related destruction to the environment looming
large, every business entity, including retailers are expected to conduct business in an
“environment friendly” manner.
“Greentailing” refers to the business of selling environmentally friendly products and
practice environment friendly processes to run their business. JC Penny was the first
retailer to earn Energy star for their processes by reducing the carbon footprints of its
operations. Many retailers are encouraging their customers to return items not being
used or empty packaging of used products for recycling. Even the stores are being
redesigned and customers being educated about the significance of ‘mindful
consumption’ by encouraging them to bring their own bags for shopping, charging the
customers for shopping bag in case they are not carrying one. These shopping bags
are themselves produced through recycled materials.
Timberland, a retailer launched eco-friendly footwear made of recycled rubber, which
could also be dissembled easily after its life and recycled again for future manufacturing
of shoes. The Bureau of Energy Efficiency in India has termed retailing as energy
intensive industry. Therefore the onus to reduce the carbon footprints lies on the retailers
by implementing new ‘green practices’.
Food retailers are encouraged to adopt organic produce under Agmark with organic
certification as per the new clause in section 3 of Agricultural Produce (grading and
marking) Act 1937. The insignia for green produce under Agmark ensures credibility
to the claims of the retailer and assures the customer about the retailer and its offerings.

3.7 SECURITY CONSIDERATIONS IN RETAILING

Security of the store includes protection from external causes as well as internal
weaknesses or lacunae. The external reasons could be damages due to natural calamities
or due to law and order problem in the area.
Government institutions like GIC, OIC or private insurance companies like Bajaj Allianz,
HDFC Ergo, Tata AIA and others provide commercial insurance against the above
mentioned external factors. They are largely of four types of insurance policies:
1. general liability insurance,
2. property insurance,
3. business Interruption insurance

42 4. cyber liability insurance.

Depending on the nature of business and retailer’s risk averseness, they can opt for all Retail Environment
or some of the above insurance policies.
The other security considerations are related to internal store operations. They refer to
shrinkages in inventory on account of employee theft or shoplifting. According to a
survey, India had the greatest shrinkage rate in 2016, costing INR 3470 crores (2.38
percent of total sales of the organised retail industry). Inventory reduction as a result of
theft in any form is referred to as “shrinkage.” The above percentage was made up of
25.5 percent staff theft and 47.6 percent shoplifting.
Shoplifting are part of organised retail crime (ORC) This is a significant drain on the
store’s profitability and hence adequate measures are required to minimize it through
fool proof measures in place. The various measures should be such that pilferage should
be contained without either hindering the shopping experience of the customers or
offending them in any manner.
Preventive measures for internal security could be:
 Store layout should be designed in such a manner that it prevents chances of
theft.
 Technological support in terms of installing detectors at exit, tagging all the
products with RFID (radio frequency identification device), installing security
cameras and mirrors at crucial points in the store. The Electronic Article
Surveillance (EAS) System is a combination of some of the above tools. It
has given good results during the last few years. Facial recognition technology
is useful for check-out free stores which are largely unmanned.
 Staffs are the key to any successful retailing as retailing is essentially a service.
They must be sensitized to be alert during the duty hours and maintain vigil
throughout business hours. Staff should be more approachable to the customer.
A customer friendly approach has to be adopted.
 Staff retention and welfare must be taken care by the store management. A
continuous interaction with staff and encouragement must be adopted by
stores. A motivated workforce would refrain from indulging in unethical and
illegal activities. A good mix of staff from diverse background contributes to
building a cosmopolitan work culture, which fosters diverting one’s energy in
constructive ideas rather than indulging in unethical activities.
 A standard operating procedure (SOP) based on proper and systematic
inventory management system acts as a deterrent for any errant employee or
customer.
 Regular in house audit of one department by another ensures timely
identification of losses and formulating better checking mechanism in the system.
These audits are supplemented by annual external audits.
 All the above measures are significant as every retailer cannot afford high end
technological support to prevent various types of pilferage.

3.8 SUSTAINABILITY OF RETAIL ORGANISATION

The regulatory, legal, ethical and security framework defines the macro business
environment for retailing business in India. The sustainability of the retail organisations 43
Introduction to Retail depends upon them ensuring a proper fit between their business environment, their
Management
customers, competitors and their business objectives. The purpose of creating a robust
framework by various arm of the society is to provide an enabling environment for the
retailing industry to flourish in India.
Retailing is not about just generating profit for the owners but being a socially responsible
business organisation, caring for the ecology, public at large and business partners,
apart from their customers. It started with government updating its FDI policy over the
years considering the changing business landscape in India.
Another issue at this point is the Government’s initiative to frame a robust e-commerce
policy in India under pressure from the offline retailers [represented through Retailers
Association of India (RAI)]. The huge discounts being offered by the big e-marketplace
players were endangering the livelihood of traditional as well as modern offline retailers;
therefore government intervened to come up with an e-commerce policy in place to
safeguard the interest of the offline retailers after consultation with all stakeholders
which are being revised as new developments take place in the marketplace.
Similarly, government has issued detailed guidelines regarding online transactions and
created online transactions platform known as UPI (unified payment interface) to ease
the digital transactions.
Growth of retailing will contribute to providing new employment avenues to a large
section of the population, more options for customers to fulfil their needs, increased
business for manufacturers, traders, logistics partners and IT system developers. All of
the above developments would contribute to increase GDP of the country.

3.9 SUMMARY
A store is a reflection of the society in which it operates. It also fosters social gatherings
during shopping trips with family and friends. The nature of interactions among floor
salespeople and customers is in tandem with socio-cultural interactions of the people
residing in the catchment area of the store.
The regulatory framework in conjunction with legal boundaries being put in place by
the different arms of the society, i.e. executive, judiciary and legal are evolving with fast
changing landscape of retailing. The security of the retail establishment is important for
encourage investment in retail business.
Therefore Government has put in a strong system in place by setting up public institutions
and encouraging private players as well to provide insurance cover to retailers. The
retailers are also supported by technology partners to install internal security system to
prevent pilferage. The ethical framework evolves from the socio-cultural values of the
society served by the retailers at a particular period, but largely it is about seen as
being responsible to the well-being of the society at large. The entire above framework
is critical in evolution of sustainable retail business in any society.

3.10 SELF-ASSESSMENT QUESTIONS

1. Discuss the role and importance of FDI in operating retail business in India.
2. Explain the role of ONDC in promoting e-commerce in India.
44
3. List out and elaborate the external security measures that are required to protect Retail Environment
retail business.
4. Can retailers contribute to the sustainability of ecology? Substantiate.
5. An in-depth understanding of business environment related framework is essential
in operating a sustainable retail business in India. Discuss the above statement.

3.11 FURTHER READINGS

Retail Management: J.K. Nayak & Prakash. C. Dash Cengage Publications, 2018.
Retail Management : Swapna Pradhan McGraw Hill Publications 2019.

45
Introduction to Retail
Management

46
 Block-2
Retail Planning and Formats
BLOCK 2 RETAIL PLANNING AND
FORMATS
The role of planning function assumes paramount importance in every business. Proper
and meticulous planning of all the activities that the firm needs to consider in view
of accomplishing the goals of growth and development should be looked in a holistic
approach with a long term perspective.
The focus of this block is primarily on the systematic planning process of various
activities falling under the purview of the different functional areas of retail business.
And the range of retail formats both store and non store based on various criteria..
This block has four units.
Unit 4 : Focuses the strategic relevance of strategic planning process in retail business.
The steps in planning process and the influencing areas determining the strategic
planning process has been explained. Strategy development, diagnostic and
performance audit are also covered.
Unit 5 : Understanding the wheel of retailing theory and the phases involved m the
metamorphosis of a basic format culminating to most covet retail format. Besides
the various stages of retail life cycle has discussed and the theory of natural selection
is touched upon.
Unit 6 : The key focus of this unit lies in the ownership structures of retail organizations
which are classified as independent single/mom and pop store/ the kirana’s, the
corporate chains the leased departments, consumer cooperatives and a host of other
formats are discussed with their characteristics /features along with their merits and
caveats.
Unit 7 : This unit is an extension of Unit-6 where in the focus is on store and non-
store based retail formats. The various types of these formats operating in the Indian
context their characteristics /features specific to each of them are commented upon.
Retail Planning and
Formats

50
 Strategic Retail
UNIT 4 STRATEGIC RETAIL PLANNING Planning Process

PROCESS
Objectives
After reading this unit you should be able to:
 enlarge an understanding of the strategic planning process
 discuss how to identify the business and customer domains within which the
organization operates;
 understand how to identify and propose the road map for accomplishing the
organizational mission in retail management;
 highlight about the marketing, financial and societal objectives in the context
of retail business; and
 discuss an understanding of conducting a portfolio analysis to prepare a
strategic plan for continued organizational growth.
 explain the development , changes, and nature of retail market India
Structure
4.1 Introduction
4.2 Steps of the Strategic Planning Process
4.3 Importance of Cost-Effective Delivery Planning
4.4 Role of Values on Organizational Work Culture
4.5 Areas of Influence Determining Strategic Planning
4.6 Identifying Current Issues
4.7 Strategy Development
4.8 Strategic Problem –Solving Diagnostic Model
4.9 Performance Audit
4.10 Indian Retail Sector
4.11 Summary
4.12 Key Words
4.13 Self-Assessment Questions
4.14 Further Readings
4.15 Online Resources

4.1 INTRODUCTION
Strategic planning is the process by which an organization foresees its future and develops
the necessary procedures and operations to achieve its objectives.
The planning process can be viewed as an iterative flow of topics and action points,
wherein the results from one step serve as input to the next step. However, the process
is not necessarily always flow in one direction. 51
Retail Planning and Issues that arise in a particular step may cause the planning team to go back to an
Formats
earlier step to do some additional work. If desired, the order of the steps may be
altered to suit the particular needs of the planning team. The implementation step also
does not culminate in the planning process.
Analysis of results could lead to additional analysis or a change in strategic direction.
Also, it is recommended that the plan be reviewed on a periodic basis to verify that all
the underlying assumptions are valid and that the implementation is progressing as per
plan.

4.2 STEPS OF THE STRATEGIC PLANNING

PROCESS
It is important to understand that the process of strategic planning is time consuming.
The following are some of the issues that need to be addressed before starting a strategic
planning exercise:
1) Determining who are in the planning team?
2) What is the planning time schedule?
3) Where and how often will the planning team meet?
4) Who will do the research and business analysis?
5) How will information be given to other stakeholders
6) Is the CEO committed?
Further, in all organizational plans, the only difference is the approach. Prior to starting
a new strategic planning process, it is necessary to identify the earlier planning approach/
es that have been used in the organization and determine how the organization’s culture
may have been affected. Addressing these cultural issues is critical to the success of the
incumbent planning process.
The following are the four possible approaches to planning:
Reactive: This approach is past oriented; an active attempt to turn back the clock to
the past. There is often a desire to return to the “good old days.” People seek to undo
the change that has created the present, and they fear the future, which they attempt to
avoid.
Inactive: This approach is present oriented, an attempt to preserve the present, which
is preferable to both the past and the future. While the present may have problems it is
better than the past. The expectation is that things are as good as they are likely to get
and the future will only be worse. Any additional change is likely to be for the worse
and should therefore be avoided.
Pre-active: This approach is about envisioning the future, an attempt to envision the
future and then to plan for the same. Technological change is seen as the driving force
bringing about the future, which will be better than the present or the past. The planning
process seeks to position the organization to take advantage of the change that is
happening around them.
52
Pro-active: This approach is about creating the future, designing a desired future and Strategic Retail
Planning Process
then looking for ways to create the future state. Not only is the future a preferred state,
but the organization can actively control the outcome. Planners actively shape the future,
rather than just trying to get ahead of events outside of their control.
The predicted changes of the pre-active planner are seen not as absolute constraints,
but as obstacles that can be addressed and overcome.

4.3 IMPORTANCE OF COST-EFFECTIVE DELIVERY

PLANNING
As one would agree that all organizations big or small need some form of planning
processes. Often, the need for planning is even greater in a smaller company, where
the risk of being able to effectively respond to an ever-changing marketplace is limited
by internal capabilities.
The problem comes down to undertaking the planning in a cost-effective manner
especially in case of a company facing financial and human resource constraints.
To evaluate the level of resources needed to move the planning process forward, a
self-evaluation exercise needs to be undertaken to determine what is the level of internal
awareness about the planning process and whether it exists.
If an organization is serious about developing its ability to envision its future, there must
be a way to develop a critical mass of competent people in the required domain areas.
This requires an organizational awareness about its level of learning and the development
of a learning plan to move forward. Part of the learning plan is the identification of
available internal training resources and acquiring outside resources whenever needed.
Activity 1
Talk to a few of the operations managers of the prominent retail chains in your city/
town and understand as to how they go about with the strategic planning process
pertaining to their business.
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4.4 ROLE OF VALUES ON ORGANIZATIONAL

WORK CULTURE
The importance of values is integral to the organizational work culture. The personal
values of the members of planning team should be to empathize with each other.
Further, the values of Organization should be developed by answering the following:
 What is important to us; profit or growth?
53
Retail Planning and  To what extent is the organization aspires to be a value-driven one
Formats
 Importance of being a good “corporate citizen”
 Importance of being a “good” place to work
This has to be aligned with the company’s operating philosophy with respect to:
 How work is done
 How conflict is managed
 What accounting procedures are in place?
Thus, the company’s philosophy has an impact on other stakeholders who may start
questioning the underlying validity and relevance of assumptions for the future.
Internal Organizational Work Culture
Numerous internal, cultural factors determine the approach an organization takes to
the planning process and how the resulting plan will be implemented across the
organization.
Some of the questions that may come up are as follows:
a. Is the organization willing to seriously engage itself in the strategic planning
process?
b. Is the organization ready to confront itself in the performance audit and gap
analysis phases?
c. What are the assumptions about the corporate mission?
d. What are the assumptions about communicating the strategic plan?
The Two Models of Work Culture
Two models of organizational work culture that can be adapted by retailers are described
below. One business operating style is not necessarily better than the other. Each style
has its advantages and disadvantages and can only be judged within the particular
circumstances faced by the organization.
The models are:
 Interpersonal Interaction Model of Work Culture
 Risk and feedback Model of Work Culture
Interpersonal, Interaction Model or Work Culture
This model is based on the following:
Power Culture: Strong leaders are required to allocate resources. Leaders are firm,
but fair and generous to loyal followers. If badly managed there is rule by fear, abuse of
power for personal gain, and political intrigue.
Achievement Culture: Rewards results, not unproductive efforts. Work teams are
self-directed. Rules and structure serve the system, not an end by themselves. A possible
downside is sustaining energy and enthusiasm over time.
54
Support Culture: Employee is valued as individual, as well as a worker. Employee Strategic Retail
Planning Process
harmony is important. Weakness is a possible internal commitment without an external
task focus.
Role Culture: Rule of the law with clear responsibility and reward system. Provides
stability, justice, and efficiency. Weakness is impersonal operating procedures and a
stifling of creativity and innovation.
Risk & Feedback Model of Work Culture
This model is based on the following:
Macho, Tough-guy Culture: High risks, quick feedback of results. (Advertising,
entertainment)
Work-hard & Play-hard Culture: Few risks, quick feedback. (Sales driven)
Bet-the-Company Culture: High risk, slow feedback. (Aerospace)
Process Culture: Little to no feedback. Concentration is on “how” work is done.
(Highly regulated, government)
Understanding Culture: Interactive questions to ask
 Who sets the style and pace?
 What kinds of Role Model are there?
 “Do as we do” or “Do as we say?”
 What behavior is rewarded, condemned or ignored?
 Is feedback constant, intermittent, at job completion, or never?
 Are improper or unethical practices condoned through silence?
 What information is shared? (Needed vs. desired information)
 Is upward information flow constrained? (Do you really know?)
 How is superior performance encouraged?
 What type of performance appraisal system is used?
 How are the best qualified people recruited?
 Is training and development offered to everyone’?
 Are values backed up by time and money?
What is the relative importance of
 Bottom line results?
 Saving face?
 Power building?
Activity 2
Make a visit to some of the departmental stores and observe the interaction of the staff
with customers. Try and identify the type of organizational culture that is prevalent and
suggest the type of culture they ought to practice. 55
Retail Planning and ...............................................................................................................................
Formats
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4.5 AREAS OF INFLUENCE DETERMINING

STRATEGIC PLANNING
The strategic plan impacts, both external and internal stakeholders of the organization
in varying degrees. These must be recognized during various planning phases.
Some of the possible stakeholders are:
 End Consumers, Key Customer groups, if not direct to end consumer
 Distributors
 Product transporters, Intermediaries, storage service providers
 Employees
 Internal sale force
 Other support personnel for outside relationships
 Contractors (not really employees, but still impacted)
 Board of Directors
 Financial community
 lenders (long & short term)
 Interest groups
 Community (local residents)
 Environmentalists, social advocates
 Industry trade groups
 Public organizations
 Governmental (specify)
 Media, non-profit (local, regional, national, world)
Activity 3
Make an attempt to visit two/three retail chains in your location, interact with the
marketing/customer relationship managers to try and find out the areas that affect the
strategic planning process of their store.
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56 ...............................................................................................................................
............................................................................................................................... Strategic Retail
Planning Process
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4.6 SITUATION ANALYSIS - IDENTIFYING

CURRENT ISSUES
Situation analysis is the process of determining the state of an organization’s business
for identifying gaps and taking corrective actions.
Some of the business tools that can be used for situational analysis are as follows:
 Environmental Modeling - External
 Competition Analysis
 Knowledge Analysis
 Environmental Modeling - External
Environmental Modeling- External
The tools help us to perform a Macro analysis of the following factors that may affect
the retailer’s business dynamics.
1. Raising prices, consumerism, employee attitudes toward work, national &
world economy, technological developments.
2. Industry - Structure, marketing strategies, financing, governmental regulation,
products.
Competitive Analysis - market segmentation, competitor profiles.
This tool helps us to answer the following questions about competitors.
1 Does anyone provide substitute goods or services to the same market?
2 Do we have an early warning system to detect competitor’s strategies?
3 Can we create a sustainable differentiation through building internal capabilities
across the following?
 cost efficiencies
 maximizing return on capital employed
 reducing product sourcing cost.
 reduce expenses in marketing, administration.
This tool helps us to understand competition and search for opportunities. But it tells us
that do not let them dictate your actions as by reacting to the actions of others; you are
moving away from the ability to create your own future.
Example: Wal-Mart managed to become a retailing behemoth that is able to bargain
the price of products sourced from established manufacturing brands like P&G, Coke,
and Heinz etc. It has in turn passed on the cost efficiencies attained in sourcing to the
end consumer.
57
Retail Planning and Knowledge Analysis
Formats
The tool is used to determine the level of knowledge currently existing in the organizational
process. There are two types of knowledge, namely explicit knowledge and tacit
knowledge. Explicit knowledge can be defined by any of the following terms:

Data
Descriptions Contribution to efficiency
Policies Leading to competence
Procedures Easy to replicate by others
Processes

Tacit Knowledge is hidden and not easily seen or recognized as being important. It
drives competitive advantage.
Personal Knowledge Hard to articulate
Experience Hard to transfer
Know How Hard to copy elsewhere
Know Why High competitive advantage
Example: Wal-Mart runs one of the largest knowledge management systems that
make available sales patterns across its 200mm SKUs which it uses to decide its every
day merchandising mix and obtain competitive bargains from its numerous suppliers.
Activity 4
Visit one of the departmental stores in your neighborhood, talk to the store manager/
marketing manager and prepare a roadmap about how they would go about performing
the environmental scanning, competitive and knowledge analysis.
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4.7 STRATEGY DEVELOPMENT

Before we proceed to describe the strategy development phase of planning, we need
to formulate the mission statement which should include the following:
 Why do we exist?
 What goods and services are we offering?
 For Whom - market segmentation (geographic, social, financial, ethnic) are
we catering to?

58  How do we achieve the market strategy?

  What are the present and future possibilities? Strategic Retail
Planning Process
 What are our distinctive competencies/critical success factors?
Strategy development task is essentially a two-step process: Firstly, identifying strategic
thrusts and secondly determining what culture is required to support the chosen
strategy (s).
The basic strategy will fall into one of three focuses:
 Operational excellence - low price, efficient customer service
 Product leadership - product excellence and innovation
 Customer intimacy - emphasis on customer relationships within a specific
segment.
This trickles down to defining the organizational strategy. Further, most strategies are a
result of deliberate planning process or they may emerge as the result of a set of
incremental decisions.
Most realized strategies are the result of a combination of purely deliberate and purely
emergent strategies.
A brief description of these two types of strategies follows:
Deliberate Strategy: This process starts with an analysis of a company’s current
mission and strategies. The most popular tool used in this process is the SWOT
(Strengths, weaknesses, opportunities, threats) model. The external environment in
terms of opportunities and threats is analyzed by examining threats to the company’s
current position and new opportunities (new customers, new applications, unfulfilled
customer’s needs, etc.).
The analysis proceeds by examining the company’s internal environment in terms of its
strengths and weakness. A mission and competitive strategy is formulated that matches
opportunities with strengths and plans are made to strengthen areas of weakness.
The next step is to develop functional strategies that support the overall business
level competitive strategy. Marketing, Human Resource, Financial, Operations,
Information Systems, and R & D strategies are developed that support the business
unit strategy.
Finally, a control system (organizational structure) is designed to ensure that operational
decisions are made consistent with the business and functional strategies. When every
day decisions do not conform to the business and functional strategies, the Intended
strategy becomes an unrealized strategy.
Emergent Strategy: Emergent Strategies are the result of incremental decision making
that achieve some degree of consistency over time and launch the organization towards
a direction. When decisions are taken or problems are solved, they have potential
strategic impact.
As per the political model of decision-making, decision-making is, by nature, a political
process with various claimants attempting to influence each decision. When there is a
strong control system (powerful hierarchy) that ensures that decision makers satisfy
managerial constraints, intended strategies tend to become realized. 59
Retail Planning and However, when other influences are stronger, or there is no clear direction, decisions
Formats
are made without regard to intended strategy and the organization takes on direction
that is a result of the combined effect of these incremental decisions.
The execution of strategy happens across the corporate-level, business-level and
functional-level.
Corporate Level Strategy: This involves answering questions like: In which particular
retail segment businesses should we be operating? What is the purpose of each of
these businesses?
The following are some strategies that can be considered by the corporate level
team:
Integration
Forward Integration: Gaining ownership or control over distributors or retailers.
Backward Integration: Seeking ownership or control of suppliers.
Horizontal Integration: Seeking ownership or control over competitors.
Diversification
Concentric: Adding new or related product lines
Conglomerate: Adding new, but unrelated product lines
Joint Venture: Two or more sponsoring firms forming a separate organization for
cooperative purposes
Some of the other strategies that can be considered are as follows:
Market Penetration: Seeking increased market share for present products through
enhanced marketing efforts.
Market Development: Introducing present products in new markets.
Product Development: Seeking increased sales by improving present products.
Retrenchment: Regrouping businesses through cost and asset reduction to reverse
declining sales and profits.
Divestiture: Selling a division or part of business.
Liquidation: Selling off tangible assets, in parts for their tangible worth.
The following are the generic strategies that can be evaluated by the Business-level
team:
Business Level Strategy: This involves answering questions like: How should we
compete in our chosen categories/formats? Business strategies involve determining the
basis of customer or client decision making. Generally, they are based on some
combination of quality, service, cost, time, and quality of the experience.
Cost Leadership Strategies: With this strategy a firm competes on price. Various
functional strategies all emphasize cost reduction. This is an effective strategy when the
market is comprised of many price-sensitive buyers, when there are few ways to achieve
product differentiation, when buyers do not care much about differences from brand-
60
to-brand example: (Coke vs. Pepsi), or when there are a large number of buyers with Strategic Retail
Planning Process
significant bargaining power.
Some risks (potential threats) of pursuing this strategy are that competitors may imitate
the strategy, thus driving overall industry profits down, technological breakthrough in
the industry by other firms, or buyer interest may swing to other differentiating feature
besides price.
Example: Firms know for this strategy is Wal-Mart, McDonald’s which they have
deployed in all the major markets where they operate.
Differentiation Strategies: Differentiation strategies rely on some basis of product
differentiation such as flexibility, specific features, service, time and availability, low
maintenance, etc. as the basis for competition. Product development and market
research are generally necessary components of a differentiation strategy.
Generally, a successful differentiation strategy allows a firm to charge premium price
for its product. Organizations need strong R & D departments with strong coordination
between R & D and marketing departments.
Also, Human Resource strategies must place emphasis maintaining a competitive skill
base and motivating employees towards the basis for differentiation. Common risks
(potential threats) include; there may not exist the necessary price/feature trade-off
among customers to justify higher prices, development of a copy of the differentiating
features with cost-effective R & D.
Focus or Niche Strategies: A successful focus strategy depends upon an industry
segment that is of sufficient size, has good growth potential, and it not crucial to the
success of other major competitors.
Focus strategies are pursued in limited markets in conjunction with cost leadership and
or differentiation strategies. Focus strategies are the most effective when consumers
have distinctive preferences or requirements and when rivals are not attempting to
specialize in the same target segment. Risks of pursuing a focus strategy include the
possibility that numerous competitors recognize the successful focus strategy and copy
the strategy, or that consumer preferences drift towards those of the market as a whole.
Customer groups, geographic areas, and specific product lines are some bases of
focus strategies. Multiple strategies and combinations of the above competitive
strategies.
Functional Strategies: These strategies help in addressing questions like how do
organizational functional units contribute to the business level strategies? How can
functional strategies be integrated to achieve competitive advantage? They constitute
the following strategies:
Marketing Strategies: How do we communicate our strengths to the customer?
How do we identify customer requirements and changes in customer requirements?
Human Resource Strategies: How do we recruit, train, develop, motivate,
compensate, and place employees so that behavior is directed toward the competitive
strategy and works to build competitive advantage?
Financial Strategies: How do we secure financial resources necessary to carry our
competitive strategy?
61
Retail Planning and Operations Strategies: How do we design our processes to produce products and/
Formats
or service that meet customer requirements as specified in our strategy?
Information System Strategies: How do we provide decision makers, at all levels,
with information necessary to make decisions consistent with strategy?
Technological (R & D) Strategies: How do we develop products consistent with
customer requirements as specified in strategy?
Further, in addition to supporting competitive strategy through the development of the
functional strategies, functional specialists also provide tools and information used in
the development of strategy.
Activity 5
Assuming that you have been given the mandate for determining the role-play of the
board, top management-level, middle-management level teams for upcoming “home
appliances’’ retail venture. Elaborate on the role of each in evaluating and executing the
relevant strategy (you may undertake this activity after meeting a couple of HR managers
of prominent retail firms in your location/city/town?
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Changes in the Strategic Planning Process

Over the years, approaches to the planning paradigm have changed significantly. Listed
below are two of these trends; planning as an event versus continuous process.
Traditional models of planning consisted of a specific planning cycle with data every
couple of years.
The intervening years were periods of strategy implementation. Current thinking views
strategy development as a continuous process where systems are put in place to
continually monitor the environment and make changes and improvements on an ongoing
basis.
A move from transactional approaches to strategy implementation to transformational
approaches often referred to as empowerment or employee participation, a process
of employee involvement in the planning process which attempt to build commitment
to the mission and strategy is replacing transactional processes.
Transactional processes are typified by planning departments and top management (or
consultant) developed plans which are implemented through a reward-based control
system.
Further, transactional processes tap instrumental sources of employee, while
transformational processes are based on internal and external self-concept, and goal
identification bases of employee motivation.
62
 Strategic Retail
4.8 STRATEGIC PROBLEM-SOLVING Planning Process

DIAGNOSTIC MODEL
Strategic Diagnostic Model
This is a simple diagnostic approach to diagnose the level at which the problem’s
causes exist. For example; a declining sales revenue, market share and stymied growth
can be caused by fundamental issues with the target domain of the company (markets
and products) down to a firm’s inability to implement operational plans.
The model is a basic description of the levels of organizational analysis need to be
done which has been illustrated using the following flow chart:

63
Retail Planning and
Formats

Mission (Domain): Who are customers and what function(s) do we perform

Opportunities Core Competencies SWOT Analysis Market Research Techniques
Demographic Trends, Economic Forecasts Political Analysis.
Competitive (Business Level) Strategy: On What basis do we compete? Price
Quality Service Time/Availability Basis of customer product decision making
Competitive Advantage Market Research Techniques.
Functional Strategies: Comprising of Marketing Strategy, Human Resource Strategy,
Financial Strategy, Operations Strategy Information Strategy, and Technology (R&D)
Strategy – as described earlier.
Operations Strategy: How do we design our processes to produce products and/or
service that meet customer requirements as specified in our strategy?
Information Strategy: How do we provide decision makers, at all levels, with
64 information necessary to make decisions consistent with strategy?
Technology (R&D) Strategy: How do we develop products and services consistent Strategic Retail
Planning Process
with customer requirements as specified in strategy?

4.9 PERFORMANCE AUDIT

It is essential for one to understand the role of performance audit. It is critical to reviewing
and correcting the strategic plan course.
Performance management is the process of determining the health of the organization
in terms of gauging the “soft” systems and “hard” systems put in place.
A performance audit may start of asking the following generic questions like:
 Which lines of business are most successful? Which are doing poorly? Are
our tacking systems adequate?
 What are my organization’s - strengths & weaknesses
 What are the key factors that influence my company’s performance
 What are the outside - Opportunities & Threats
Some of the key factors that Influence a company’s performance are as follows:
 The ability of management (all levels) to cope with change.
 The nature and effectiveness of the processes used to arrive at major decisions
to bring about change.
 The efficiency of the mechanisms utilized to implement management decisions.
 The internal methods employed to determine and track valid objectives.
 The effectiveness of the way information is communicated within the company.
 The quality of the personnel and attention to recruiting and selecting the proper
quality and adding to their abilities with further training.
 Is risk management system in place to assess/uncover hidden business dangers?
Some other aspects that are likely to affect the performance of a business are as
follows:
Historical Financial Statements
Financial statements show past results. They reflect the momentum of previous decisions
and cannot be viewed in isolation without consideration of inter-period changes and
why the change is taking place. Financial reports also do not reflect information that
may not have been known when the earlier decisions were made.
To what extent have past assumptions changed?
What are the potential impacts in the future?
What adjustments should be made when making decisions today?
Remember: Financial accounting is different from managerial accounting. Financial
accounting’s objective is to record past actions within GAAP (Generally Accepted
Accounting Procedures). Managerial accounting converts company data to a form 65
Retail Planning and needed for current decision making. If you use outside accounting or auditing services
Formats
you will likely be getting only “financial” accounting when you need both.
Reorganizations
Changing assignments will not correct the problems unless the underlying issues are
adequately identified and fully addressed.
Further, not knowing about a problem does not mean it doesn’t exist. Ignoring issues
until they become obvious in the financial statements will mean that the problem has
grown to full maturity and will likely be reproducing additional “little problems” as the
organization tries to cope.
Let us remember: when everything is looking the best that is the time to pause and
search for hidden problems.
Personnel Orientation
Being “people oriented” does not mean that you can’t look beyond the person and
concentrate on the situation. Concentrating on personnel is often a problem in small
companies where employees are relatives that may be handling business functions
based on their availability, not because of knowledge or experience. But this personnel
orientation is not limited to family businesses.
A retailer needs to answer the following questions:
 What criteria are used when choosing individuals for assignments?
 Are there differences between the ways different people are evaluated?
 To what extent is the “personal relations” contribute to the situation?
 What approach is taken toward problem identification and resolution?
Some of the commonly used performance management frameworks are:
 Gap Analysis
 Balanced Score Card
 Value-Chain Analysis
Gap Analysis: This is basically a reality test which may lead to compromise on both
ends, scaling of vision back or work to bridge the gap. Further, it may be impossible to
close all gaps simultaneously which calls for prioritizing efforts for implementation
provided the entire organization agrees to the full plan. It demands tracking and course
correction.
Balanced Scorecard: The balanced scorecard concept has gained popularity as a
method of implementing and tracking business strategy, with built-in measurements to
track progress.
Balanced scorecard is the analysis of the cause and effect of business processes needed
to successfully implement business strategy.
Perhaps, where the balanced scorecard has gone beyond past implementation processes
is the emphasis on factors other than the financial, hence the term “balanced.” As such
there is more emphasis on leading indicators of future performance along with the
66 tracking of past performance, which are often stated in financial terms.
The framework lays stress on the following drivers of business success: Strategic Retail
Planning Process
1. Financial objectives and measurements
2. Customer orientation
3. Internal processes
4. Learning and capability growth
Value-Chain Analysis: This framework lays stress on the following drivers of business
success:
1) Understand the customer
2) Define the offering
3) Manage the offering
4) Channel management
5) Identify & obtain locations
6) Develop marketing facility
7) Operate
8) Decide the exit Strategy
Thus value-chain analysis uses a drill-down process in establishing cause & effect
linkages that drive performance by focusing on the following three variables:
1. Objective
2. Strategy
3. Measures

4.10 INDIAN RETAIL SECTOR

As one looks at the retail landscape of the most cities in India, one notices a rapid pace
of change which in turn is a reflection of the changes of choices, preferences, tastes
and lifestyle of Indian consumer. New retail formats have emerged in the Indian
marketplace overtime. Undoubtedly, Indian retail sector is poised for exciting times
ahead.
The genesis of retail can be traced to barter trade. Many formats have evolved in
previous millennium that has been influenced by socio-economic development of the
era. Indian retail sector has evolved to cater to unique needs of our country since
independence. Changes in lifestyles, family structures, living spaces, aspirations and
rising income levels have given rise to emergence of a large number of formats at a
rapid pace. The growth of malls and launching of specialized malls like DLF Emporia
saw advent of global luxury brands like Cartier, Gucci, Louis Vuitton and Dio etc. in
India.
Retail in India is highly fragmented and the Retail sector is in its nascent stage and
mostly unorganized. However, the sector has seen number of mergers and acquisitions
leading to market consolidation. 67
Retail Planning and A key element of Indian retail is the models that are termed as traditional retail. These
Formats
include mandis, haats, melas and local kirana stores. The growth of smart phones and
increased internet penetration has played a key role in growth of e-commerce and the
e-retail. The key factor driving the growth in the retail sector is policy reforms ushered
in by the government. The growth of urbanization and rising middle class has also
significantly contributed to the growth. Technology has also been a key driver. Other
factors responsible for growth in the sector include occupational changes, rise of social
media and spending patterns of the consumers.

4.11 SUMMARY
The unit emphasizes the role and relevance of strategic planning in shaping the
organization’s future course backed by a vision and mission that is understood by all
concerned.
The importance of creating an open culture of trust, empathy, shared values is discussed.
Various factors that influence strategic planning and how modeling these issues can
help in determining the future course of action are described.
Further, various strategy evaluation options available to retailers and the course of
strategy development using certain diagnostic models have been discussed
The unit includes discussion on the role of performance management describing a few
generic models commonly used like Gap analysis, Balanced Score Card etc. It
concludes with description of Indian retail scenario.

4.12 KEY WORDS

Competitive Advantage: The ability to transform a distinctive competence into a
product of service outcome (lower price, better quality, better service, quicker response
time, etc.) that makes your product or service more attractive to the customer than
your competitors’ product or service. A sustainable competitive advantage is not easy
for your competitors to duplicate or mimic in the short run.
Core Competency/Distinctive Competence: Special capacities, skills, technologies
or resources that enable a company to distinguish itself from its competitors and create
a competitive advantage.
Hard Systems: In organizational parlance they constitute the strategy, operations,
marketing, intellectual property etc.
Mission: Mission is a set of statements that define the exchange relationship between
the organization and its stakeholders or claimants. More specifically a mission defines
the population served and the function it fulfills or the need it satisfies for that claimant.
Opportunity: A group of potential customers whose needs are not being satisfied
adequately. A White Space Opportunity exists when there is no other organization
attempting to satisfy this need.
Soft Systems: In organizational parlance they constitute the systems, processes,
reporting system, reward and appraisal systems in place.
Stakeholders: Organizational stakeholders include Shareholder, Customers/ Clients,
68
Employees, Public at Large (communities, regulatory groups, interest groups, etc.), Strategic Retail
Planning Process
and Suppliers.

4.13 SELF-ASSESSMENT QUESTIONS

1. Discuss characteristics of a strategic plan. Describe its purpose?
2. What are the elements of a strategic planning process? Explain in detail their
significance?
3. Compare and contrast between the concentric diversification, horizontal
diversification, and conglomerate diversification?
4. Identify and briefly describe the factors to be considered in developing an
organizational mission statement?
5. What do you understand by performance management? Explain the three
performance management frameworks?

4.14 REFERENCES/FURTHER READINGS

Berman B, Evans JR, Chatterjee P, ‘Retail Management A Strategic perspective, 13th
edition, 2017, Perason India (P) Ltd., New Delhi
Chetan Bajaj, Rajnish Tuli, Nidhi V Srivastava, ‘Retail Management’, Oxford University
Press
Dale M. Lewison, ‘Retailing 6th edition-Prentice Hall
Lamba A. J., ‘The art of Retailing’, Tata McGraw-Hill Publishing
Michael L, Barton A W, Retailing Management, 5th edition, 2004, Tata McGraw Hill
Publishing company Ltd, New Delhi
Pradhan Swapna, Retailing Management: Text and Cases, 6th Edition, 2020, McGraw
Hill ducation (India) Pvt Ltd, Chennai.
Sheikh A., Fatima K, Retail Management, 2022, Himalaya Publishing House, New
Delhi

4.15 ONLINE RESOURCES

1. Retail Strategy Planning Proces, [Link]
DtdvE[Link]
2. The Strategic Retail Planning Process, [Link]
watch?v=U3te3O_O9Qw
3. The Cognitive Retailer: Smart retail planning, [Link]
watch?v=sGob8U8Ol-I
4. Retail Strategy Big data Revolution, [Link]
watch?v=JfWyzGIQcM0

69
Retail Planning and
Formats UNIT 5 MODEL OF RETAILING
Objectives
After reading this unit you should be able to:
 comprehend the diverse theories of retailing.
 understand the phases of the wheel of retailing theory.
 grasp the idea of scrambled merchandising.
 investigate the stages in the life cycle of retail theory.
 acquainted with the dialectic process theory.
 grasp the concept of the natural selection theory.
Structure
5.1 Introduction: An Overview
5.2 Wheel of Retailing Theory
5.3 Scrambled Merchandising
5.4 Stages in Retail Life Cycle
5.5 Dialectic Process Theory
5.6 Theory of Natural Selection
5.7 Summary
5.8 Self- Assessment Questions
5.9 Further Readings

5.1 INTRODUCTION: AN OVERVIEW

The retail industry has undergone a significant transformation due to changes in consumer
buying behaviours. Customers view their purchases from high-end retailers as a reflection
of their personal identity. Retailers can be grouped based on factors such as store
locations, operations, products and services, pricing, and marketing strategies.
Consumers now have diverse purchasing methods, so retailers must adapt their strategies
accordingly. The retail industry has become highly competitive, making it challenging
for retailers to survive and grow. To succeed, retailers must strive to create a unique
and competitive edge in the market.
A retailer nowadays must aim to be dominating or position uniquely in some way if they
are to succeed. Once the business has achieved destination retailer status, customers
may become devoted to it and go out of their way to shop there because they perceive
the business as unique. We often equate “dominant” with “having a significant geographic
footprint.” However, both small and large shops have the potential to have a significant
impact on consumers’ decisions by controlling those made based on the amount of
time, money, or status invested. There are a variety of ways to be a destination retailer,
as discussed in this unit, and fusing two or more of these strategies can increase a
retailer’s appeal even further:
70
  Attract price-conscious customers by being budget-friendly and emphasizing Models of Retailing
affordability.
 Appeal to status-conscious, full-service customers by offering upscale products
and services.
 Target customers who value convenience by offering practical shopping options,
such as local locations or extended hours.
 Attract customers by offering a wide variety of products and an exceptional
shopping experience.
 Address customers’ dissatisfaction with poor retail service by providing
outstanding customer service.
 Stand out from competitors by implementing innovative and unique business
strategies and identifying market opportunities for new products and
services.
Numerous theories exist to explain the current organization of the retail sector and
foretell the future growth of both existing and new retail forms. This unit discusses the
wheel of retailing theory, scrambled merchandise theory, retail lifecycle theory, dialectic
process theory, and the theory of natural selection. However, the retail lifecycle and
the wheel of retailing are two significant theories in this arena.

5.2 WHEEL OF RETAILING THEORY

A well-known concept for analyzing changes in retail institutions is the wheel of retailing.
McNair first proposed this theory in 1931, and Hollander later made changes to
[Link] focused on how retailing has changed, explaining that a retail business begins
by offering low prices, basic product characteristics, and minimum services at a small
profit margin. Then it gradually develops into a brand that provides a broad choice of
goods, high-priced, superior services, and several other amenities at a huge profit
margin. It is predicted on the idea that consumers who are price-sensitive are not
store-loyal, and therefore new shops will be better able to implement lower operating
expenses than existing ones.
This theory suggests that retail establishments have cycles as they grow (refer to Fig.
1). When low-end merchants improve their tactics to boost sales and profit margins,
new types of low-price (discount) retailers begin to emerge in the market.
The wheel of retailing theory also states that retail innovators frequently start out as
low-cost operators with minimal profit margin requirements. Prices increase when
entrepreneurs add higher-quality items, move into more expensive locations, offer credit
and delivery services, and make other improvements to their facilities and customer
service over time. The retailing wheel is brought on by the fact that as innovators get
older, they are more open to competition from new discounters offering lower prices.
Retail innovators frequently pose as low-cost vendors.
When new competitors enter the market, institutional changes take place, as described
by the retailing wheel. As the retail establishments start the cycle by offering low pricing
and subpar services, the upgrade happens next. Retailers who want to grow their
business and draw in more clients can increase the volume and quality of the goods
71
Retail Planning and they handle, offer more services, and open stores in more accessible areas. A new
Formats
competitor could enter the market using low-priced techniques as a result of the rise in
operating costs and pricing.
The wheel is based on the following four ideas:
(1) Many consumers who are price conscious may sacrifice good customer
service, a large assortment, and convenient locations in favor of reduced
costs.
(2) Customers who are price-sensitive are often disloyal and will try to switch
stores that offer lower prices. Customers who value prestige, on the other
hand, prefer to shop at establishments that employ upscale practices.
(3) Operating costs for new institutions are often lower than for established
ones.
(4) Retailers often move up the wheel to boost sales, expand their target market,
and enhance their reputation.
For instance, the full-line discount store (headed by Walmart) grew because typical
department store prices became too exorbitant for many customers. Due to cost-
cutting measures such as a tiny sales team, low-rent store sites, the use of cheap fixtures,
an emphasis on high stock turnover, and only accepting cash or checks as payment for
items, the full-line discount store placed a premium on low prices. After that, as full-line
discount retailers gained success, they frequently tried to advance a little further down
the wheel. This required expanding the sales team, renovating sites and furnishings,
stocking a wider variety of goods, and taking credit. Higher expenses as a result of
these enhancements resulted in marginally higher prices. Newer discounters, like off-
price chains, flea markets, and factory outlets, expanded to meet the demands of the
most price-conscious consumer, putting the wheel of retailing back into motion. Discount
online retailers have emerged more recently, some of which offer extremely low prices
due to the lack of “brick-and-mortar” infrastructure.
The wheel of retailing offers three fundamental strategic positions: low end, medium
end, and high end (refer to Figure 5.1).Retailers who adopts a medium strategy may
face challenges if they are not perceived as unique or differentiated from their competitors.
This can be particularly problematic in mature formats such as department stores.
Competitors at the higher and lower ends can take market share away from a middle-
of-the-road retailer. It’s merchandising strategy of offering a wide range of mid-priced
goods and services, and failure to adapt to changes in the department store market
(such as the emergence of low-end and high-end stores) is putting its survival as a
retailer at risk. Figure 1 illustrates the contrasting options to take into account when
developing a strategy mix.
According to the retailing wheel, established businesses should proceed with caution
when introducing new services or shifting from a low-end to a high-end approach.
Price-conscious customers are not often loyal; therefore, they are more likely to switch
to companies with lower prices. The competitive advantages that previously drove
profitability may also be eliminated by retailers at that point. The retailing process
initially consists of a three-part cycle. Each stage is outlined and explained in the following
section.
72
 Models of Retailing

Source: (Berman et al., 2017)

Figure 5.1: Wheel of Retailing

First Phase: Entry

This stage demonstrates how new types of shops enter the market as operators offering
basic commodities in low-status, low-rent sites with minimal margins.
Second Phase: Trade-up
As shops experience success, they upgrade their locations, increase their service
offerings, and infuse ambiance into their product lines.
Third Phase: Vulnerability
Low adaptability and a high-cost structure characterize this phase. The same pattern is
followed by new sorts of low-cost, low-margin retail competitors, making existing
businesses susceptible.
This idea considers environmental changes that are taking place. Management becomes
unable to respond to risks to the company if it diverges from market realities. At first,
McDonald’s only provided a limited menu and services. However, as time went on, it
began to offer sporting facilities as well. It paved the way for other new, inexpensive
fast-food businesses to launch in order to close the gap left by McDonald’s upward
progress.
Similar to this, full-line discount stores (like Wal-Mart) emerged as a solution when
traditional department stores were inaccessible due to high pricing for a sizable portion
of the population wanting more value. As a result of a similar atmosphere, Big Bazaar
in India developed as a bargain retailer to serve price-sensitive Indian customers.
Activity 1
Make a visit to six retail outlets in your location name them and with the knowledge of
wheel of retailing ascertain the strategy under which they fall.
...............................................................................................................................
...............................................................................................................................
............................................................................................................................... 73
Retail Planning and ...............................................................................................................................
Formats
...............................................................................................................................

5.3 SCRAMBLED MERCHANDISING

While the wheel of retailing concentrates on product value, ultimate price, and customer
satisfaction, scrambled merchandising entails a merchant broadening its product and
service offerings (the number of different product lines carried). When a merchant
adds products and services that are not related to the company’s core competencies,
this is known as scrambled merchandising.
Retailers frequently add highly profitable goods and services in an effort to boost overall
sales and make them fast-selling. Additionally, consumers buy more on impulse, prefer
one-stop shopping, can reach numerous target audiences, and are less affected by
seasonality and rivalry. In addition, a retailer may find it difficult to maintain and expand
its consumer base as its original product line(s) lose popularity. Starbucks, for instance,
now faces stiffer competition in the coffee market from restaurants like McDonald’s,
Dunkin’ Donuts, and others that have upgraded their offerings, despite the fact that its
in-store coffee sales are still strong. In addition to coffee, Starbucks also sells a wide
range of items, including pastries, salads, breakfast items, sandwiches, shakes, and
more.
Scrambled merchandising leads to increased competition among various types of
retailers, and as sales are spread out over more stores, distribution costs are impacted.
Other drawbacks to scrambled merchandising include the potential lack of retailer
expertise in purchasing, reselling, and providing services for unrelated items; the costs
of a wider selection; and the potential damage to a retailer’s reputation if scrambled
merchandising is unsuccessful.

(Source: [Link]
Figure 5.2: Scrambled Merchandising by a Shoe Store

For example (refer fig. 5.2), a shoe store may sell shoes, socks, shoe polish, sandals,
and slippers under original merchandising, but when it enters scrambled merchandising,
74 it may sell handbags, belts, gloves, sweaters, hats, umbrellas, scarves, and so on. As
the core objective of a shoe store deviates to unrelated products, this leads to competition Models of Retailing
for those original retailers selling handbags, belts, gloves, sweaters, hats, umbrellas,
scarves, etc.
Activity 2
Visit one each a men’s store, a consumer durable store and a dairy outlet in your
location and determine if they are dealing in their core competencies alone or have they
entered into unrelated product (merchandise) as well. If yes, then talk to the manager/
owner discreetly and elicit the reasons for offering scrambled merchandise.
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................

5.4 STAGES IN RETAIL LIFE CYCLE

A retail format goes through a series of recognizable stages known as the retail lifecycle
throughout its time. Figure 5.3 displays the retail life cycle and their stages.
According to the retail life cycle theory, retail establishment go through four distinct
stages of development: introduction (early growth), growth (rapid development),
maturity, and decline. This idea can be used to determine the direction and rate of
institutional changes.
Development stage
The new format is released to the market while it is still in the development stage. As at
least one component of the marketing mix is transformed in the new format, it differs
from the strategies of existing retail institutions.
Introduction Stage
During the introduction phase, sales and profitability are initially low but gradually
rising. As long-term success is not yet secured, costs and risks are high. In the
launch stage of the cycle, there is a marked shift away from the strategy combinations
of established retailers. The strategy mix of a company in this stage is significantly
different from that of traditional competitors in at least one aspect. For the first
companies in new industry, sales and earnings often experience a significant
[Link]-term success is still uncertain at this point. There is a possibility that
new businesses may not be well-received by consumers and early investments could
result in significant financial losses.
For example, a new retail concept, such as Amazon entering a new market, such as
India.
Growth Stage
The rapid growth of sales and revenues is a characteristic of the growth period. Markets
for existing businesses are expanded, while new competitors using the same retail
75
Retail Planning and model enter the market. By the end of this phase, growth has slowed, and costs have
Formats
begun to rise.
Both sales and profits expand quickly during the growth stage. Existing businesses
grow geographically, and new businesses of the same kind enter the market. Cost
pressures (to pay for a larger staff, a more complicated inventory system, and stringent
controls) may start to have an impact on profits at the conclusion of accelerated
development.
For example, A rapidly expanding retail chain, like the Chinese e-commerce giant
Alibaba, as it expands its reach, customer base shows an accelerated growth. Similarly,
Japanese casual wear designer and fast fashion retailer Uniqlo becoming more popular
is an example for its growth phase.
Maturity Stage
The maturity stage of the retail life cycle is characterized by slow sales growth.
While overall sales may still increase, they are rising at a significantly slower rate
than in earlier phases. To boost purchases, it may be necessary to lower profit
margins. The maturity stage is often caused by market saturation due to multiple
businesses in an institutional setting, competition from newer businesses, changing
societal priorities, and a lack of management skills to lead established or larger
[Link] maturity is attained, the objective is to maintain it for as long as
possible without declining.
For example, a well-established brand such as Walmart in US has a stable customer
base, market share and revenue. This brand is in its maturity phase of its retail
lifecycle.
Decline Stage
In the final stage, there is a decline; characterized by decreasing prices, profitability,
and sales volumes. Businesses may try to reposition their retail structure to avoid decline,
but many do so to retain existing customers or attract new ones.
During this phase, many businesses abandon their format, and create a new format to
attract customers who were previously loyal to that type of retailer. In certain situations;
a decline may be difficult or nearly impossible to turn around. In other cases, it may be
prevented or delayed by repositioning the business.
The life-cycle concept highlights the need for retailers to adapt as formats evolve. The
initial objective should be growth, followed by the building of management and
operational capabilities as the business matures and finally, flexibility at the end of the
cycle.
An example of a decline stage in retail can be seen with the decrease in popularity of
specialty stores due to competition from online retailers. Another instance is traditional
bookstores, which are experiencing a decline as electronic books become more
prevalent and meet consumers’ needs.

76
 Models of Retailing

Source: (Berman et al., 2017)

Figure 5.3: The lifecycle of Retail

Activity 3
Select a brand that is in the growth stage of its life cycle and examine this phase through
the lens of the Life Cycle theory. Assess its sales, revenue, and market share.
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................

5.5 DIALECTIC PROCESS THEORY

According to this theory, retail establishments change with time and take on novel
forms. This theory is also called the “melting pot” theory. Additionally, it implies that
new retail formats develop by incorporating traits of different types of merchants. Similar
to how a child’s DNA comes from two separate parents and may not perfectly match
either of them, this also occurs. The introduction of new retail formats maintains
consistency with those already in use. It provides a clear and logical framework for
comprehending the evolution of current retail forms. The evolution of the new retail

77
Retail Planning and establishment is comparable to that of synthesis, which results from the fusion of a
Formats
thesis (a notion or idea) and an anti-thesis (the opposite concept or idea).
One such instance is the birth of a new retail format called “electronic direct marketing”
as a result of the convergence of “traditional” (store-based) and “direct marketing”
(home-based).
The Dialectic Process Theory can also be demonstrated by the emergence of multi-
channel retail (refer fig. 5.4), which combines physical and online retail to offer a brick-
and-click business model. This is a result of the convergence of physical retail, which
has limited reach, and online retail, which has a wide reach.

(Source: [Link]
Figure 5.4: Dielectric Process in Retail

Activity 4
Try and talk to friends/ colleagues or use the internet sources/secondary data to find
out the evolution of new and novel retail establishment in the recent past in your location
or any other location you are familiar with. List them by their names and mention the
kind of retail formats before fusion and post fusion.
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................

5.6 THEORY OF NATURAL SELECTION

The progression of retail businesses from traditional stores to various types of retail
outlets was first examined by Dreesman using the Darwin Theory of Natural Selection.
It suggests that natural selection also occurs in the retail industry. Adapting to changes
in the environment is crucial for the survival of retail formats. Some recent developments
include,

78  Specialty retail formats for specific product categories such as baby clothing
 and toy stores have decreased as discount stores and category killers gained Models of Retailing
more market share.
 Traditional food retailers in India are facing competition from fast food chains
as lifestyles change.
 Traditional bookstores are facing competition from online booksellers such
as [Link] in the USA.
Traditional book merchants may feel challenged by organized retailing in India, which
is expanding at a rate of more than 30%. In order to lessen the danger posed by
internet-based merchants, several brick-and-mortar retailers are actually pursuing
numerous channels.
The retailing industry is always changing as a result of these changes in demand. Future
developments will further integrate the retail value chain. Now, retailers want to be in
charge of the supply chain, which is nothing but backward integration. Retailers of
clothing like Pantaloon and Koutons have established their own production facilities or
have signed exclusive agreements with their suppliers. Manufacturers and suppliers,
on the other hand, desire direct consumer contact in order to strengthen their brands
and boost profitability. This is called “forward integration.” Arvind Mills and Mudra
Coats, for instance, have established their own retail chains and brands. In general, we
can state that businesses that provide the most value have the best prospects of surviving
in the retail industry.
Home renovation and home furnishings retailers are doing well with the boom in housing
sector in India, as a result of demographic shifts like the migration of people from
urban centers to suburban areas, which led to the establishment of new shopping centers
to satisfy the demands of the new inhabitants.
Change is constant in the retail industry. Retailers need to understand the nature and
causes of the shifts in order to create effective solutions. A few changes include altered
shopping habits, shortened product life cycles, and others.
The retail industry is in a constant state of change, and one of the major factors driving
this change is consumer behaviour. In recent years, consumer purchasing habits have
shifted, and retailers must adapt to these changes in order to survive and thrive in the
industry.
One of the biggest changes in consumer behaviour is the shift towards online shopping.
With the rise of e-commerce, consumers are now able to purchase products and services
from the comfort of their own homes. As a result, retailers must now have a strong
online presence in order to remain competitive. This means not only having a website
but also utilizing social media and other digital marketing strategies to reach and engage
with customers.
Another change in consumer behaviour is the shift towards experience-based
purchasing. Consumers are now looking for more than just a product or service; they
want an experience. Retailers must now focus on creating an immersive and engaging
shopping experience for customers. This can include interactive displays, personalized
customer service, and events and activities in-store.
Consumers are also becoming increasingly conscious of sustainability and ethical issues.
They are looking for retailers that align with their values and are taking steps to minimize
79
Retail Planning and their environmental impact. Retailers must now take into account their own sustainability
Formats
practices and communicate these to customers in order to appeal to this growing market.
Additionally, consumers are also looking for convenience and flexibility in their shopping
experience. Retailers must now offer options such as click and collect, home delivery,
and extended hours to meet these demands.
In conclusion, the retail industry is constantly evolving with the changes in consumer
behaviour. Retailers must now focus on creating an immersive and engaging shopping
experience, having a strong online presence, being conscious of sustainability and ethical
issues, and offering convenience and flexibility in order to stay competitive in the market.
Those who fail to adapt to these changes may struggle to survive in the industry.
Due to the complexity of the retail sector, multiple theories can be used in the same
scenario at once. For instance, there may be more than one theory that applies to a
particular retailer

5.7 SUMMARY
The Wheel of Retailing theory states that retail development occurs in three phases:
Entry, Trade-Up, and Vulnerability. This theory focuses on factors such as product
value, price, and customer satisfaction. Scrambled merchandising refers to a retailer
expanding its product and service offerings outside of its core competencies. The Dialectic
Process Theory suggests that new retail formats emerge from the combination of existing
formats, such as the development of “electronic direct marketing” from the convergence
of traditional and direct marketing. The Theory of Natural Selection states that retailers
and retail formats must adapt to changes in the environment to succeed in the long
term.

5.8 SELF- ASSESSMENT QUESTIONS

1. Briefly explain, with examples, the four stages of the retail life cycle.
2. Discuss in detail the different phases involved in the wheel of retailing theory.
3. What is meant by scrambled merchandising, and how can it affect other stores?
4. A new type of discounter replaces a low-end store as it updates its strategy to
boost sales and profit margins. Explain
5. Using the retail life cycle theory, describe how retail strategy mixes performed.
6. Discuss a current retail system that is nearing the end of its life cycle..

5.9 REFERENCES/FURTHER READINGS

Berman, B., Evans, J. R., & Chatterjee, P. (2017). Retail Management: A Strategic
Approach. Pearson. [Link]
Madaan, K. V. S. (2009). Fundamentals of Retailing. McGraw-Hill Education (India)
Pvt Limited. [Link]
[Link]
80
[Link] Models of Retailing

[Link]
[Link]
[Link]
out-lose-steam-in-november-december/articleshow/[Link]
[Link]
small-towns-shifting-their-operations-online-coutloot/articleshow/[Link]
[Link]
report-healthy-growth-over-pre-pandemic-levels-rai-344869-2022-08-17
[Link]
Revamping-SCM-Strategies.a3627

81
Retail Planning and
Formats UNIT 6 BASED ON OWNERSHIP
Objectives
After reading this unit you should be able to:
 analyse the forms of retailers based on ownership as single store, chain stores,
leased stores and consumer cooperatives.
 understand the features, benefits, and limitation of different types of ownership
structure.
 know the features of franchising structure.
 examine the model of vertical marketing system.
 explore the concept of dealership-based ownership structure.
 understand appreciate the concept of network marketing structure.
Structure
6.1 An Introduction and Overview
6.2 Independent, Single Store Ownership Structure
6.3 Corporate Chain Store
6.4 Franchising
6.5 Leased Stores/Departments
6.6 Cooperatives for Consumers
6.7 Vertical Marketing System
6.8 Dealership
6.9 Network Marketing
6.10 Summary
6.11 Self- Assessment Questions
6.12 Further Readings
6.13 Online Resources/Links

6.1 AN INTRODUCTION AND OVERVIEW

A retailer’s value creation for consumers and market appropriation are described in
detail in its retail business model. In the retail industry, a business model would determine
the goods and/or services that the retailer would sell, as well as the pricing strategy he
would use. There are many distinct sorts of retail shops, and the lines dividing the large
range of retail firms have become noticeably blurred across the board.
Like any other sort of business, a retail store can be owned by various kinds of
companies. It could take the form of a sole proprietorship, a partnership business, a
corporate chain, a cooperative organization, a joint venture, or any other legally
permissible format.
Every business has its own way of planning the various tasks required to provide its
82 products or services to customers. The basic structure of a business is known as a
retail institution. When choosing an ownership model, defining the product or service Based on Ownership

category, setting goals, and establishing a company mission, institutional analysis plays
a crucial role in strategic planning. These analyses show the extent and diversity of
different types of retailing and emphasize the impact of the external environment on
various merchants. Retail companies can be owned independently, as part of a chain,
run by franchisees, located in leased spaces, owned by manufacturers or wholesalers,
or publicly owned.
This unit deals with the different forms retail businesses and the basics of their ownership
structures. The retail industry has developed a wide variety of ownership arrangements
over time. Depending on how well the approach is implemented, each ownership format
fills a specific market niche. The following structures are most widely used:
 Independent, single-store ownership structure: Independent stores take
advantage of a niche market of customers and treat them with friendliness and
informality. It’s crucial to communicate by word-of-mouth. These merchants
shouldn’t try to service an excessive number of consumers or engage in price
competition.
 Corporate chain stores: Chain stores profit from their well-known brands,
economies of scale, and opportunities for mass advertising. They should uphold
their reputation everywhere they do business and be willing to adjust as the
market requires.
 Franchising: Due to franchisee investments and the encouragement of
franchisees to become owner-operators, franchisors have a wide geographic
reach. They shouldn’t become hindered in policy disagreements with
franchisees or impose disproportionate royalty payments.
 Leased Stores and Departments: Leased departments give store owners
and outside parties the chance to collaborate and improve the shopping
experience while splitting costs and resources. They shouldn’t damage the
store’s reputation or put the lessee under undue pressure to increase foot
traffic.
 Vertical Marketing System: A vertically integrated channel allows a company
more control over the sources of supply, but it shouldn’t offer customers too
few options or retail locations.
 Consumer cooperatives: Due to shared ownership of a warehouse and
pooled purchasing, cooperatives provide members with cost savings. They
shouldn’t set unrealistic expectations for member participation or build facilities
that significantly increase prices.
 Dealership: The system functions as a hybrid of a franchise and an
independent store, and the licensor is not entitled to any royalties or fees.
 Network marketing: This is a retail business concept where a person makes
a commission by selling the company’s goods to friends, family members, and
other customers.
 Each of the types of ownership structures above is discussed in detail in the
subsequent sections.
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Retail Planning and
Formats 6.2 INDEPENDENT, SINGLE STORE OWNERSHIP
STRUCTURE
Under this ownership arrangement, an individual or corporate entity owns and runs a
single retail location (refer Fig 6.1).
The management of these shops are independent. There may be a few small, locally
managed branches. They might also hire specific personnel to help. Most of the time,
single ownership of retail establishments involves limited retail businesses, although
there are exceptions, such as in the furniture or automobile industries, where single
ownership involves relatively big establishments.
Features
1. Huge amounts
There are many of these outlets across the nation. Independent retailers are much
more numerous than chain stores, although their share of overall retail sales is
small.
Convenience stores, department stores, Kirana stores, and mom-and-pop shops all
fall under this type of ownership.
2. Small Capitalization
The entry barrier is relatively low for independent stores because they require very
little capital to get started and have fewer licensing requirements and other legal
requirements. As a result, there are a lot of people starting out as independent retailers,
and the rivalry is fierce. Thus, one of the factors contributing to the high failure rate of
independent single-store owners is ease of entrance.
3. More Versatility
In terms of retail mix, including location, products, services, and pricing strategies,
independents have more options. The management structure has a minimum number of
layers and is centralized in decision-making. Since only one unit will be operated, these
organizations may maintain greater uniformity in their pricing and retail processes. Their
target market segment finds them personally appealing. Over time, they can develop
into experts in their target market. They are therefore more appropriate for specialized
retailing.
4. Low Volume Enterprise
Due to their tendency to buy in small amounts, independent retailers typically do not
have a lot of negotiating power with their suppliers. Due to their small customer
base, they cannot benefit from economies of scale. At the same time, because micro-
shops typically have fewer stocks and less shelf space, they might not benefit from
economies of scale. With a few notable exceptions, these shops are less efficient
than other types of retailers because they cannot afford to use cutting-edge technology.
These independent retailers are excessively reliant on the owner. The owner manager
is typically preoccupied with mundane tasks, which prevents him from making long-
term plans.
84
 Based on Ownership

(Source: [Link]
store/2c2799/photos/?img=Store-Images&id=1)
Figure 6.1: Independent Single Store

Benefits of Independent Retailing

1. When deciding on store formats, locations, and strategies, there is flexibility
for independent store ownership.
2. These stores do not require uniform location requirements like chains do.
3. Investment expenditures for rent, furnishings, personnel, and goods can be
kept to a minimum. Within a store, responsibilities are quite well defined.
4. Independents frequently take on the role of experts in a specific segment of
the goods and services industry.
5. They become more effective and can persuade customers to shop at specialty
stores.
6. The owner-operator is frequently on site, and independents have great influence
over their strategy.
7. Since only one store is run, independents may simply maintain consistency in
their efforts.
8. Owner-operators frequently possess a high sense of entrepreneurial zeal. Due
to their high level of operational management independence
Limitations of Independent Retailing
 Because they frequently make smaller volume purchases, independents may
not have much negotiating power with suppliers.
 Independents are typically unable to benefit from scale economies while
purchasing and keeping goods.
 Operations can involve a lot of manual labour and little computerization. Manual
ordering, inventory taking, item marking, cash register use, and bookkeeping
are all possible.
85
Retail Planning and  Independents are restricted in their access to media because of the
Formats
comparatively high expenses of TV advertisements, magazines, and
newspapers.
 Overdependence on the owner, which can lead to delays in decision-making
and problem-solving, is a major issue for independent retailing.
Activity 1
Make a visit to a local single store in your area/location and compare its features and
benefits to a chain store.
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6.3 CORPORATE CHAIN STORES

Essentially, it is the “corporatization of retail,” although there are a few instances of a
single store operating as a firm. Retail businesses typically run several stores. Retail chains
are made up of numerous stores that are all owned and run by the same people.
Store operations and retail methods are standardized throughout stores; they typically
offer the same selection of goods and have centralized purchasing, so at least purchase
regulations will be consistent.
Despite the lower number of retail chains, the relative strength of the industry is stronger.
This is because every chain store has at least a few outlets, and often, each chain store
outlet is larger in size as well. The average amount spent by a customer is similarly high.
Chain stores can draw proportionately more customers and produce significant amounts
of [Link] chain stores employ the same store organization. The overall
control of the store is centralized.
Numerous retail chains in India are supported by big organizations such as Future
Group, Reliance, Aditya Birla Group, etc. Many of them have released their initial
public offerings (IPOs) in the stock market, including Future Group.
Independent single stores are not eligible for this kind of leverage. Store chains can
compete better as a result. When new products are introduced and manufacturers
provide promotional support, chain retailers typically receive preference. Due to their
centralized operations and ability to afford technology for customer databases,
merchandise, category management, and inventory management, these chain stores
are more efficient than single [Link] power, operational efficiency, multi-
store operations, computerization, media access, clearly defined management, and
planning are benefits of chains of stores. They frequently have issues with rigidity, large
investments, diminished control, and limited staff independence.
One such instance is the chain of corporate stores operated by Louis Vuitton, a huge
international brand with high-end stores in numerous nations (refer Fig. 6.2).
86
 Based on Ownership

(Source:[Link]
shortened-lv-french-fashion-house-luxury-retail-company-founded-image168151988)
Figure 6.2.: Louis Vuitton Store

Benefits of Chain retailers

1. Due to their large buying volume, many chains have negotiating strength. They
get new products as soon as they are released, orders are filled quickly, they
get assistance with sales, and they enjoy quantity discounts.
2. Chains save money when they make bulk purchases from producers directly.
3. Sharing warehouse space, having uniform store fixtures, and centralizing
purchasing and decision-making all increase efficiency.
4. Computers are used by chains for ordering goods, inventory management,
forecasting, ringing up sales, and book keeping. This boosts effectiveness
while cutting expenses overall.
5. Chains can benefit from a range of media, including TV, magazines, newspapers,
and web blogs.
6. Many chain businesses have clearly defined management approaches, complete
with detailed plans and specific job responsibilities for personnel.
7. Many chains devote significant time and resources to long-term planning and
employ specialized personnel to do so on a permanent basis. Threats and
opportunities are closely watched.
Disadvantages to Chain retailers
1) Flexibility might be constrained once chains have been created.
2) It could be difficult to find new, non-overlapping store locations. To maintain
consistent tactics throughout all units, it could be challenging to adjust to the
varied local markets.
3) Because there are more leases and fixtures, investments are higher.
87
Retail Planning and 4) Because there are more retail branches that need to be filled, there is a bigger
Formats
investment in inventory.
5) Chain stores require uniform standards of store organization and management,
and the distance between outlets should be carefully chosen.
6) Management control is challenging, particularly for chains with branches spread
out geographically.
7) The level of control that independents have over each branch of their single
outlet cannot be maintained by top management.
8) In large chains with multiple management levels and unionized workers,
employees often have limited autonomy.
Activity 2
Identify and visit a corporate chain store in your city/town and check its range of
offerings, their prices, discounts offered, inventory, and uniform standards.
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6.4 FRANCHISING
In a business arrangement recognised as franchising, a franchisor—who is the owner
of a company’s brand name, product, or system—permits a franchisee to use such
assets in exchange for a predefined value of [Link] firm is not wholly owned by
the retail shop. Because the franchisees receive the remaining profit after paying the
franchisor’s fees, they have an incentive to make the business venture successful.
At a more fundamental level, franchising is a way of marketing and distribution, and
franchisors’ organizations use it as a method of quick growth and expansion at a minimal
capital [Link] addition, franchising enables the franchisor to have greater access to
capital, reduce operating costs, and capitalize on the abilities of independent
entrepreneurs. A franchisor’s goal is to replicate a consistent product offering and
shopping experience across different locations through franchisees.
When a franchisee agrees to sell a franchisor’s goods and/or conduct business using
the latter’s name, this is known as product/trademark franchising. The franchisee
conducts business mostly on their own. Although there are basic operational guidelines,
the franchisee decides on the location, the hours, and the facilities and displays. 60%
of retail franchising sales are in the product/trademark sector. Auto stores and gas
stations are some examples.
In business format franchising, the relationship between a franchisor and a franchisee is
more collaborative. The franchisee not only gets to offer goods and services, but also
receives assistance with site selection, quality control, accounting, start-up procedures,
88
management training, and troubleshooting. Prototype storefronts, consistent product Based on Ownership
offerings, and joint advertising, previously only seen in chains, foster collaboration.
This type of franchising is commonly used in the restaurant and food service, real
estate, and service retail industries.
For example, Barista Lavazza (Italian coffee chain), Baskin-Robbins (chain of ice
cream shops) has its significant presence in India through franchising. 7-Eleven (chain
of convenience stores) has its franchises all over the world. Similarly, McDonald’s
(fast food chain) is one of the largest franchising businesses in the world.
More employment is created under this ownership arrangement than under any other.
For those with an entrepreneurial drive, starting and running this franchise is a great
place to start. This method is easier to set up and run, and it generates profits more
[Link] Indian retail companies are using this approach as a substitute to address
the talent shortage and strengthen their capabilities.
Numerous forms of franchising are possible, some of which are discussed below.
COCO (Company Owned and Company Operated): This method involves a
business that is owned and run by the company or brand, with no involvement
from the franchisee. The company owns the store and finances its operations. The
store is managed by the store manager and employees.
FOCO (Franchise Owned Company Operated): The franchisee bears the
initial set-up costs, and the company takes over all aspects of the business
[Link] operating costs are born by the company, and in return, the
franchisee gets a small percentage.
FICO (Franchise Invested and Company Operated): This is like FOCO;
however, the difference here is that the franchise (investor) only invests in the
business and is not involved in the business operations.
COFO (Company Owned and Franchisee Operated): In this method, the
company owns and invests in the business, and all management operations are
handled by the franchisee as directed by the company. This type of model is very
rare.
FOFO (Franchise Owned and Franchisee Operated): This is the most
practiced franchising option. Here, the company gives the brand name and a
predetermined sum for an agreed-upon term to manage the business. The company
also decides upon the prices and merchandise for the operations of the outlet. The
franchisee pays a certain percentage of profits as royalties to the company. The
franchisee invests in, owns, and manages all the store’s operations.
Benefits to the Franchisee
The franchisee benefits from the following, since a franchise is a business that permits
the franchisee to market and sell a franchisor’s goods in a particular area:
1. Learn from other people’s experience
In franchising, the franchisee gains access to the expertise and labor of others who
have spent countless hours building a profitable firm. When starting a firm from scratch,
an entrepreneur can anticipate the challenges that lie ahead, but with a franchise
opportunity, many of the usual obstacles are routinely overcome. A franchise is a
89
Retail Planning and company that you run “for yourself, not by yourself.” The franchisee’s learning curve
Formats
can be shortened, and costs associated with experimentation can be avoided.
2. Attendance at training programs
Participation in the business category masters’ training program is voluntary, and it will
continue until the franchisee is comfortable and skilled with business practices such as
bookkeeping, inventory management, people management, product or service
distribution, and many other activities. Because they see their own success in the
franchisee’s success, the franchisor’s organization wants the franchisee to succeed.
Support for the franchisee’s workforce can also come in the form of development and
training.
3. Marketing Assistance
Another significant benefit received by the franchisee is the marketing and promotional
help. One does not have to be an expert in marketing to become a franchisee. The
franchisor receives fees, and a portion of those funds is used for marketing. The
franchisee’s marketing strategy helps the franchisors.
The well-known brands of the franchisors, like McDonald’s, really work to the
franchisee’s advantage. A franchisee benefits from affiliation with a well-known brand.
However, a lot of minor franchisors may eventually turn out to be reliable brand names.
Success is based on the franchisor’s business strategy.
4. Ownership of a Business Venture Satisfaction
The joy of running your own business might occasionally outweigh the benefits of
working in the retail industry. The connection between the franchisee and the franchisor
is seen by the franchisees as one between two business partners, and they perceive
themselves as independent entrepreneurs. The franchising ownership structure aims to
blend the benefits of owner-managed enterprises with the effectiveness of chain store
operations’ centralized decision-making.
Limitations for the Franchisee
 Oversaturation may happen if there are too many franchisees in a single location.
 Franchisees’ earning potential, required managerial skills, and investment
requirements may be misrepresented because of some franchisors’ excessive
sales tactics.
 They might be bound by contracts that demand purchases from specific
franchisors or vendors.
 Franchisers may have the ability to nullify contracts if cancellation conditions
are not followed.
 Franchise agreements are only in place for a brief time in several industries.
 Regardless of franchisee profits, royalties are frequently calculated as a
proportion of gross sales.
Benefits to the Franchisor
1. A national or international presence can be built more quickly and with less
90 outlay from the franchisor.
 2. The requirements for franchisee ownership are established and upheld. Based on Ownership

3. Franchisees must adhere to strict operating guidelines established by franchisors

in accordance with their agreements.
4. Instead of when products are sold, money is earned when they are delivered.
5. Franchisees have more motivation to put in a lot of effort because they are
business owners rather than employees.
6. Franchise owners continue to get royalties and have the option to sell goods
to individual business owners even after franchisees have paid for their stores.
Limitations to the Franchisor
 If franchisees disregard corporate standards, it hurts the brand’s reputation.
 The absence of consistency among stores has a negative impact on customer
loyalty.
 Competition inside a franchise is undesirable.
 If franchisees do poorly, the individual unit resale value will suffer.
 Ineffective franchised units have a direct negative impact on the franchisors’
profitability, which comes from royalties and sales of goods, services, and
resources to the franchisees.
 More and more franchisees are attempting to restrict the rules and restrictions
of franchisors.
Activity 3
Identify a franchise store in your area/location and understand the various forms of
franchising and the business operations they perform, and discreetly find out their
relationship with the franchisor.
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6.5 LEASED STORES/DEPARTMENTS

Large department stores occasionally rent out space to other merchants who offer
complementary products. As part of their plan to control the tenant mix, the mall
developers also lease space to other retailers. Like a store, there may be many
departments, such as those for clothing, toys, beauty salons, jewellery, footwear, etc.
The food courts are typically made available to outside parties.
The store-based retailer uses leased departments as one tactic to diversify their product
offering. These are also referred to as “stores within stores.” They are frequently found
in shopping centre food courts, beauty salons, banks, photographic studios, jewellery, 91
Retail Planning and cosmetics, and other such [Link] have greater control over how their products
Formats
are marketed, many high-end companies, including Gucci and Dior, are renting out
departments.
The store-within-a-store model provides extra opportunities for lessees and host retailers
to cross-promote their brands and attract a larger audience. Leasing spaces can enhance
the shopping experience for customers, add variety to the retailer’s product offerings,
and encourage them to stay longer and make impulsive purchases. The success or
failure of this strategy for the retailer depends on selecting the right retail partners who
complement the host store and can attract new customers for the host retailer. The
strategy must also be supported by adequate advertising from both the host retailer
and retail partners to raise awareness of the leased department store locations.
To increase traffic to a mall or business site, the idea of an anchor store is currently
gaining a lot of popularity. It also relates to the “shop in shop” idea because the main
store and the leased store form a mutually beneficial [Link] can provide
the leased stores or departments with a fixed rental, a percentage of sales, or a
combination of the two.
Benefits of using a regular or main store retailer
1. Customers may be given the option of one-stop shopping.
2. The lessee is responsible for most store operations for the leased product
category.
3. Because some expenses are shared, the regular retailer model is more cost-
effective.
Benefits to the Lessee
I. The lessee retailer receives some of the regular retailer’s traffic, ensuring their
livelihood.
II. It can be economical due to shared overhead expenses.
III. The connection to a reputable shop brand is advantageous.
Benefits of Leased structure
1. The market is expanded by allowing customers to shop in one location.
2. Lessees are responsible for managing the staff, setting up the merchandise,
and placing new orders.
3. Regular retail employees are not required to participate.
4. Leased department operators cover some costs, which lowers the cost of the
shop.
5. Regularly, a portion of the revenue is paid.
6. Additionally, from the standpoint of the retailers, there are a few possible
pitfalls:
7. Operating procedures for leased departments could contradict those of the
store.
8. Lessees could damage a store’s reputation.

92 9. Customers may blame the stores for problems rather than the lessors.
 10. These benefits apply to leased department operators. Based on Ownership

11. Stores have loyal customers, are well-known, and provide rapid sales for
leased departments.
12. Some costs, including security, are minimized by using shared resources.
Limitations to the Lessees
 There may be rigidity regarding the operational hours they must be open and
the manner of operation.
 The product and service offerings are typically constrained.
 If they are prosperous, businesses might increase rent or decide not to extend
leases.
 The predicted level of sales might not be achieved by in-store locations.

6.6 COOPERATIVES FOR CONSUMERS

Consumer cooperatives are managed by cooperative societies, which have played a
crucial role in providing goods to customers at affordable prices. However, the lack of
a profit motive affects the growth and development of these societies. Examples of
consumer cooperatives include Kendriya Bhandar established by the Central
Government Employee Consumer Cooperative Society, Apna Bazaar, and Super
Bazaar. Despite the importance of consumer involvement and drive, consumers are
often not knowledgeable about retail functions, which can result in lower cost savings
and less favourable selling prices than expected. Additionally, consumer disinterest in
running a cooperative can arise, leading to a small share of the retail industry for
cooperatives.
In India SahakarBhandar (Mumbai), State Co-operative consumer stores and Co-
operative wholesale societies, Kendriya Bhandar are a few examples of consumer
cooperatives in the retail sector. Globally, the Co-op food stores (UK), Equal Exchange
(US) and PCC Community Markets are some examples.
Benefits of Consumer Cooperatives
1. They offer products at reasonable costs, and their quality is respectable.
2. They offer customers a personally satisfying purchasing experience.
3. Participants may also benefit from special occasion gifts and sales promotion
programs.
4. They lower the involvement of middlemen, which lowers the cost of the offering.
5. The goods are sold without being tampered and the irregularities in the
measurement are also avoided.
Limitations of Consumer Cooperatives
 Reduced customer foot traffic is caused by insufficient marketing or publicity.
 Limited skilled workers resulting in a lack of resources and inventory.
 Insufficient cooperation between other cooperatives
93
Retail Planning and Activity 4
Formats
Identify and visit a cooperative store in your location or close by and observe its retail
functions, analyze their pricing technique, and make a note of the kind of clientele who
patronize at these outlets.
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6.7 VERTICAL MARKETING SYSTEM

In a conventional marketing system, manufacturers, wholesalers, and retailers each
operate independently at their respective levels of the distribution chain, focusing solely
on maximizing their product and their own businesses. In contrast, a Vertical Marketing
System (VMS) unifies these separate entities and brings them together to achieve
shared goals. The VMS aligns each level of the distribution chain and provides a clear
understanding of market trends, competitors, and consumer demands, leading to a
smoother flow of goods and services. These results in reduced costs, increased efficiency,
and improved product quality. Figure 6.3 shows the conventional marketing channel
and vertical marketing channel.

(Source): [Link]
[Link])
Figure 6.3. Conventional and Vertical Marketing channels

All levels of individually owned firms along a distribution chain make up a vertical
marketing system. One of these systems is typically used to distribute goods and
services: independently operating, partially integrated, and fully integrated (refer to
94 Table 6.1).
Table 6.1: Vertical Marketing System with Function and Ownership Based on Ownership

Channel Type Function Ownership

Independent system Manufacturing Independent manufacturer
Wholesaling Independent wholesaler
Retailing Independent retailer
Partially Integrated Manufacturing All facilities are owned by two
System Wholesaling channel members, who also
Retailing carry out all operations.
Fully Integrated Manufacturing One channel member handles
System Wholesaling all production and distribution
Retailing duties.
Source: (Berman et al., 2017)

Some businesses engage in many types of distribution arrangements and dual marketing,
a type of multichannel retailing. As a result, businesses improve sales, share some
costs, and have extensive strategic control while appealing to a variety of consumers.
In addition to partially or totally integrating a vertical marketing system, a company can
control a distribution channel due to its strength in the economy, law, or politics; its
better knowledge and skills; its devoted clientele; or other criteria. When a distribution
channel is under one member’s control, that member’s authority determines how choices
are made in that channel. Manufacturers, wholesalers, and retailers all have a variety of
instruments at their disposal to strengthen their competitive positions.
Independent Vertical Marketing System: Independent businesses can be
categorized into three groups: manufacturers, wholesalers, and retailers. This system is
commonly used when producers or retailers are small, distribution is concentrated,
customers are spread over a large geographic region, unit sales are high, resources are
limited, channel members want to share costs and risks, and specialization of tasks is
desired. This type of vertical marketing system is used by a wide range of businesses,
including stationary stores, gift shops, hardware stores, food stores, drugstores, and
many others. It is the most widely used form of vertical marketing system.
Partially Integrated System: In this type of system, two separate companies handle
all production and distribution tasks along a channel. It typically occurs when a
manufacturer and a retailer handle transaction, shipping, warehousing, and other
distribution activities, without the involvement of a wholesaler. This approach is most
suitable when wholesalers are either too costly or unavailable, unit sales are moderate,
resources are abundant, selective or exclusive distribution is required, and both the
manufacturer and retailer are substantial in size. Partially integrated systems are often
used by furniture stores, appliance stores, restaurants, computer merchants, and mail-
order companies.
Fully Integrated System: A single company handles all production and distribution
tasks using a fully integrated system. The business maintains complete strategic control,
direct client contact, the exclusivity of its offering, and all earnings. This system can be
expensive and complex to use.
Some businesses engage in many types of distribution arrangements and dual
marketing, a type of multichannel retailing. As a result, businesses improve sales,
share some costs, and have extensive strategic control while appealing to a variety
of consumers. 95
Retail Planning and In franchising, manufacturers retain control by building strong brand loyalty, setting
Formats
prices in advance, and making exclusive distribution agreements with retailers who
comply with specific standards in exchange for exclusive distribution rights in a specific
area. Wholesalers wield power when they are big, introduce their own brands, support
franchises, and are the most efficient players in the channel for tasks such as processing
reorders. Retailers have influence when they make up a significant portion of a supplier’s
sales and when they establish their own brands. With private brands, retailers can
switch suppliers without affecting customer loyalty as long as the product features
remain unchanged. Strong and long-lasting channel relationships often benefit all parties
involved. They result in improved scheduling, cost savings, and streamline tasks such
as advertising, financing, billing, and others.
In India, Hindustan Unilever Limited (HUL) which is a subsidiary of Unilever, operates
on vertical marketing system which includes from sourcing of raw material to production,
marketing and distribution. Other such examples include ITC limited and Reliance
industries.
Globally, Walmart and its suppliers work together to reduce cost, improve quality,
maximise sales and profits. The suppliers benefit from the national reach of Walmart’s
retail network, while Walmart benefits from having a steady supply of high-quality
products at competitive prices.

6.8 DEALERSHIP
The dealership business model is a third type of retail form. In this case, the licensee
obtains the right—which is occasionally exclusive—to market the goods of the licensing
party. Since the dealer can sell a variety of goods in his store, the system is more
adaptable than a franchise. The system functions as a hybrid of a franchise and an
independent store, and the licensor is not entitled to any royalties or fees. Deals between
buyers and sellers are negotiated by dealers. They serve as an intermediary between
the manufacturer and the final consumer.
The benefit is that the dealer receives a guaranteed supply of items from the business;
in exchange, the business gives some brand recognition or product name recognition,
and a predictable flow of customers can be anticipated. The dealership model may be
profitable for already established shops because it grows their customer base.
In the Indian context, the relationship between a multinational automaker, such as Maruti
Suzuki, and its authorized dealerships is a classic example. In this dealership model,
both Maruti Suzuki and its dealerships work together to achieve common goals, such
as increasing sales, expanding market share, and improving customer satisfaction. The
dealerships benefit from the brand recognition and reputation of Maruti Suzuki, while
Maruti Suzuki benefits from having a local sales and service presence in multiple markets.
This type of dealership model allows both parties to leverage their strengths and optimize
their operations, leading to increased efficiency and profitability for both.
In the global context, the example of dealership retailing is the relationship between car
manufacturers, such as General Motors (GM), and their authorized dealerships. GM
sets the standards for its vehicles, provides marketing and sales support, and sets the
prices, while the dealerships are responsible for selling GM vehicles and providing
after-sales service to customers.
96
 Based on Ownership
6.9 NETWORK MARKETING
This is a retail business concept where a person makes a commission by selling the
company’s goods to friends, family members, and other customers. In addition, the
agent hires others to market things for him or her in exchange for compensation. It is a
business that people can operate either part-time or full-time. The fundamental benefit
of network marketing is that it allows anyone to launch a business with comparatively
less investment.
People who use network marketing have the freedom to sell in their spare time.
However, one could end up with unsold product, and dishonest multi-level firms often
sold after hiring many representatives. In contrast to shop selling, network marketing
places more emphasis on personal selling.

6.10 SUMMARY
The ownership structures of retail organizations can be classified as independent single
store ownership, corporate chain stores, franchising, leased departments, and consumer
cooperatives. Single store ownership structures are owned and operated by an individual
and are numerous in number, typically small in size, and have low business
[Link] chains are a result of the corporatization of retail and are typically
run in a more professional manner across multiple locations. Franchising is a partnership
between a franchisor (brand owner) and a franchisee (brand user) where the franchisee
benefits from the franchisor’s brand name, marketing support, training, and other services
in exchange for a fee or [Link] departments refer to retail space within a
premises that is rented out to a retailer on a lease rental, sales commission, or profit-
sharing basis.

6.11 SELF- ASSESSMENT QUESTIONS

1. Why independent retailers are the most common type of retailer found everywhere?
Justify giving reasons.
2. Elaborate the competitive advantages and disadvantages that franchising has over
other business formats.
3. Explain the different features of a single-store ownership structure with a suitable
example.
4. Discuss the different types of franchising formats along with examples.
5. Discuss in detail the roles and responsibilities of a franchisor and a franchisee.
6. How does network marketing work? What is the future they have in the current
Indian scenario?

6.12 FURTHER READINGS

Berman, B., Evans, J. R., & Chatterjee, P. (2017). Retail Management: A Strategic
Approach. Pearson. [Link]
Madaan, K. V. S. (2009). Fundamentals of Retailing. McGraw-Hill Education (India)
Pvt Limited. [Link] 97
Retail Planning and
Formats 6.13 ONLINE RESOURCES/LINKS
[Link]
[Link]
[Link]
[Link] types/
48006
[Link]
Format-Swadesh-/22-04-2022-426190/
[Link]
[Link]
group- enters-into-franchise-deal-with-adidas-india/articleshow/[Link]
[Link]
popular- franchise-businesses-under-rs-50-lakh/articleshow/[Link]

98
 Based on Ownership
UNIT 7 STORE AND NON-STORE BASED
RETAIL FORMATS
Objectives
After reading this unit you should be able to:
 understand the different types of retail formats.
 examine the characteristics of retailers.
 comprehend the concept of store retailing.
 recognize the different forms of non-store retailing.
 inspect the concept of ownership structure in retailing.
 know the control format of outlet retailing.
 study the future trends in retailing.
Structure
7.1 Introduction
7.2 Characteristics of Retailers
7.3 Types of Retail Formats
7.4 Store Retailing
7.5 Non-Store Retailing
7.6 Future Trends in Retailing
7.7 Summary
7.8 Self- Assessment Questions
7.9 Further Readings
7.10 Online Resources/Links

7.1 INTRODUCTION
The retail industry has grown increasingly difficult and competitive over time. The market
has already developed because of growing demographic and cultural variations as well
as evolving lifestyles over time. Every market has a unique set of requirements. Like
any marketer, a store must choose the type of market it will successfully serve. The
retailer must therefore consider a wide range of possibilities to stand out in the market
and entice its target audience.
Retailers now place a higher priority on their consumers’ interests, make interaction
with them, and gather data on their behavior to better understand their preferences,
rather than just concentrating on the distribution of goods or services.
Companies that focus on retail involve buying goods from other businesses to sell
directly to consumers and may also provide services related to product sales. The act
of selling goods or services directly to end customers for personal use is referred to as
retailing and it represents the final stage in the distribution of products.
99
Retail Planning and Retailers are closer to consumers than producers are from a marketing standpoint.
Formats
Retailers serve as both the consumer’s point of contact with manufactured goods and
the last link in the marketing chain.
Retail mix primarily involves making decisions regarding the goods, prices, promotional
mix, locations, additional services, etc. to satisfactorily meet the needs of the target
market. The common name for retail mix is retail format. It is quite like the marketing
mix. The various types of retail formats and their characteristics are covered in this
unit.

7.2 CHARACTERISTICS OF RETAILERS

The formulation and execution of a retail mix or strategy affect the retailer’s performance.
Each retailer offers the market distinctive services based on their characteristics and
business strategy. Based on the retail mix elements, the retailer’s characteristics are
discussed below.
1. Based on market needs: Retail concentrates and tries to satisfy the needs
of that specific market. The target market may be mass, exclusive, or specialty,
depending on the size of the [Link] on the size of the market, the
market is classified into the following:
 Mass-market retailers: are the broadest market segments, which
cater to almost all consumers’ needs and wants for certain basic products.
As there are many merchants in this segment, there is intense competition
in this group of businesses.
 Exclusive market retailers: distinguish themselves through their
product offerings, which may persuade some customers to spend
more. The target market is typically at the upper end of the market and is
not particularly big.
 Specialty markets: in the middle of the exclusive and mass markets,
where there are more possibilities for a product line or lines, but the
market is still sizable.
2. Based on assortment and variety: The most fundamental aspect that reflects
the characteristics of a retailer is its merchandising. Retailers compete based
on selection and variety. Variety, often known as the “width of products,” is
the quantity of several product lines or merchandise categories. In contrast,
assortment refers to the variety of options available within a specific product
category. Another name for assortment is “depth of merchandise.”
Retailers can be general merchandisers or specialty merchandisers, depending
on their selection and diversity.
 General merchandisers: They carry a broad range of product
categories. Retailers take use of volumes to increase sales in what is
referred to as”shallow depth”.
 Specialty merchandisers: They may only carry a single product
category, yet the selection is vast.
3. Retailer based on pricing strategy: Retailers must determine whether to
100
 utilize price as a means of competitive advantage or an alternative means. Store and Non-Store
Based Retail Formats
Different methods are employed for pricing.
 Discount Rates: Retailers sell products with low profit margins. These
shops want to sell a lot of products and have low overhead costs to turn
a profit.
 Competitive Pricing: Retailers want to appeal to as many market
segments as possible. The stores don’t appear to be charging premium
prices, but they also don’t appear to be competing on low costs. Retailers
increase customer value by providing reasonable quality products and
ambiance.
 Premium Pricing: The top end of the market, which is less price-
sensitive, is what retailers seek. Various services and customized solutions
increase the value. Although it is unlikely that these retailers will sell in
extremely large volumes, the profit margins are quite significant.
4. Retailer based on their promotional mix: Retailers use several promotional
tactics and media platforms to stimulate customers’ interest in their
establishment and their items. The following are the key tools,
 Advertising: The best way to attract customers is still through traditional
mass media advertising, such as that found in newspapers or on television.
Online marketing and outdoor advertising are also becoming more
significant for retail advertising.
 Direct mail: It includes a variety of promotional materials such as sales
letters, postcards, newsletters, and brochures.
 Promotion of sales: The most significant sales promotion strategies
include discounts, rebates, and other price promotions.
 Personal selling: Retailers must use their interpersonal abilities
extensively, particularly when selling high-end products. This can be done
by convincing customers to buy higher-value products than they had initially
planned to, as well as by suggesting that they buy related goods.
Additionally, it is called the buyers-sellers dyad.
5. Retailer based on the method of distribution: Based on the method of
distribution used by the retailers, they can be classified as store based and
non-store based.
Store-based retailer: The traditional and popular way for people to purchase
goods and services is in-person. Customers must physically visit the retail
location to do this. Based on location and the physical connectedness of retail
stores with one or more other stores, store outlets can be further categorized
into the following categories:
 Independent Location: Stores that are not connected to other retail
establishments are known as “standalone locations”.
 Strip-shopping mall: This involves the physical connection of two or
more outlets and the sharing of resources like parking.
101
Retail Planning and  Mall retail: Outlets that can be found in malls or other shopping areas.
Formats
 Downtown Central Business District: It is known as the “downtown
regions” and “traditional markets”. The store’s location is sometimes
considered as the most crucial strategic component of the retail mix.
Non-Store Retailer: Customers can make purchases from their handy places
without having to physically visit a retail site. Vending machines, direct
marketing, and online sales are effective strategies. Multi-channeling is the
practice of a retailer trying to reach customers through more than one channel
of distribution.
6. Retailer based on amount of service offered: Retailers draw customers
not only by offering appealing goods at affordable costs but also by providing
services that improve the shopping experience. Retail service often comes in
three forms of services.
 Self-service: It is seen as advantageous by some customers since the
extra work they put in may result in lower prices.
 Assorted Services: Consumers receive some level of service from
retailers. It involves managing point-of-purchase transactions, helping
customers choose products, etc.
 Full-Service: Retailers want to handle almost every step of the purchase.
Premium-priced retailers frequently provide full services to maximize
consumer value and the shopping experience for customers.

7.3 TYPES OF RETAIL FORMATS

The type of retail format used today plays an important role in consumer decisions and
how it meets their expectations. A retail format consists of a simple marketplace or a
location where sales happen.
The retail format, commonly referred to as the retail formula, influences the customer’s
choice of store and fulfils their demands. A retail format is essentially a simple
marketplace, or a place where products and services are offered. In some parts of the
world, small family-run businesses still dominate the retail sector, but large retail chains
are increasingly dislodging them due to their capacity to exercise enormous purchasing
power and transfer the savings on to customers in the form of lower prices. These
massive retail chains compete with manufacturer brands in addition to producing a
significant portion of their own private labels. The retail climate has changed because
of significant store consolidation, with major retailers now having more influence on
wholesalers.
Retail activities are carried out by a variety of organizations, including manufacturers,
wholesalers, and retailers, with the majority of retail sales handled by retailers. Although
the majority of purchases still occur in physical stores, online and non-store retail channels
such as e-commerce, mail orders, door-to-door sales, phone orders, vending machines,
and other online purchasing methods have seen significant growth in recent years and
are collectively referred to as “non-store retailing.”
The different types of retail formats (refer Table 7.1) are discussed below.
102
 1. STORE RETAILING Store and Non-Store
Based Retail Formats
 Amount of Service
 Product Line Sold
 Relative Price Emphasis
 Control of Outlets
 Type of Store Cluster
2. NON-STORE RETAILING
 Direct Marketing
 Direct Selling
 Automatic Vending
 Online retailing

7.4 STORE RETAILING

Retail establishments come in a variety of sizes and shapes. New varieties of retail
establishments are also emerging. A variety of characteristics can be used to categorize
retail establishments. Service volume, product range, relative prices, outlet control,
and retail cluster type are a few examples.
These categorizations are shown, along with the related store types, in the accompanying
table 7.1.
Table 7.1: Types of Retail Outlets

Based on Based on Based on Based on Based on

type of Product Line Price Control type of Store
service Cluster
1. Self- 1. Specialty 1. Discount 1. Corporate 1. Central business
Service store store chain district
2. Limited 2. Department 2. Off-price 2. Voluntary 2. Regional shopping
Service store retailers chain and center
retailer
3. Full 3. Supermarket 3. Catalogue 3. Community
Service showroom cooperative shopping center
4. Convenience
store 3. Franchise 4. Neighbourhood
organization shopping center
5. Combination
store 4. Merchandising
conglomerate
6. Superstore
7. Hypermarket

(Source: [Link]
103
Retail Planning and  Amount of Service Retailing
Formats
Service levels in retailing vary based on the type of product and customer preferences.
There are three types of service levels in retailing: self-service, limited-service, and full-
service.
1. Self-service retailing
Self-service demands that the customer completes all required tasks while buying the
product. A supermarket is a good example of a customer performing self-service. The
customer must either choose the items they want or compare pricing. However, the
retailer can guide the buyer through the checkout process and help them find where the
item is kept.
Self-service today offers all discount services and is mostly used by retailers of quick-
moving, nationally branded items like supermarkets and catalog showrooms.
2. Limited-service retailing
Because they stock a larger selection of goods, limited-service businesses provide
more sales assistance. Consumers require information on these products. These retailers
have significant operating expenses, which leads to higher prices.
Limited-service restaurants make up most quick service restaurants (QSRs), which
also include coffee shops, cafés, pizza shops, bakeries, and fast casual and fast-food
restaurants.
3. Full-service retailing
Retailers like specialty shops and high-end department stores employ sales associates
to help customers through the entire purchasing process. These types of stores tend to
attract customers who are willing to take their time while shopping and they typically
have a wide selection of specialty [Link] enhance the shopping experience, full-
service retailers may also provide additional amenities like lounges and dining options,
as well as services such as lenient return policies, multiple credit options, complimentary
delivery, and in-home maintenance. However, the cost of these services leads to higher
prices at full-service stores.
The goal of a full-service store is to provide all the elements required for the purchasing
process, such as a variety of payment choices, delivery alternatives, and follow-ups, to
ensure a great shopping experience. For instance, Apple stores make sure consumers
receive their orders on time and offer any details they might require prior to making a
purchase.
 Product Line Retailing
Retailers can be classified based on the breadth and depth of their product offerings,
including specialty stores, department stores, supermarkets, convenience stores,
superstores, combination stores, and hypermarkets. Each type of retailer has unique
features.
1. Specialty store
A specialty store is a type of retail business that focuses on offering a broad range of
products within a narrow product category. Examples of specialty stores include furniture
stores, bookstores, electronics stores, flower shops, and others. They can also be
104 classified based on the extent of their product specialization.
A women’s clothing store is a limited-line store, a clothes store is a single-line store, Store and Non-Store
Based Retail Formats
and a store selling “Kalamkari” saris for women is a super-specialty store, for instance.
Specialty retailers have seen recent growth for several reasons.
Specialty stores that concentrate on a limited product range but provide a broad variety
of those items are growing in significance because of the use of market segmentation,
market targeting, and product differentiation. They draw customers with their high-
quality products, accessible locations, favorable operating hours, outstanding customer
service, and speedy in-and-out shopping experience.
Some examples of this category are Zara, a major speciality retailer in fashion apparel.
ITC’s Wills Lifestyle is an example of exclusive or lifestyle speciality stores. In India
Kolkata-based Nik-Nish is a lifestyle gift speciality store chain.
2. Department store
A department store is a retail establishment that features a wide range of products,
including clothing, household items, and furniture. These products are managed by
specialized buyers or merchandisers as separate departments.
India is home to all the major brands and shopping malls like Lifestyle, Shopper Stop,
and Pantaloons, and it has one of the fastest expanding retail markets.
These retail businesses offer a wide variety of goods, and most Indian department
stores offer both domestic and foreign goods. Some companies offer a wide range of
products, while others focus on specific product categories, like apparel.
Today, most department stores are in suburban malls. To combat discount threats,
many of them have added negotiation [Link] compete with other specialty retailers,
others have renovated their stores. Even telephone and mail-order sales are being
used by many. Service continues to be a key differentiator between department stores
and other kinds of retail establishments. To retain current customers and attract new
ones, several department stores are reinforcing their focus on customer service.
Besides, a lot of major department store chains have merged rather than battling the
opposition by diversifying into discount and specialized stores.
Global example for department stores is Lord & Taylor and Saks Fifth Avenue, Sears,
JC Penney, Federated Department Stores. In India, department store chains include
Trent (Tata Group) Westside, Landmark Group Lifestyle, Future Group Pantaloons
etc.
3. Supermarket
A supermarket is a self-service retail establishment with a broad selection of food and
household goods. Supermarkets usually belong to corporate chains. Most supermarket
chains today operate fewer, larger stores and sell a wide variety of non-food items,
including sporting goods, appliances, toys, and housewares. Supermarkets anticipate
that by introducing high-margin products, they will be able to increase their earnings.
Supermarkets are expanding their consumer base while also enhancing their offerings.
Nicer locations, better décor, extended business hours, check cashing, delivery, and
even childcare facilities are a few examples of these enhancements. Finally, to attract
many customers, several grocery chain stores are beginning to arrange their facilities in
ways that best serve the communities in which they operate. To meet the racial and
105
Retail Planning and economic needs of the surrounding markets, they modify store layout, product selection,
Formats
pricing, and advertising.
Spencer, Food Bazar, Reliance, Reliance Fresh, Reliance Super, and More stores are
some examples of supermarkets in India. In USA, Stop & Shop, Food Lion, Giant
Food, Hannaford are some examples.
4. Convenience store
A neighborhood convenience store is a small retail outlet that operates 7 days a week
with extended hours. A convenience store offers a limited range of necessities and
plays a crucial role in serving the community, but it must charge higher prices due to
higher operating expenses and lower sales volume.
Convenience stores (shown in fig.7.2) are frequented by customers for purchases at
off-peak times or when they are pressed for time. Convenience businesses rebuild
their establishments and customize their marketing strategies to fit the needs of their
consumers because of shifting consumer behavior and an increase in the engagement
of women in retail.
Convenience stores hope that by making these changes, they will continue to stand
apart from rival grocery stores while adjusting to the hectic lifestyles of today’s
consumers.
7-Eleven is a chain of convenience stores in the USA, owned by Seven & I Holdings
of Japan. In India, Spencer’s Daily, Express and Future Group’s Easyday are some of
the convenience retail formats in organised sector.

Source:https:[Link]/2020/07/[Link]
Figure 7.2: Convenience Store

Activity 1
Make a visit to a convenience store close to your residence. Explore their limited
offering of popular convenience items. Compare their prices with those of a discount
106 store. Explore how they cater to the needs of local customers.
............................................................................................................................... Store and Non-Store
Based Retail Formats
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
5. Superstore
Superstores are significantly larger than regular supermarkets, offering a broad selection
of frequently bought items such as food and various services like lunch counters, post
offices, dry cleaning, and photo finishing. However, due to their wider range of products
and services, the cost of goods is usually 5 to 6 percent higher compared to traditional
supermarkets. Some examples of super stores in India include Reliance Fresh, More
Megastore, Big Bazaar, Spencer’s Retail and DMart.
6. Combination store
A combination store is a type of retail establishment that brings together a grocery
store and a pharmacy under one roof. It is usually larger than superstores. Wal-Mart
Supercenters and Kmart Supercenters are some of the well-known combination stores
in the United States.
7. Hypermarkets
Hypermarkets are vast retail outlets that bring together the offerings of supermarkets,
discount stores, and warehouses. They offer a broad selection of goods, including
food, clothing, home furnishings, and electronics. Similar to warehouses, they have
multiple checkouts and a large floor space. In India, notable hypermarkets include
Spencer’s Hyper, Reliance Mart, Big Bazaar, and Star Bazaar. On a global scale, big
hypermarket chains include Walmart, Target, and Kaufland.
 Relative Price Emphasis Retailing
Retailers can be classified based on the prices they charge for their products and
services. The majority of retailers offer regular products at typical prices and average
customer service. Others charge more for high-quality goods and services. Discount
stores, off-price merchants, and catalogue showrooms are examples of retailers that
are known for their low prices.
Relative price emphasis in retailing can be categorized into three types: discount stores,
off-price retailers, and catalogue showrooms, each of this type of store is discussed
below.
1. Discount store
Discount stores are a type of retail outlet that offers common goods at lower prices by
operating on smaller profit margins and conducting high volumes of sales. They are
distinct from stores that occasionally provide discounts.
Typical bargain shops routinely offer things for less money. The first bargain retailers
operated in warehouse-like spaces in low-rent, busy areas to cut costs. They offer
price reductions, make extensive use of advertising, and stock a decent range of goods.
107
Retail Planning and In recent years, department stores and other cheap retailers have become more and
Formats
more competitive with numerous discount [Link] keep costs down; discount stores
rely on bulk purchasing and effective distribution. Some examples of this category are
Wal-Mart, Target, Kmart are major discount storesin USA. In India, S Mart, Super
Sab ka Bazaar is popular discount store chains

Activity 2

Discover a discount store that offers products at a reduced cost. Study the types of
items they sell and compare their prices with other stores. Try and find out the amount
of savings a consumer can get by purchasing from the discount retailer.

...............................................................................................................................

...............................................................................................................................

...............................................................................................................................

...............................................................................................................................

...............................................................................................................................

2. Off-price retailers

Off-price retailers purchase goods at a lower wholesale cost and sell them at a reduced
retail price. Their inventory is often inconsistent and frequently changes, often consisting
of higher quality surplus, overstocked, and irregular goods obtained from manufacturers
or other sellers. The most profitable categories for discount merchants are apparel,
accessories, and footwear. But they are active in a range of industries, including
electronics and grocery stores.

There are three primary categories of off-price stores. They are warehouse clubs,
independent off-price enterprise, and factory outlets.

 Factory outlets: Manufacturers own and operate factory outlets, and they
typically stock their leftover, out-of-production, or unusual products. For
example, Fig.7.3 shows the Nike factory outlet which sells its good at a lesser
price as compared to its own store at malls and showrooms.

 Independent off-price: Enterprises are either owned or run by entrepreneurs

or are a part of larger retail chains. Off-price retailing boomed during the
1980s, but as more of them entered the market, competition became fiercer.
Recent effective counter strategies by department stores and normal
discounters have slowed the rise of off-price retailing. Off-price selling
will however remain a strong and expanding influence in contemporary
retailing.

 Warehouse clubs: They are off-price retailers that offer discounts to members
who pay annual membership fees on a range of brands, groceries, appliances,
clothing, and other goods. Costco Wholesale Club and Sam Club are the
examples of wholesale clubs. In India an extension of Big Bazaar, the Big
Bazaar Wholesale Club falls into this category.
108
 Store and Non-Store
Based Retail Formats

(Source: [Link]
Fig 7.3: Nike Factory Outlet

3. Catalogue showroom
Catalogue showrooms are retail spaces that are located near a warehouse. These
showrooms focus on selling hard goods such as household items, jewellery, and
consumer electronics. They provide customers with a display of products and catalogs,
allowing them to view and order items without having the physical products on hand.
These showrooms specialize in direct marketing, offering customers the convenience
of seeing and selecting products before ordering. They offer a large assortment of
high-margin, in-demand brand-name products at deeply discounted costs.
Sporting goods, power tools, home appliances, jewelry, and baggage are among them.
Such shops operate under the tenet that by lowering costs and profit margins, they
may offer lower prices that will boost sales.
Department stores, discount retailers, and off-price merchants have been fiercely
competing with catalogue showrooms on pricing in recent years. To combat this
competition, many catalogue showroom chains increase their product offerings, market
widely, modernize their locations, and add services to increase sales.
Some examples of them in India are Urban Ladder (furniture and home decor), FabIndia
(traditional handcrafted goods) Reliance Digital (Consumer electronics), and Titan
EyePlus (optical stores)
In USA Pottery Barn (furniture and home decor), Brookstone (electronics), The
Container Store (Storage and organization products), Sur La Table (kitchen and
cookware) are some of the catalogue showrooms.
 Control of Outlets Retailing
Independent retail establishments predominate. There are also other types of
ownership.
1. Corporate chain.
2. Voluntary chain and Retailer cooperative.
3. Franchise organization.
4. Merchandising conglomerate.
109
Retail Planning and Each one of them is discussed below in detail.
Formats
1. Corporate chain
Chain stores refer to a group of retail establishments that are jointly owned and managed,
use a centralized system for purchasing and merchandise, and carry similar product
lines. Department stores, variety stores, food stores, drug stores, shoe stores, and
women’s clothing stores are some of the types of retail businesses that primarily adopt
this model. Compared to standalone retail stores, chain stores have several advantages.
They may purchase in bulk at reduced prices because they are enormous, and they
can pay corporate-level professionals to manage tasks like sales forecasting, promotions,
pricing, warehousing, merchandiseinventory control, and marketing activities.
Because corporate chains have many locations and a high volume of sales, they can
also benefit from economies of scale when it comes to marketing.
Some of the examples for corporate chains include Wal-Mart, Carrefour, Costco, JC
Penney. In India, retail chains promoted by Future Group, Reliance, and Aditya Birla
are some examples of corporate chains.
2. Voluntary chain and Retailer cooperative
Many independent retailers made the decision to create one of the two types of
contractual associations after being motivated by the astounding success of corporate
chains.
A voluntary chain is a collection of independent stores supported by wholesalers that
engages in common merchandising and group purchasing. It is the first of these two
contractual agreements. The second is the retailer cooperative, which brings together
several independent stores to create a single wholesale operation that is owned by
everyone and conducts shared marketing and merchandising initiatives.
Some examples in India are Future Group (Big Bazaar and Easy day), Aditya Birla
Retail (More Supermarket and Fashion Retail), Reliance Retail (Reliance Fresh and
Reliance Digital), The South India Merchants’ Association (Represents interest for
South Indian Retailers) and The Confederation of All India Traders (represents the
interests of traders and retailers across India)
3. Franchise organization
The business arrangement known as franchising is one in which a franchisor, who is the
owner of a brand name, product, or system of a business, allows a franchisee to utilize
that brand, product, or business procedure in exchange for a certain return. Independent
business people must obtain the right to do so from a manufacturer, distributor, or
service provider to own and manage one or more franchise system units (the franchisor).
Fast food chains, makers of soft drinks, gas stations, businesses that rent cars, real
estate, travel agencies, and many more industries have all seen a rise in franchising.
Franchisor may get a return that includes an upfront amount, leasing charges for the
equipment, and a share of the revenue.
In India, the profitable franchise business chain includes Subway, Domino’s Pizza,
KFC, McDonald’s, Pizza Hut etc. In USA 7-Eleven, Dunkin’ Donuts, Subway, Taco
Bell are some examples for franchise organisations.
110
4. Merchandising conglomerate Store and Non-Store
Based Retail Formats
Merchandising conglomerates refer to companies that bring together various retail
formats under a single ownership and management, with some shared distribution
responsibilities.
 Type of Store Cluster Retailing
Most retailers today gather in clusters to increase their ability to attract customers and
offer the convenience of one-stop shopping. There are two main types of store clusters:
shopping centres and central business districts with are discussed below:
1. Central Business District
In North America and Western Europe, central business districts were the predominant
form of retail clusters until the 1950s. A central commercial center featuring department
stores, specialty shops, banks, and theaters was a feature of every major city and
town. When people started moving to the suburbs, these major business districts started
to erode.
Building malls and offering underground parking are two strategies used by several
cities to revitalize their central commercial districts.
2. Regional Shopping Center
These are the shopping centers that have been developed, acquired, and managed
collaboratively with a collection of other retail [Link] three primary types of
retail centers are neighbourhood shopping centers, community shopping centers, and
regional shopping centers.
A regional retail area, which normally has between 40 and 100 stores, is like a miniature
downtown. Customers come from all over to shop there.
Shopping malls are a type of retail cluster that often includes multiple department stores
and specialty shops. Neighborhood shopping centers, which are smaller in scale, typically
consist of a mix of retail establishments, including a department store, specialty shops,
professional offices, banks, and a grocery store. These centers are usually more
accessible and offer a variety of services such as a grocery store, discount shop, and
other businesses like salons, laundries, dry cleaners, and drug stores.
Strip malls, a smaller form of neighborhood shopping centers, usually consist of 5 to
15 retail stores.

7.5 NON-STORE RETAILING

Even though storefronts account for a large portion of product and service sales, non-
store retailing is rapidly expanding. Sellers who operate traditional stores must contend
with rising competition from online retailers.
Non-store retailing sells goods using the telephone, direct mail, e-commerce, websites,
social media, direct selling, catalogs, and other conventional retailing techniques.
There are four types of non-store retailing
1. Direct marketing,
111
Retail Planning and 2. Direct selling,
Formats
3. Automatic vending, and
4. E-tailing
1. Direct marketing
Direct marketing engages consumers directly through a variety of advertising mediums
and typically requests a direct response from the consumer. Mail-order catalogs and
direct mail were the main forms of direct marketing at first.
Other types, such as telemarketing through mobile phones, direct radio services,
television-based marketing, and online marketing have however, recently emerged.
Consumers can gain from direct marketing in a variety of ways. Customers can use
their phones or computers to shop instead of going through the trouble of going to busy
shopping places. Modern, sophisticated communications technology has made it easy
to connect buyers and vendors seamlessly.
People think that ordering by phone or direct mail will save them time and allow them
to choose from a wider selection of goods. Interacting with salespeople allows industrial
customers to understand and place orders for goods and services efficiently.
Sellers might gain a lot from direct marketing as well. It provides the sellers with the
chance to be more selective. Direct marketing enables a marketer to tailor and adapt
his message. The marketer can search through its database, pick out customers who fit
certain criteria, and send them highly personalized communications. Direct marketing
helps companies establish and maintain relationships with their customers. By targeting
the right audience at the appropriate moment, direct marketing can increase the likelihood
of higher engagement and responses.
Additionally, testing media and content is made simple for marketers using this strategy.
Another unique feature of direct marketing is privacy. The offer and strategy employed
by direct marketers are still unknown to competitors.
2. Direct selling
Retailing from door to door began centuries ago with traveling salespeople. The two
main benefits of door-to-door sales are convenience for the customer and personalized
service.
Direct selling increases customer loyalty despite the expensive nature of the salesforce
management process. Interactive direct marketing is one of the future trends in non-
store retailing because of technological advancements.
3. Automatic vending
Egyptians were able to purchase coin-operated sacrificial water dispensers as early as
215 B.C. In wealthy nations, automatic vending machines are widely used. However,
developing nations have not yet made significant progress in introducing them.
A wide range of convenience and impulse goods are now sold via automatic vending
machines, including beverages, snacks, novels, video cassettes, water bottles, and
cigarettes.
In developed countries, vending machines are present everywhere, including in
workplaces, airports, train and bus stations, retail stores, lobbies, and filling stations.
112
Automatic teller machines are being installed by banks to offer verification, savings Store and Non-Store
Based Retail Formats
withdrawal, and money transfer services to bank customers.
Vending machines, as opposed to physical storefronts, provide customers with more
convenience (self-service and 24/7 accessibility) and less damaged items. Figure 7.4
shows the image of automatic vending machine.

(Source): [Link] [Link]

Fig 7.4: Automatic Vending Machine

However, the high cost of the labor and equipment needed for automatic vending
drives up the price of goods. In addition, the cost of items sold on the street is frequently
higher than it is in shops.
4. E-tailing
E-tailing, also known as electronic retailing refers to the sale of goods and services
through the internet. It encompasses two main types of businesses: B2B (business-to-
business) and B2C (business-to-consumer).
Companies are shifting their distribution channels to the online mode in response to the
expanding internet revolution to reach large customer bases irrespective the [Link]
two main types of e-tailing are discussed below.
Business-to-Consumer (B2C)
B2C companies are more prevalent in the e-commerce sector. Retailers in this sector
accept orders from customers through a variety of online channels, including websites,
online marketplaces, social media platforms, and mobile applications, and then ship
the final goods directly to the customer’s address.
Business-to-Business (B2B)
Selling takes place between businesses in this scenario. The transfer from suppliers to
manufacturers, wholesalers to retailers, contractors to another company, software
developers to businesses, etc. are a few examples. The volume of this B2B transaction
is substantial.
113
Retail Planning and In this business of e-tailing, one business’s output is given as input to another business.
Formats
Some examples of B2B retailing are software developers, freelancers, consultants,
and wholesalers.
Activity 3
Spot vending machines in your city location. Study the products they offer and how
they provide customers with added convenience. Look into the availability of their
services.
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7.6 FUTURE TRENDS IN RETAILING

With the growth of online and offline channels, streamlining these processes through
innovation is much needed for the future. As customer experiences get better with
personalization, retailing is expected to create more delightful shopping experiences
for the customer.
Fluctuating trends that are currently being seen will eventually have a long-term impact
on the retail industry. If retailers want to grow, they must meet more of the market’s
demands. Given the heightened competition and the emergence of new shops, this
appears to be challenging.
The retail sector in developed economies experiences considerable overcapacity. Rapid
changes in consumer demographics, way of life, and purchasing habits also present
new problems for the retail industry.
To be successful in retail, it is critical to target an appropriate segment and carefully
position them. Additionally, increasing expenses will make successful purchasing
dependent on more efficient planning and [Link], technology is
advancing as a tool for battling competition.
Smart retailing is all about using technology and artificial intelligence to make better
demand forecasts and predictive analytics to monitor the different costs incurred in the
process up until the final sale is made to the customer. Adapting to every new change
that occurs in the industry, as well as how quickly the business responds to it profitably,
is the key driver in the long run. .

7.7 SUMMARY
A retail format refers to a place where goods and services are sold, which can range
from small family-run businesses to large retail chains. Large chains are growing in
popularity as they have the ability to offer lower prices through their significant buying
power. Although most purchases still occur in physical stores, online e-commerce has
grown significantly. Retail formats come in different sizes and types and can be classified
114
based on factors such as service volume, product range, prices, management control, Store and Non-Store
Based Retail Formats
and retail cluster type. Non-store retailing involves selling products through channels
such as the telephone, websites, e-commerce, direct mail, catalogs, social media, and
direct selling. Depending on how well it meets their expectations, the type of retail
format used today plays an important role in the consumer decision-making journey.

7.8 SELF- ASSESSMENT QUESTIONS

1. Briefly discuss the concept of corporate chain stores with an example.
2. Explain in detail about the specialty store and give a few examples of such stores
in India.
3. Compare and contrast the different types of store outlets based on price emphasis
in retailing.
4. Discuss the characteristics of retailers based on retail formats..
5. Compare the different strategy combinations used by department stores,
hypermarkets, and superstores.
6. Explain the different types of retail formats based on the control of outlets.

7.9 FURTHER READINGS

Boston Consulting Group. (2020). Retail 4.0: Winning the 20s - Three Decades
Gone By, A New World of Possibilities Await.

7.10 ONLINE RESOURCES/LINKS

[Link]
foray-into-value-apparel-space/articleshow/[Link]
[Link]
to-attempt-thrasio-model/articleshow/[Link]
[Link]
[Link]
[Link]
into-new-hypermarket-format/articleshow/[Link]
[Link]
Electronic%20retailing%20(E%2Dtailing),sales%20of%20products%20and%20
services.
[Link]
mathews/
[Link]
[Link]
[Link]
115
Retail Planning and
Formats

116
 Block-3
Retail Mix Strategies
BLOCK 3 RETAIL MIX STRATEGIES
The core of retail business is the exchange process, i.e., buying from one and selling
to the other. You would also agree that this is the basic marketing funda and nothing
new. Yet it’s very important for the retailer to devise the most appropriate and relevant
retail mix strategy for achieving his core objectives of growth and development.
The retail mix strategy so developed should have enough scope for flexibility and
innovation to incorporate the changing needs and preference of the end customers.
This block includes 5 units.
Unit 8: Choosing the right location for retail business is the focus of this unit. All
aspects pertaining to location decisions and influencing factors are explained at length.
Types of retail locations and techniques for location assessment are also discussed
for better understanding .
Unit 9: Merchandise is central to any retail business. Therefore the retail product
mix strategy as well as planning for merchandise and deciding on the merchandise
mix towards customer pull is the focus of this unit.
Unit 10: In view of fierce competition in retail business the only solace and influencing
factor that determines sales volumes is by adopting the right price, price as perceived
by the customer and not by the seller. You guessed it right! The focus of this unit is
on pricing strategy and the relevant do’s and don’ts are explained.
Unit 11: The more you tell, the more you sell. That’s precisely is the crux of this
unit where the retailer needs to adapt an IMC with a view to attract new as well
as repeat customers to his store.
Unit 12: A successful retail business is one which allocates enough resources for
attractive and condusive shopping experience and ambience thereby attracting a
huge clientele on a continuous basis is the emphasis of this unit.
Retail Mix Strategies

120
 Retail Location Strategy
UNIT 8 RETAIL LOCATION STRATEGY
Objectives
After reading this unit, you should be able to:
 appreciate the importance of store location.
 identify the characteristics of retail locations.
 understand the process of choosing a store location and to explain various
criteria for evaluating location aspects within them.
 explain the nature of store locations available to a retailer.
 ascertain how the types of goods sold influence the location decision drivers
in retailing.
 understand the concept of trading area and techniques to analyze its potential
and
 discuss different theories which explain the historical patterns in retailing
Structure
8.1 Introduction
8.2 Importance of Locational Decisions in Retailing
8.3 Aspects of Locational Decisions and influencing factors
8.4 Nature of Retail Locations
8.5 Nature of Consumer Goods and Location Decision Area
8.6 Techniques for Locational Assessment and Retail Locational Theories
8.7 Summary
8.8 Key Words
8.9 Self-Assessment Questions
8.10 Further Readings
8.11 Online Resources

8.1 INTRODUCTION
The choice of location is the most important aspect for any retail business that relies on
customers. Deciding on location is the most complex of the decisions to be taken by a
retailer. Firstly, the costs are very high, and secondly once a location has been selected
there is very little flexibility.
As one would agree that choosing a wrong location can lead to losses and even closure
of the store. This makes the selection of the appropriate location the most critical
aspect of retailing. Location of a store in an area depends on its type of business and
the type of customers it wants to attract.

8.2 IMPORTANCE OF LOCATIONAL DECISIONS IN

RETAILING
The importance of locational decisions as is due to the following factors: 121
Retail Mix Strategies 1. Locational choice is a major cost factor.
2. It involves large capital investment (the high cost of land or building if it is
being purchased, of recurring cost of rent if it is leased).
3. It affects the transportation cost structure (Distance from the manufacturer,
distributor etc. affects the total cost of transportation).
4. It has a significant bearing on human resources cost (if the retail store is located
away from central locations i.e. areas where public transport is weak, the
cost of employees will be higher as employees will have to be provided with
transportation or paid for transport).
5. It depends on the quantum of customer traffic (depending on the number of
consumers who frequent the area).
6. It affects the volume of business (if the number of customers visiting the store
are low then the volume of business done by the retail store is obviously
affected)
Thus, a locational decision is influenced by the flow of vehicular and pedestrian traffic,
which determines the footfalls in a retail store. It is very important to take pedestrian
and vehicular traffic count of the location before choosing the location.
For determining the pedestrian traffic, the following aspects are to be considered:
1) Age and gender of the pedestrians passing through the area (very young children
are excluded).
2) Count by time of day i.e., number of pedestrians passing through the area
during different times of the day.
3) Pedestrian interviews i.e., ask random pedestrians their shopping habits etc.
4) Spot analysis of shopping trips.
Further, determining the vehicular traffic count is very important for convenience stores,
stand-alone stores and areas with limited pedestrian traffic.
As one would appreciate that it is possible for a store to have good locational
characteristics and poor site characteristics and to have good site characteristics and
not have good location characteristics. For instance, the store may have a good locational
mileage i.e., in a prime area with good vehicular and pedestrian traffic, but may have
poor site characteristics such as not having parking space or the site may have all the
facilities required but the pedestrian and vehicular traffic could be low and not generate
enough volume of business.
Therefore, one needs to appreciate that the location and site should interact in a positive
way with a stores merchandise, operations and customer service. For instance, if a
convenience store is setup in a residential area with ample on-site facilities and the
location is a high traffic area then the store location can be described as a perfect
location.
Example 1: Departmental stores like Lifestyle, Shoppers Stop, and Pantaloon choose
locations having right mix of location and site characteristics.
Example 2: Wal-Mart, world’s largest retailer realized the issue of finding distributors
122 for its scattered network of stores when it started moving into rural communities. To
overcome this, it setup regional distribution centers supported by a huge truck fleet to Retail Location Strategy
reap advantages of scale.
Example 3: Home-depot, the largest home center chain is seeking markets with
significant aging suburban houses and apartments as it sees them as prime target for its
“do-it-yourself” proposition.
Activity 1
Talk to a few retailers in your neighborhood and understand the importance of location
in their business decisions.
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8.3 ASPECTS OF LOCATIONAL DECISIONS AND

INFLUENCING FACTORS
The following factors play a significant role in the locational choice of a particular
city:
Size of the City’s Trading Area: A city’s trading area is the area from which customers
come to the city for shopping. A city’s trading area could include its suburbs as well as
its neighboring cities and towns.
Example: Mumbai, which attracts customers from all over India with its large numbers
of trading centers.
The Population of the Trading Area: High growth in the population of an area can
also increase the retail potential.
The Purchasing Power of the Customers: Cities with a large population having
affluent and upper middle class customers can be an attractive location for stores
selling premium products such as designer clothes or even expensive cars which have
limited retail outlets.
The fast growth in the purchasing power and its distribution among a large base of
middle class is contributing to retail boom.
Distribution Networks: A city may become specialized in certain lines of trade and
attract customers from other cities.
Number, Size and Quality of Competition: It is important to undertake a detailed
study about the number of retail players across segments, their sales and quality of
services before selecting a city.
Cost of Land, Rent and Other Retail Development Costs: This is one of the key
factors affecting the attractiveness of a city as a prospective retail location. If the cost
of rental or the cost of land is very high it would be difficult for a retailer to break even
especially if he is dealing in products with lower margins.
123
Retail Mix Strategies 8.3.1 Evaluation of Factors for Location of the Store
Some of the factors that need to be evaluated for identifying the appropriate location
of a store are as follows:
 Qualitative and quantitative dynamics of competitive stores.
Prospective retailers should evaluate the product lines carried by other stores,
number of stores in that area etc. before selecting a specific area.
 Whether the area or shopping center provides easy access routes.
 Whether there are any traffic jams or congestion on the routes to the selected
location.
 Whether there are any zoning regulations in the city as per plans of zoning
commission and municipal corporations regarding the development of shopping
centers, residential areas, flyovers etc.
Locational Decisions
For instance, if a flyover is being developed in front of the location selected the retailer
will not be able to attract the vehicular traffic. The retailer should consider the direction
in which the city is developing while selecting its location.
Additionally, the retailer needs to consider the following aspects too:
 If there is adequate traffic and if so the potential of the traffic passing the site
is good.
 Whether the volume of vehicular and pedestrian shoppers who pass by the
specific sites represent potential customers.
 Does the site have the ability to intercept the traffic flowing past the site?
 Whether the vehicular or pedestrian traffic moving past the site could be
attracted.
Further, the presence of other shopping centers or stores in the vicinity can also influence
the ability of the site to attract traffic.
 Complementary aspects of adjacent stores
 Sufficient parking space
 Vulnerability of the site to unfriendly location
Thus, before deciding on the chosen site it should be ensured that there are adequate
parking facilities available in the vicinity, especially if the store expects vehicular traffic.
The quantum of parking facility required for different types of stores varies as per size
of retail store or mall.
For instance, shopping centers require 4 to 5 spaces for every 100 square meter of
gross floor space, Supermarkets require 10-15 spaces for every 100 square meter of
gross floor space similarly Furniture Stores require ,2 to 3 spaces for every 100 square
meter of gross floor space.
Finally, the retailer also needs to consider if unfriendly competition could emerge in the
shape of a large discount store, which resorts to aggressive pricing strategies, which
124 can threaten its viability.
Example: In USA many retailers had to close or relocate when Wal-Mart set up its Retail Location Strategy
stores in the neighborhood. The same was repeated in India when Margin Free Markets
set up its stores, in the wake of which the kirana stores and the supermarkets in the
vicinity had to close.
Activity 2
Try and meet a few store managers of prominent retail chains in your town/city, discuss
and prepare a list of activities that need to be undertaken for a proposed “food &
groceries” chain of stores coming up across the country with respect to locational
aspects.
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8.4 NATURE OF RETAIL LOCATIONS

Types of
Locations

Isolated Unplanned Planned

Store Markets Markets

Figure 8.4

The types of retail locations can be classified as follows:

Isolated Stores
These stores have typically no other retail store in the close vicinity. Their location
depends on their pulling power of customers. The advantages of isolated stores are
that there is no competition, the rentals are low as it is not a commercial area, further
they have better visibility than other stores; constantly upgrade their facilities as per
requirements. The imminent disadvantages of this type of stores are:
 It is difficult to attract customers as the travel distance may be high,
 The lack of variety for the customers that has limited choice of merchandise
to select from,
 High cost of advertising as initially a high budget will have to be allocated to
attract customers to the store,
 Further, there is no sharing of costs like in a shopping center. The isolated
stores are the stores you usually find inside housing colonies, which is the
local Kirana store, or on highways as a shopping destination. 125
Retail Mix Strategies Example: These stores are typically what we call “mom-n-pop” stores/ convenience
surrounded by other non-competitive stores.
These can also be specialist stores like “gift stores” located in a densely populated
area with no competition,
Unplanned Markets
Unplanned markets are basically the markets that come up with no systematic planning,
for example, the markets in the older part of the cities or where planned markets over
the time have become unplanned markets due to poor municipal lanes and unplanned
growth of the markets. Here one also finds that there are multiple stores selling the
same products.
The advantages of unplanned markets for the retailer are that the rentals are very low,
have good access to public transport and availability of a variety of goods for the
consumer.
The disadvantages are difficulty in attracting customers, lack of proper parking facilities,
no sharing of costs and lack of space for the setting up larger outlets or for the expansion
of the existing outlets.
Example: Chandni Chowk market in Delhi one of the largest and oldest whole-sale
markets attracts retailers, home buyers in spite of its poor approach, lack of parking
facilities because of the range and price points it offers for all. However, recently, it has
witnessed major makeover.
Planned Markets
The planned markets, on the other hand are the shopping complexes and Malls etc.
The advantages of planned markets are that there is a well-rounded assortment of
stores making it a one stop shopping experience for the entire family. The malls have
very large anchor stores which are either departmental stores or stores which have the
crowd pulling capacity.
Further, in these malls you have a variety of stores, restaurants and services offered.
There is high pedestrian traffic in these markets; all the retailers in the market share the
costs like lighting up of the market for festivals or undertaking joint promotions to
promote the market, which in malls is also supported by mall management.
The disadvantages of such a market are limited flexibility, the rents are higher compared
to the earlier described markets, and it creates a highly competitive environment and
domination of the market by the anchor stores.
Example: The Sahara Mall, Metropolitan Mall in Gurgaon and the upcoming malls
across major cities and towns offering shopping, hospitality, entertainment and other
personalized services.
Activity 3
On the basis of your discussions with the store managers evaluate the following case.
A specialized “juices and salads” chain of stores is planning to open outlets across the
major metros. Evaluate in detail as to where it should be located (planned markets,
unplanned markets, isolated stores)?
126
............................................................................................................................... Retail Location Strategy

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8.5 NATURE OF CONSUMER GOODS AND

LOCATION DECISION AREA
Shopping goods usually imply products with a high unit price, which are purchased
infrequently and involve more intensive selling effort on part of the store owner.
Shopping products are often sold in selected franchise outlets, Further it is the character
of the retail store rather than the type of goods it sells that governs the selection of the
site.
The following are some of the characteristics of buyers of consumer goods:
 They compare price, quality and features of such products across stores.
 While convenience goods are purchased by almost everyone, certain kinds
of shopping goods are purchased by only certain segments of shoppers
 The consumers buy goods infrequently and plan their purchase

8.5.1 Locational Decision in Retailing –Issues

It is important for you to understand the role of retail location in the context of business
practice. To do this it is important for you to start with the broadest possible view on
strategic planning. The assumption being that the organization can control its assets,
the environment(s) it operates, but cannot control the environment.
The following factors affect the choice of a retail location:
Corporate Strategy
Here the retailer should ask himself the following:
 What business (s) should we operate in? In what business environments are
our core assets most valuable?
 What should we be doing internally, versus outsourcing or not being involved
at all?
This is implemented through decisions to enter and exit industries, acquire firms/ closure
of non-complementing businesses/vertical or horizontal integration or disintegration so
on.
Business Strategy
Here the retailer needs to answer as to how he will compete in this line of business
which leads to explore the following drivers:
 Product breadth, 127
Retail Mix Strategies  Target market, and
 Quality/price etc.
Functional Strategies (finance, production, marketing)
Here the retailer needs to evaluate the best ways to serve the target markets with
desired products.
Further, geography enters all three levels of strategy wherein the incumbent retailer
needs to ask himself the following questions:
1) Are we an Indian company or a global company?
2) Do we have the assets to compete on the basis of worldwide low costs?
3) Where should we obtain financing, source inputs, locate production, and locate
distribution or outlets? Given a production location, what technology and human
resource policies can work best here? Given a retail location, what product
mix and price points work best for us here?
4) Do we have the logistics to service the chosen markets?
5) How many retail outlets do we need to cater to our chosen or desired market?
6) Where do we locate each retail outlet?
7) What is the product mix and level of product adaptation that is required for a
- given retail outlet?
However, though location decisions are most often made explicitly at the level of functional
strategy, they must be in tune to the overall competitive strategy.
In addition, the choice of a location should signify a basic economic-geographic trade-
off between economies of scale and friction of distance; relative concern for
cannibalization versus eliminating competition.
More ambitious retailers might change not just the product mix but the entire concept
and even the brand name of the stores to serve their chosen market (without weakening
brand image/positioning).
For this they need to introspect by asking themselves the following questions:
 Where our current or desired markets are in general located (assuming
monopolistic market areas)?
 How should we go about dividing our market among our various outlets
(assuming monopolistic market areas)?
 How and where should we locate ourselves, what will our market distribution
look like, in the context of our competitors?
For instance, an excellent site for a shopping goods store is next to a departmental
store or between two departmental stores where there is a flow of traffic between
them. Another good site is between a major parking area and a departmental store.
Example: The recent phenomenon that departmental stores like Shoppers Stop and
Pantaloon have started being one of the anchor tenants for malls coming up in proximity
128
is a case in point. A case observed in Mumbai, Gurgaon, Kolkata on account of small Retail Location Strategy
catchment areas and range of complementary products and services offered in the
vicinity.
Activity 4
Talk to the store managers of a sample of supermarkets in your area and discuss with
them as to how they will go about evaluating if they want to be a “groceries discounter”.
Further try to understand as to what corporate, business and functional decisions need
to be taken.
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8.6 TECHNIQUES OF LOCATIONAL ASSESSMENT

AND RETAIL LOCATION THEORIES
There are a lot of techniques used in choosing of a store location. Some of the techniques
used in locational choice assessment are as follows:
Judgmental technique: Where there is a heavy reliance on one’s gut feeling through
environmental scanning leading to one of the following possibilities of locational imitation
of competitors.
Systematic screening technique: Where the incumbent/existing retailer assumes
the size of the market area using general rules of thumb survey of current customers
like:
1. What radius or drive time would encompass a certain percentage of all
customers? (But would this be the same in a dense, less-dense, or less auto-
prone region?)
2. How to identify (and perhaps rank) preferred market areas of the given size?
3. What patterns or indicators to look at in published data on the household
income, consumer expenditures, business growth, or population growth by
metropolitan area or broadcast media market?
Analog technique: Where the incumbent/existing retailer can look for market-area
characteristics that are similar to the market areas of successful, analogous stores using
the following techniques:
1. Differential analysis: This involves analyzing characteristics like-market
areas and nature of stores, their product mix, management strengths, size etc.
Thus, they go on to differentiate between the most-successful and least-
successful locational choices.
2. Regression Analysis: This involves in determining the level of profitability
(or revenues) across all sites (perhaps sales per square foot) as a function of 129
Retail Mix Strategies a set of characteristics, and the use of location-specific variables that are
most significant.
Further, if the analysis also includes non-geographic variables (age or training or
experience of managers, age of the store, years since last renovation, etc.), then one
can assume that one has reasonable level of control on some of the things that make
stores dissimilar to each other.
Note: Regression coefficients can be used to predict the level of profitability or revenues
from each alternative format and location proposed for a new store.
In case of an incumbent retailer with no existing outlets to benchmark against with the
following techniques can be used:
Market-area analysis: Where one can seek market areas that have generally
desirable characteristics and then gradually build up data from a small-area data.
Depending on what one sees is desirable for organization’s product and marketing
strategy.
This requires: Geo-demographic data (data on the median or average economic and
demographic characteristics of inhabitants within small geographic areas), or
 Lifestyle data (data on the location and buying habits of individuals), or
 Geo-lifestyle data (data that draws inference about the buying habits of the
inhabitants of small geographic areas).
Note: These techniques/approaches ignore two important aspects. Firstly, the actual
market areas are not “yes/no” delineations. (in real terms, they are not space oriented
monopolies) as there are always some customers from outside the primary market
area, and customers near the “edge” of the market area who are less likely to use your
location than your more proximate customers.
Secondly, the actual market areas depend not only on store/proposed store
characteristics but also on competitors locational dynamics and characteristics.
Retail Saturation Coefficient
This coefficient measures the potential sales per square foot of store space for a given
product line within a particular market area. As a market area evaluation tool, it
incorporates both consumer demand and competitor presence.
The coefficient of retail saturation depends on the size of the population, per capita
expenditure on consumer goods, amount of retail space available for sales, and the
maximum value each of these variables can be in a particular market area. This coefficient
can take a value of between 0 and 1, but the key question to be asked is whether the
retailer would be inclined towards a 0 or 1 value.
The formulation of the index of retail saturation is expresses as follows:
Retail saturation index (RSI) for market area i.

where P is a measure of population, E is a measure of per capita expenditure (on

130 consumer items in general, or on a particular product category), and .R is a measure of
the amount of retail space (or space devoted to a particular product category), each Retail Location Strategy

within the market area where max [R / (P E)] is the maximum value of R / (P E,), that
can be achieved in any market area.

Example 1: In India, for instance, many consumer goods conglomerates and

merchandisers are moving towards down town areas for merchandising their goods
with several specialist categories such as linen and items relevant to the area for
consumption by the local populace.

Example 2: McDonalds in India is moving their retail outlets to suburban areas

dependent upon the consuming population and the number of footfalls it envisages in
the area. The evaluation of this coefficient is therefore important for the retailer to
determine the market potential of selling its wares in the area and also McDonalds for
setting up a food outlet.

8.6.1 Retail Locational Theories

Quality and Distance Theory: This theory suggests that the footfalls in a retail space
have a direct correlation to the quality of the retailed item and inversely proportional to
the distance of the retailer from the consuming populace. The most common measure
of “quality” is the size, in square feet of retail space. Distance, of course, can use any
number of metrics.

Land Value Theory: This is used for determining and explaining the arrangement of
urban land usage and location of economic activity zones in each area. It goes on to
state that the competition for a given land area will determine the price of the urban
land and therefore will have bearing on the nature, quality of the goods merchandised
thereby ensuring that the best use of the retail space is affected.

8.6.2 Retail Market Identification

Retail market identification is the process of understanding the profile of likely customers
in a chosen area through the following techniques:

Customer Spotting: This involves observing and mapping the actual customer footfalls
through the following data sources:

 In-store surveys

 Point-of-sale query (telephone nos.)

 Redeemed coupons that had been mailed to the customer’s address

 Family size

 Car/vehicle ownership

The mapping is done by dividing the entire region into zones (Census studies etc.).Then,
the market penetration is computed as the ratio of the number of observed customers
to the number of potential customers (population? number of households?) in each
zone.

For Example: The identified and mapped zones with market penetrations that meet
particular thresholds (60%, 25%, 10%, for example) across criteria’s like distance
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Retail Mix Strategies from the store, per capita income, etc. could be used for decision making using multiple
regression.
Spatial Interaction Model:
This theoretical model explains the relationship between metrics observed on the amount
of demand a product has at the source and its destination, the distance between them
and the impact of transport cost on the demand of the product at the retail store.
This model helps us to systematically estimate as to how much demand a given outlet
will likely to draw from each market area.
This may help us in estimating whether the sales can be expected to increase with any
of the following factors and variables:
1 Attractiveness (e.g., square footage)
2 Demand
3 Distance (or cost of distance) between them
4 Nearby destinations etc.
Geo-demographic Marketing Approach: This approach to marketing recognizes
that some part of the retailer’s market may be highly fragmented geographically.
Further, customers respond strongly, across various distances, to some specialized
attribute of the retailer.
While the location of the retailer may not be affected, geographically targeted promotions
(e.g., direct mail) may be arranged on the basis of geo-demographic data, targeting
individuals by targeting neighborhoods.
One can use geographic analog reasoning with the following possible scenarios:
1) Customer spotting to determine the sources of current customers.
2) Identifying the generalized characteristics of the neighborhoods or zones having
concentrations of current customers.
3) Identifying other neighborhoods or zones, with similar generalized
characteristics, to target.
Activity 5
Visit a few of the stores selling kids-wear and toys. After observing the location list out
the factors which differentiate the location decision of a retailer of kids apparel and
accessories and a children toys and gifts shop?
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 Retail Location Strategy
8.7 SUMMARY
The unit discusses the importance of location decision for an existing and a prospective
one. It evaluates various levels of location decision and its determinant factors. Then,
the unit includes discussion about the various types of retail locations followed by the
some of the common location assessment techniques used globally.
Finally, various retail location theories, techniques and aspects of identification have
been.

8.8 KEY WORDS

Analogue approach : A method of trade area analysis also known as the” similar
store” or “mapping” approach.
Chain store : Any retail organization that operates multiple outlets offering
standardized merchandise mix driven by a centralized form
of ownership.
Location analysis : The use of demographics, economic, culture, demand data
etc. to determine the area where a retail store will be
placed.
Location : It is the area in which the store is situated and its trading area
but a site is the building, or part of the building in which the
store is located.
Retail Format : The total mix of merchandising and operating tactics and
practices used by a retail firm to distinguish and differentiate
itself from retail competitors.
Strategy : It is the process of identifying organization-specific asses,
understanding the organization’s environment, and then
deciding how to deploy or augment assets to earn the greatest
return.

8.9 SELF-ASSESSMENT QUESTIONS

1) Explain various ways in which local markets areas are delineated? Further describe
the variables used in screening of site alternatives?
2) Elaborate on the significance of locational decisions for an upcoming construction
specialty mall coming up in your neighborhood?
3) How do facilities like adequate parking and easy access to public transportation
affect the developments of shopping areas?
4) Describe the role of traffic arteries and lanes in determining the evaluation of a
retail site?
5) Describe the role of the two locational theories and retail market Identification in
the emerging Indian retail context?

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8.10 REFERENCES /FURTHER READINGS
Berman B, Evans JR, Chatterjee P, ‘Retail Management A Strategic perspective, 13th
edition, 2017, Perason India (P) Ltd., New Delhi
Birkin, M., [Link], [Link], and [Link]. Intelligent GIS: Location Decisions
and Strategic Planning. New York: John Wiley & Sons.
Dale M. Lewison, ‘Retailing 6th edition-Prentice Hall.
Ghosh,A. and [Link]. Location Strategies for Retail and Service Firms.
Lexington, Mass.: Lexington Books.
Jones, K. and J Simmons. 1990. The Retail Environment. London: Routledge.
Michael L, Barton A W, Retailing Management, 5th edition, 2004, Tata McGraw Hill
Publishing company Ltd, New Delhi.
Pradhan Swapna, Retailing Management : Text and Cases, 6th Edition, 2020, McGraw
Hill
Education (India) Pvt Ltd, Chennai.
Sheikh A., Fatima K, Retail Management, 2022, Himalaya Publishing House, New
Delhi
Thrall, G I. J. C. Valle, and G. ffbuzmaoo. 1998. Retail Location Analysis, Step four:
identify situation targets. GeolnfoSystems.

8.11 ONLINE RESOURCES

Factors Affecting the Retail Store Location, [Link]
watch?v=v23tZUV7rHU
How to choos a location for a store or restaurant, [Link]
watch?v=T1dg_KAy3tI
Kishore BiyaniFatlure story, Why Future group failed? [Link]
watch?v=5CFB4KNA32k
The Power of a Location Strategy for Digital Retailers, [Link]
watch?v=mJoVUDuBa1o.

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 Retail Location Strategy
UNIT 9 RETAIL PRODUCT MIX AND
MERCHANDISE STRATEGY
Objectives
After reading this unit, you should be able to:
 explain meaning and scope of concept of merchandising.
 explain merchandising its objectives and planning activity.
 discuss the factors affecting merchandising; and
 understand and address the conceptual issues in merchandising.
 discuss merchandising logistics.
Structure
9.1 Introduction
9.2 Merchandising
9.2.1 Cross Merchandising
9.3 Objectives of Merchandising
9.4 Merchandise Planning
9.5 Category
9.6 Category Captains
9.7 Private vs. National Brands
9.8 Quality as a Parameter of Merchandising
9.9 Merchandise Mix
9.10 Factors affecting Merchandise Mix Decisions
9.11 Merchandise Logistics
9.12 Supply Chain Management
9.13 Summary
9.14 Key Words
9.15 Self-Assessment Questions
9.16 Further Readings
9.17 Online Resources

9.1 INTRODUCTION
A Retailer is into the primary function of buying from some sources and making it
available to the customer at convenient sizes at a proper price. This process is known
as merchandising. Whenever one goes to a retail store, one is on the lookout for
products which fulfill one’s needs. Customers generally do not have a preplanned list
of products to be brought. Majority of the buying done by customers in a store is
impulse buying. Interestingly, none of the retail stores can survive if they count on
customers who have planned what to purchase from the store. It is the merchandise
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Retail Mix Strategies which is displayed in the store catch the attention of the customers. This in turn develops
an urge amongst the customers to buy. Therefore, we can say that merchandise is at
the core of retailing, and buying and selling of merchandise is the central retail function.

9.2 MERCHANDISING
Merchandising comprises of planning as to what to purchase for the outlet (to resell),
how much to purchase and at what price to purchase thus, maintaining proper stocks
and finally pricing them for selling purpose.
Merchandising is a critical function. The neighborhood grocery shop has to keep an
eye on hundreds of items from a large number of suppliers, both small and large. The
owner has not only to order what is going to be out of stock but also products whose
prices are likely to rise in the near future due to seasonal effects. He has not only to
make payments but also claim various purchase discounts which ultimately will ensure
the bottom line of his Profit and Loss account. Similarly, when one goes to a cloth shop
what does one do? For the same print of cloth, one may ask many colors. While
purchasing a shirt customer would like to look at all the designs and colors available
for a given size before taking the final purchase decision. A retailer should therefore
maintain a proper depth in his merchandise which in the present example would mean
that he should be stocking maximum possible range of colors and prints in different
sizes of shirts.

9.2.1 Cross Merchandising

Each retailer wants to boost his sales. The increase in sales can be either through the
main line of products which he is stocking or complimentary goods which may arouse
interest in the customer. Maintaining stocks of complimentary goods along the main
line is known as Cross Merchandising.
In today’s era where every retailer is trying to increase the footfalls in his outlet it is very
essential that he adopts the cross merchandising in a strategic manner. It makes it
relatively easy for the retailer to convince the customer with a wider range of same
utility products for the ultimate purchase.

9.3 OBJECTIVES OF MERCHANDISING

Like in any other business activity, in merchandising one must first set objectives. All
further activities can flow from the objectives. Some authors have also termed this as
merchandising philosophy. The core of merchandising activity is to make whatever is
demanded by the target market. While setting up merchandising objectives a retailer
must keep in mind the following factors:
1. Diversity in requirements of the customers
2. Fashions/Market trends
3. Supplier’s capacity to supply
4. Competitors merchandising strategy
5. Warehousing capacity and warehousing costs
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Customers have various requirements. Thus, a chain of store catering to the same type Retail Product Mix and
Merchandise Strategy
of target segment has a different set of assortments of products kept in its separate
stores depending upon the geographic location and demographics of the place.
Fashions and Market trends are big time indicators of sales trends in the present as
well as near future. Especially in the apparels a retailer can, on the basis of last couple
of years and the current trend, can predict the type of demand which expected during
the year and in the future to come.
Each retailer is depending on a set of suppliers for the supply of finished products to be
resold to the customers. Suppliers are critical participants of the total supply chain of
the retailer. It is very essential that the retailer has complete information about the
ability and limitations of each of his supplier. This would help him to plan his purchase
of merchandise better from each of them.
Major players in the market have their individual strategies regarding merchandise
management. It is worth knowing their strategies (although difficult to do so but not
impossible). Merchandising strategy of any top player can throw ample light on the
strategic use of merchandising. It can also help you to know the economies of scale
which the retailer must be enjoying. Finally it helps you to know as to what is the
calculation on the part of the particular retailer regarding latest fashion trends and
consumer requirements.
Storage is an important aspect of merchandising. All the merchandise procured should
be adequately stored in a proper manner before the sale. Some retailers prefer to
showcase the total material in the store itself. Their intention is to impress the customer
with the range of the products which they have. However, if not displayed properly it
may add to the clutter in the outlet and give a very confused look. This may adversely
affect the store atmosphere and ultimately the sales. Again, even if some part of the
stocks is kept in the warehouse it should be the endeavor of the retailer to put it in the
outlet at the opportune time. This is besides the general precautions against pilferage,
loss due to various hazards etc.

9.4 MERCHANDISE PLANNING

Once objectives are set, the stage is set for planning. Plan for merchandise is based
mainly on the sales projections or forecasts. These forecasts carry projections for the
overall company, product category, item wise and in case it is a retail chain then individual
store wise projection. Following considerations be kept in mind
 Types of Merchandise
 Merchandising Objectives
 Category/Unit Forecasts
 Budget
 Strategic Considerations
 Timing
 Strategic Assortment Planning
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Retail Mix Strategies Types of Merchandise
Essentially merchandising is of two types: staple/basic merchandise comprises of daily
need products as well as those commodities which the customers buy frequently
throughout the year. Fashion merchandise comprises of luxury items as well as products,
related to fashion, style, and status. Depending upon the type of merchandise the planning
may differ. A retailer selling staple merchandise will have lesser maneuverability regarding
pricing as compared to say a premium brand of fashion merchandise retailer. However,
fashion merchandise retailer will have a greater risk of changing than the staple
merchandise retailer who may not have such risks at all.
Merchandising objectives
We have discussed about merchandising objectives earlier. It is most essential that one
looks into the fashion trends and the category and unit forecasts before planning out
merchandise.
Category/Unit Forecasts
Forecasts put logic behind acquiring a particular assortment of goods as well as quantity
to be ordered. It is worth mentioning here that authenticity of the forecasting procedure
makes it dependable.
Budget
Every retailer would like to keep the right quantity of merchandise in the right place at
the most suitable time/month/season. Moreover, this needs to be achieved this within
the limited budget.
Strategic Considerations
Each store starts its plan with setting its financial objectives. Once they are set, the next
stage is to decide what to purchase for sale in the store. Here, the retailer is cautious
about his financial as well as space limitations. Thus, with this ground reality clearly
known retailer now has many merchandise related decisions to take — for example, if
the store is a men’s clothing store, then the retailer has to decide whether to carry a
large variety of different types of clothing technically known as categories like shirts,
trousers, jeans, T-shirts, suits, jackets or maintain fewer categories but a larger assortment
of more styles and colors within each category. The problem does not end here. A
retailer has to now decide as to how much stock to carry in each unit, each category
and so on. However, from a business perspective it is very important to note that more
the retailer invests in back up stocks the less he would be able to invest in variety or
say deeper assortments. A retailer makes a tradeoff between variety, assortment and
back up stock on the basis of his experience and market forecasts. This is known is
assortment planning.
Timing
In merchandise planning, timing and the strategic considerations are the key determinants.
Procuring grains by a big grocery shop can become very strategic proposition if proper
time is kept in mind. This can be the harvest period.
Strategic Assortment Planning
Each retail store is looking for best return on investment. For having the best returns, it
is essential that the store keeps stock of what the customer needs especially what are
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the size requirements, and other preferences like color, shade, design fragrance etc. Retail Product Mix and
Merchandise Strategy
Therefore, on the part of the retailer to make customer purchase from that particular
store, it will be necessary to have those combinations which customer requires. This
makes it indispensable on the part of the retailer to have a strategic assortment planning.
This indeed feels a lot of research into the consumer psyche as well as planning well in
advance. It would include the following three steps:

Activity 1
Make a visit to a location say ‘X’ supermarket and list as many product categories
they have. Now list the names of various brands in each category that have been kept
in the shop. Select any one category and ask at least 10 customers about their most
preferred brand in that category. Conduct the same survey in location ‘Y’. Ascertain
the difference if any in customer preference and similarly a corresponding difference in
merchandise planning in that specific category between the two locations?
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9.5 CATEGORY
Determining Product Categories: While looking into assortment planning the first step
is to determine the product categories. Now a question which can come to mind is
what is a category?
Each retailer groups various items stocked in his store. We can say that a category is
an assortment of items with a reasonable degree of substitutability. For instance, when
we go to a readymade garment shop, we expect that it would have readymade garments
for men, women, and children. These three can he termed as distinct categories.
However, one should note that there is no fixed rule for defining a category. Categories
can be defined in terms of brands, nature of products, or specific consumer preference.
Unless the retailer groups various items under distinct categories it will be very difficult
to procure items.

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9.6 CATEGORY CAPTAINS
There are circumstances where in for a particular item one supplier becomes the favorite
of all the retailers or at least majority of retailers. This may be due to the quality offered,
prices or even some services. In such a case the supplier is known as category captain.
Each retailer has to take supplies from numerous suppliers or vendors. Both the retailer
as well as the supplier has mutual interest in ensuring that the customer purchasing their
products get in the shortest possible lead time after the goods have been stocked in the
store. Thus, there lies a merit in maintaining a harmonious relationship amongst the
suppliers and retailers.
Organize Buying Process Category Wise
Once the categories have been determined, the next step is to plan the buying process.
Each product category may have a distinct feature or buying requirements. Buying
requirements can be different in the sense that specific expertise may be needed for
buying a particular category of products. For instance, men’s wear will be distinctly
different from women’s wear from buying point of view. Similarly, there can be other
similar differences in procurement of different category products. Thus, it is in the
interest of the retailer that procurement of different categories of merchandise is looked
into in their own unique ways.
Key Issues in Merchandise Assortment Planning
While initiating assortment planning one should always remember the key issues
Decisions are made optimally balancing amongst variety, assortment, and product
availability. It is easy to understand once one visits a retail store. Firstly one expects
that first of all, the product one desires is available and that, one will be shown reasonable
range of variety. Having achieved that, one will expect access to decent level of
assortment. Now from the retailer’s perspective, in case you want to become a one-
stop shopper in ready-made shirts then, you would give product availability more
emphasis. Therefore, you cannot carry large assortments. Similarly if you desire to
have wide assortments in the stock in a given product category, you as a retailer has to
sacrifice variety.
Set Merchandise Budget Stipulations
In any commercial activity financial discipline is what leads to profits and success. A
retailer cannot earn profits unless he is able to forecast the financial implications of his
merchandising activities. Financial planning is done at the top level. This financial plan
is broken into various categories which percolate to the lowermost level of the store.
Based on the financial plan given by the top management the merchandise managers as
well as the buyers develop their own individual financial plans, It is here that decision
regarding the cost profit margins, sales to stock ratio, expected return on assets, and
inventory turnover have to be decided. Some relevant formulae in this regard can be as
follows:

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Merchandise Strategy

This equation looks into the productivity of inventory. This means if I invest Rs. 1,
00,000 in our specific product than harmony of these can be generated from that
investment. This means greater the preference of the customers, greater is the off take
of that product, thus greater is the cycle frequency.
Methods of Inventory Planning
Any merchandising planning can never be successful without proper inventory planning.
Proper inventory planning can be done through various methods.
In case the retailer has a strong belief that all times specific level of inventory should be
on hand. Then he should go for the basic stock method. In the basic stock method, we
simply deduct the average monthly sales for a particular season from the average stock
being kept for the particular season. Here the beginning of month stock or BOM will
be a total of the basic stock as well as the amount which the retailer intends to sell in the
month.
In case retailers need to plan on a weekly basis then they should go for the week’s
supply method. Here the retailer can calculate the average weekly sales and based on
his method of announcing capacity as well as affordability, an economic order quantity
can be derived.
In case the retailer wants to directly link his inventory with sales only then he can go for
sales to stock ratio. This is one of the elementary methods whereby the retailer based
on his sales decides upon what should be the size of his inventory. However, here the
retailer has to decide as to what should be his beginning of the month inventory size.
Develop an Assortment Plan
Once the categories are finalized, and fixed the budget limitations then the important
task remains is of assortment planning. As mentioned earlier in assortment planning,
one has to get down to the details of color, size, brand, material, etc. One should keep
in our mind that it is not always possible to have an optimum assortment which can
satisfy all the cross sections of the customers and at same time suit our budget. However,
the merchandise manager with his field experience can take a judicious decision in this
regard. In assortment planning key terminologies to be kept in mind are assortment
breadth and assortment depth.
Assortment breadth: when you go to a bicycle shop you ask for how many brands of
bicycles that he has. This is the breadth of his assortment
Assortment depth: before you select any brand, which size, color and style of bike
you require. This is the depth of assortment.
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9.7 PRIVATE VS. NATIONAL BRANDS
Generally, retailer faces the dilemma of achieving a suitable balance between old brands
and private labels and national assortments of products. Here, one must know that
national brands generally have smaller profit margins and maybe have more stringent
terms of payment. Also, a conservative goods return policy is adopted by national
brands. However, it is noteworthy that these brands have national advertising backup
and better customer reception. Such brands have national, regional and local
promotional programmes running throughout the year. Such brands strengthen store
image and help boost traffic flow into the store. Moreover, since the loyal customers
have been using the brand for a long time they are very comfortable using them. Brands
like Colgate, Rin and Ariel are all manufacturers’ brands.
Of late, private labels have become prominent and popular among the Indian consumers.
Some big retailers like Shopper’s Stop have developed their own brand labels. One
can find such private labels at supermarkets and prominent grocery shops for a long
time now. These shops have been acquiring the food grains, getting it cleaned, packing
in polythene bags and branding them. They have been pricing them a shade higher than
the market rates.

9.8 QUALITY AS A PARAMETER OF

MERCHANDISING
Retailer need to keep in mind that, a range of quality exists for each product. Therefore,
retailers must decide what levels of quality they want when purchasing inventory and
planning the merchandise assortments. When we visit electronic consumer goods store,
we come across a range of televisions with different price range. However, while taking
a decision a customer decides about the specific brand based on his judgment,
experience, as well as various terms and conditions. Therefore, they are used to making
judgments about the product as well as the brand in a way which is most beneficial to
them. Here it becomes very critical for the retailer to decide what sort of quality range
to stock. This in turn sets the brand image for the store. In this regard a retailer must
have a fair idea about his clientele.
For instance, a retailer located in a posh area uses premium modes of communication,
makes efforts to provide elegant store atmosphere as well as offer best of the customer
services possible. In such a case it becomes essential that he also carries the best
quality merchandise. On the other hand, if we have a daily needs shop located in one
of the downtown areas, the store need not stress on providing best of the store
atmosphere more importantly his customers will not be in a position to pay for the best
quality products. It is noteworthy that the merchandise mix for any retail store should
reflect the clientele of that store.
Price points
Pricing is another important issue. India is a very price sensitive market. At any given
point of time what should be the price range of the merchandise? For the same
product prices vary depending upon the type of quality as well as brand name.
There can be situations where despite being a price sensitive market high-priced
products are in high demand. There are many up-market stores which stock brands
which are status symbols for the higher echelons of the society. Depending upon the
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location of the shop as well as nature of commodities dealt with, a retailer should Retail Product Mix and
Merchandise Strategy
decide what price points to deal in.

9.9 MERCHANDISE MIX

Before deciding upon the sourcing of merchandise a retailer has to decide about the
merchandise mix. He has to look into the variety, assortments and quality of merchandise,
decide the most important merchandise price points. This combination is known as the
merchandise mix. The key to effective merchandise planning lies in exceeding the needs
and wants of the market. While planning merchandise mix, a retailer must have complete
information about the target audience through market situation analysis.

9.10 FACTORS AFFECTING MERCHANDISE MIX

DECISIONS
Budget constraints
In merchandising, budget is the biggest constraint. The range and variety of merchandise
has become so large that it is impossible for the retailer to stock all varieties of any
product. The retailer has to decide with his limited resources what sort of depth in each
product line should be maintained.
Space limitations
Every day new brands are hitting the market. With the limited space and resources the
retailer has to take a decision regarding number of products or brands to stock.
Nowadays reputed retailers with strong customer loyalty are charging slotting allowances
from the manufacturers and dealers to display their products. This has led to a battle of
slots amongst the multinational corporations and prominent manufacturers. However,
this constraint does not exist in case of e-tailing.
The rate of product off take
As explained earlier, a retailer makes efforts to keep the depth in his .merchandise
assortment to satisfy the maximum number of customers. However, this leads to another
problem in case the off take of the total product line is not sufficient. The more variety
of merchandise a retailer keeps; he himself is in the danger of having unsold stock.
Thus, the retailer must decide whether he would like to go for a small product line with
a great depth or limited product lines with large variety. This decision however would
save him of investing in dead stock.
Stock replenishment schedule
It is essential for the retailer to know the replenishment schedule for his stock. He
should be well aware about his present level of inventory, reordering level, danger
level, as well as the lead time taken by the supplier or vendor to supply the goods
ordered for. The retailer must discount various factors like festivals, strikes, seasons
etc. which may affect the supply of merchandise by the vendor. Moreover, it is advisable
that the retailer has the required quantity and quality of merchandise available in sufficient
number in the store at the onset of any specific season. For instance, in a ready-made
garment shop it will be wise to order for sufficient quantities of specific garments much
before the onset of the season. This enables the retailer to not only stock the goods but
also charge a premium in case of high demand and scarcity of the product. 143
Retail Mix Strategies
9.11 MERCHANDISE LOGISTICS
Each retailer would like to receive his merchandise as early as possible. For this, he
needs to do logistics planning, select modes of transportation. Not only does the retailer
plan to receive the goods in time but also strategically plan the reverse logistics to send
goods to other stores of the chain. Similar reverse logistics can also be planned for
returning any below standard goods back to the vendor.
Activity 2
Make a visit to a departmental store, /retail store and also a multi-brand garment store
in your area/location and try and make an attempt to study the merchandise mix strategy
adapted by each of these stores.
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9.12 SUPPLY CHAIN MANAGEMENT

An efficient coordination within the supply chain of an organization is known as supply
chain management. A typical supply chain would include producer, agents as brokers,
wholesalers, retailers, and consumers. A retailer must know all the key parties in the
supply chain from producers to the end-user. By understanding each party’s objectives
the retailer can strategically devise supply chain plan keeping in mind the constraints,
environmental issues and factors related to product availability.
Duties of a Merchandise Manager
Generally merchandising is looked after by the retailer personally as far as small size
stores are concerned. However, in large retail stores like shoppers stop, pantaloons,
Chennai Central, there are professionals to deal with this vital function of the retailing.
It is very much possible that one retail store has got multiple merchandise managers
depending upon specific categories. Merchandise managers need look into buying the
best product at the reasonable price. This in turn, makes it necessary for them to
perform the basic functions like planning, organizing, directing, coordinating, and
controlling the merchandising process.
Planning: This is the first basic step for merchandise manager to be successful in his
endeavor. Since, once the season starts, the retail store may not have the time to fine
tune their merchandise plan. Based on the previous sales data a sales forecasting chart
is prepared. Further, based on the available resources of the store, the budgeting has
to be done. The budget as well as the sales data helps the buyers plan what to buy?
and, identify other financial limitations for the current year’s purchase.
Organizing: Merchandise manager has to organize the merchandising process which
starts with collecting the sales forecasting data and then proceeding onto the budget.
Further, all the activities related to merchandising planning are to be initiated and seen
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that they work to achieve organizational goals. Merchandising being the most important Retail Product Mix and
Merchandise Strategy
function of the organization, organizing the process is an essential function.
Directing: It is the responsibilities of a merchandise manager to not only guide the
buyers regarding what and how to purchase but also to train them to work efficiently.
It is essential on the part of the buyers to be vigilant about the quality and price aspects.
Merchandise manager has to direct from time to time as per the market situation.
Coordinating: The essence of merchandising lies in coordination. The merchandising
manager needs to coordinate with various people to achieve the required results. A
retail store requires many products at a given point of time. This in turn is handled by
many buyers. An efficient merchandising manager needs to coordinate with all the
buyers as well as the seller parties. All these activities run parallel to each other.
Controlling: Since multiple factors influence the business of a retailer, therefore, it is
possible that a retail store is unable to achieve its targets in merchandise performance
due to such factors. It is the duty of a merchandise manager to look into the reasons
and apply control. Corrective measures taken in time can minimize losses to the store
at the same time may be instrumental in maintaining goodwill of the firm.

9.13 SUMMARY
Merchandising is the primary function of a retailer. Procurement and reselling of
merchandise is the basic function of a retailer. Each retailer stocks hundreds of products.
Each product has further multiple brands. He has to track the movement of each product
and brand in the market.
He must have proper information about demand and supply situation of merchandise.
Customer is in prime focus here. A good merchandising strategy keeps a watch on
diversity in requirements of the customer needs. Merchandise Planning therefore is the
most important step of merchandising. Besides other factors one of the important aspects
which influences merchandising decisions are the financial objectives. Issues like
assortment planning, price points, etc. are based on the financial objectives. Finally, a
retailer has to decide whether to stock national brands or develop own private brands.

9.14 KEY WORDS

Category : An assortment of similar items with reasonable degree of
similarity. Eg. Men’s toiletries category.
Category Captain : When in a specific category one vendor becomes the most
preferred by all or majority of retailers.
Merchandising : The function of buying from some sources and making the
same available to the customer in convenient sizes and at a
reasonable price main line dealing in by the retailer. This is
done to arouse interest in the customer.
Price points : Price Range.

9.15 SELF-ASSESSMENT QUESTIONS

1. Describe various factors to be considered while undertaking merchandise planning. 145
Retail Mix Strategies 2. Select a category and make a list of national brands in that category. Now select
some private brands and evaluate the comparative performance and benefit to the
retailer.
3. Explain what merchandise mix is and describe various factors affecting merchandise
mix decision.
4. Who is a merchandising manager in a retail business? Discuss the duties of a
merchandising manager by taking an example.

9.16 REFERENCES/FURTHER READINGS

Berman B, Evans JR, Chatterjee P, ‘Retail Management A Strategic perspective, 13th
edition, 2017, Perason India (P) Ltd., New Delhi
Birkin, M., [Link], [Link], and [Link]. Intelligent GIS: Location Decisions
and Strategic Planning. New York: John Wiley & Sons.
Dale M. Lewison, ‘Retailing 6th edition-Prentice Hall
Dunne Patrick M, Lusch Robert F, Griffith David A, (2002) Retailing 4th Ed, (Thomson
South Western)
Levy Michael, Weitz Barton A (2001) Retailing Management, 5th Ed, (McGraw-Hill
Irwin)
Michael L, Barton A W, Retailing Management, 5th edition, 2004, Tata McGraw Hill
Publishing company Ltd, New Delhi
Pradhan Swapna, Retailing Management : Text and Cases, 6th Edition, 2020, McGraw
Hill
Education (India) Pvt Ltd, Chennai.
Sheikh A., Fatima K, Retail Management, 2022, Himalaya Publishing House, New
Delhi
Sinha Piyush Kumar and Uniyal Dwarika, Retail Management - An Asian Perspective,
Thomson Learning, Singapore, 2005.

9.17 ONLINE RESOURCES

1. Retail Management – Merchandising [Link]
watch?v=uSw4hS979ZA
2. Merchandise Management – Full Process [Link]
watch?v=t0lPQk_kpzc
3. The Basics of Visual Merchandising: Simple Dos and Don’ts, https://
[Link]/watch?v=gozyHwFPebc
4. HouseMart – Merchandising Displa Techniques, [Link]
watch?v=ghTCtf1yNTk
5. Home Depot – Retail is Detail – Merchandising Expert Team, https://
146 [Link]/watch?v=Fa08L46voQE
 Retail Product Mix and
UNIT 10 RETAIL PRICING STRATEGY Merchandise Strategy

Objectives
After going through this unit, you should be able to:
 understand the impact of consumers, manufacturers, government and
competition in the retail pricing decisions;
 ascertain the various pricing approaches adopted by the retailer
 discuss the various types of retail pricing objectives;
 analyze the retail pricing strategies and tools;
 develop an understanding of various concepts related to retail pricing; and
 discuss the various pricing techniques and methods.
Structure
10.1 Introduction
10.2 The Manufacturer’s Suggested Retail Price (MSRP)
10.3 External Influences on Retail Pricing Strategy
10.4 Retail Pricing Objectives
10.5 Retail Pricing Approaches
10.6 Retail Pricing Strategies
10.7 Tactics for Fine Tuning the Base Price
10.8 Setting Retail Prices
10.9 Methods for Setting Retail Prices
10.10 Role of Price Elasticity and Sensitivity - Consumer Responsiveness to Prices
10.11 Steps to Establish a Real World Pricing Strategy
10.12 Summary
10.13 Self Assessment Questions
10.14 Further Readings

10.1 INTRODUCTION
You would agree that the right price can influence the quantities of various products or
services that consumers will buy, which in turn determines the total revenue and the
profit of the retail store. Hence, sound pricing decisions are important to successful
retail business. Systematic and informed decisions regarding pricing strategies must be
made while considering a wide range of issues. Profitability is a prime objective of any
retail firm which covers the cost of buying merchandise, costs of running business
(rent, salary, maintenance cost) and finally to invest in further expansion of the retail
business. Profitability of retail business is subject to be influenced by two aspects; one
is a profit margin on the offerings that are sold, and second is cost involved with selling
the merchandises.

147
Retail Mix Strategies Retailers are required to have understanding of the characteristics of the people
who shop at their respective store, the reasons why they shop at their store and
degree of consistency between the price perception of consumers and store’s price
philosophy.
Thus, Retail pricing strategy refers to the process of determining the optimal prices of
products or services that a retailer offers to customers. It involves analyzing various
factors, such as production costs, competitor pricing, customer demand, and perceived
value, to set prices that are both profitable and competitive.
Retailers can use different pricing strategies to achieve their goals, such as cost-plus
pricing, value-based pricing, dynamic pricing, and psychological pricing. These strategies
take into account different aspects of the market and customer behavior to determine
the best price point for a particular product or service. We will be touching on other
pricing strategies in our discussion in the following sections of this unit.
Effective retail pricing strategies require a deep understanding of market trends,
consumer behavior, and industry dynamics. Retailers must continually evaluate and
adjust their pricing strategies to remain competitive and profitable in a constantly changing
retail environment. Pricing strategy philosophy contributes in the positioning of the
store in the market and in turn giving store image, which provides it distinctive identify
from rest of the competitors in the market.
Before we progress further, it is essential to have a clear understanding of manufactures
suggested retail price.

10.2 THE MANUFACTURER’S SUGGESTED RETAIL

PRICE (MSRP)
This is the price that the manufacturer recommends the retailer to sell a product at,
based on the cost of production, marketing expenses, and profit margin. The MSRP
serves as a guide for retailers, who may choose to sell the product at a higher or lower
price.
The MSRP is usually listed on the product packaging or in marketing materials, and it
is often used as a reference point for comparison shopping by consumers. While the
MSRP is suggested by the manufacturer, retailers have the freedom to set their own
prices based on factors such as competition, demand, and inventory.
In some cases, manufacturers may enforce a Minimum Advertised Price (MAP) policy,
which requires retailers to advertise their products at or above a certain price point.
This policy is intended to prevent retailers from engaging in price wars and devaluing
the product in the eyes of consumers.

10.3 EXTERNAL INFLUENCES ON RETAIL PRICING

STRATEGY
Using Porter’s model to analyze these factors for strategic pricing, they can be broadly
segregated into four “forces” - Customers, Suppliers (manufacturers, wholesalers and
other suppliers), Competitors and Government.

148
1) Customers Retail Pricing Strategy

Retailers need to understand the price sensitivity of customers that form their target
segment. This price sensitivity is based on various personal, social or geographical
factors that present a major challenge for retailers while setting prices. For example, in
the case of the Bangalore-based coffee chain, Cafe Coffee Day (CCD), it plans to
expand and set up 200 stores across 60 cities way back during 2004. Here, it has
chosen to increase its presence in the small cities because it is observed that the youth
in such small towns have adopted the lifestyles of their counterparts in metro cities...The
only challenge company feels is pricing. A cup of coffee at Rs 35 is accepted in metro
cities but in small towns such price points may be difficult to sell. The company feels
that it may not be possible to change prices in order to retain uniformity and also to
build its image among the customers.
Keeping this in mind, the following points can be remembered while evolving the pricing
strategy.
 One needs to know their customers’ desires for different products and whether
price is an important issue in their purchasing decision
 A price range that people will pay for the product need to be established i.e.,
what is the high and low price that the merchandise will have to fall within for
someone to buy the product
 Consider an apt pricing strategy, which would be compatible with your store’s
overall retail marketing mix that includes merchandise, location, promotion,
and services.
The retailer is faced with a tough challenge of dealing with price sensitivity and its
variability while considering separate consumer segments. Let’s discuss on how they
target consumer segments based on price sensitivity.
Economic Oriented: They don’t differentiate among various retailers on other factors
other than price such as store image, service, etc.
Convenience Oriented: They are willing to pay higher prices for reduction in the
shopping effort. So, they tend to prefer buying from websites like [Link], or
establishments like Domino’s Pizza where there are no delivery hassles and orders can
be placed quickly.
Image Oriented: They differentiate between various stores on the basis of the image
and the products they stock, and not the price. They look for prestige value from their
shopping. These customers would prefer retailers like Tiffany, Allukas, Dewan Saheb
or restaurants like Ruby Tuesday.
Variety Oriented: They prefer retailers who have a wide range and assortment to
choose from and charge fair prices. Retailers that would attract such type of customers
are Sears for tools and appliances, Nallis for sarees, etc.
Loyalty Oriented: These customers purchase at familiar places, where the retailer or
staff of the retail outlet, recognizes them. They will pay slightly above average prices,
or on the contrary they may look for discounts since they have been loyal to that
retailer. Indian customers generally look for personalized transactions while buying
jewellery. This aspect of consumer behaviour is somewhat peculiar to India because of
the huge gray and duplicate goods market. 149
Retail Mix Strategies Key Effects Examining Price Elasticity: While still on discussion about customer,
lets touch upon an important point of price elasticity on customer’s demand. Price
elasticity is a measure of the responsiveness of demand to a change in price. If demand
changes by more than the price has changed, the good is price-elastic. If demand
changes by less than the price, it is price-inelastic. The following are the key effects
while examining price elasticity.
Difficult Comparison Effect: Customers are more sensitive to price when it is easy
to compare competing offerings. A retailer cannot charge higher prices on Amul Butter,
which is widely available and where customers can easily compare prices. So, many
retailers have developed their own private label merchandise. For example, Food
World sells its own branded rice. It is very difficult for the customer to compare prices
of private labels.
Benefits/ Price Effect: This defines the relationship between people’s perception of
the benefits they receive from a product and the price they pay for it. For example, a
customer would buy a Mont Blanc Pen at a much higher price even if similar quality
pen is available at a lower price.
Situation Effect: Customers’ sensitivity to price can differ depending on the situation.
For example, when people go on an outing to a hill station then they don’t hesitate to
buy an item for double the price that they can get in their local market. This is because
this shopping is a part of the entire outing experience.
Many restaurants take advantage of the situation effect. Their lunches cost less than
their dinners because customers expect to pay less for a lunch. On the other hand,
“low price” retailers maintain a utilitarian environment with minimum decorations.
2) Suppliers
Both the retailer and the supplier like to have control and want to price according to
their own image, goals and objectives. With the advent of Internet, manufacturers are
selling their goods directly to the final customer. In case of an exclusive distribution net-
work, the retailer carries products of the particular manufacturer only. The manufacturer
is able to exercise fairly large amount of control in this case. Then, some manufacturers
first estimate the price at which the goods would be sold to the customer and subtract
the required profit margin of the retailer/wholesaler to determine the selling price to the
retailer. For example, if the estimated final price is Rs. 100, and the accepted profit
margin is 25% on sales, then the manufacturer would sell to the retailer at Rs.75. So if
the retailer buys at Rs.75, he can make a profit of 25% on the selling price of Rs. 100
i.e., Rs. 25. Apart from the manufacturer or wholesalers, the other suppliers to the
retailer are his employees, landlord, suppliers of fixed assets, etc. - Following
characteristics influence the bargaining power of supplier:
 Number of supplier, few large suppliers or fragmented source of supply,
 Number of substitutes for the particular merchandise,
 The switching costs from one supplier to another,
 Supplier’s level of forward integration in order to obtain higher prices and
margin
3) Competitors
Competitors are the most influential factor in determining the price. The competitive
150
environment affects the freedom of a retailer to fix prices to a great extent. Competition Retail Pricing Strategy
can range from being perfect competition to a monopoly.
 A perfectly competitive market is the most competitive market imaginable.
Products are homogeneous and information is perfect. Everybody is a price
taker where firms earn only normal profit. If firms earn more than that (excess
profits) the absence of barriers to entry means that other firms will enter the
market and drive the price level down until there are only normal profits to be
made.
 A monopoly is said to exist when the production of a good or service with no
close substitutes is carried out by a single firm with the market power to
decide the price of its output. It decides its price by calculating the quantity of
output at which its marginal revenue would equal its marginal cost, and then
sets - whatever price would enable it to sell exactly that quantity.
 Oligopoly is when a few firms dominate a market. They either behave so by
forming an alliance or plan informally to prefer a non-price competition. When
they do compete on price, they may produce as much and charge as little as
if they were in a market with perfect competition. An example of oligopoly is
the cola, industry where there are only two major players, Coca Cola and
Pepsi.
 Monopolistic competition lies somewhere between a perfect competition
and a monopoly. It is also known as an imperfect competition. Here, there
are fewer firms than in a perfectly competitive market and each can differentiate
its products from the rest somewhat, perhaps by advertising or through small
differences in design. As a result, firms can earn some excess profits, although
not as much as a pure monopoly, without a new entrant being able to reduce
prices through competition,
4) Government
Legal issues affecting the retail environment can be broadly divided into two. One that
affects the buying of merchandise, such as price discrimination and vertical price fixing
and the other that affects the customer (horizontal price fixing, predatory pricing, and
bait and switch tactics). Let’s examine the different techniques of price setting.
Price Discrimination: This means when a vendor sells the same product to two or
more customers at different prices. This discrimination can occur between retailer and
customer or between the retailer and his vendor. In the USA, price discrimination
between vendors and their retailers is generally illegal, but there are three situations
where it is acceptable.
Vertical Price Fixing: It involves agreements to fix prices between parties at different
levels of the same marketing channel (e.g. retailers and wholesalers). The agreements
are usually to set prices at the manufacturer’s suggested retail price. So pricing either
above or below MRP is often a source of conflict. Retailers cannot sell above the
MRP however. It is not permissible under law.
Horizontal Price Fixing: It involves agreements between retailers that are in direct
competition with each other to have the same prices. Horizontal price fixing is always
illegal since it suppresses competition while often raising the cost to the consumer.
Suppose there are three stores in a locality. Two of them join hands and start selling 151
Retail Mix Strategies groceries at very low prices, as loss leaders. If the third store is selling only groceries,
he would lose sales and would have to shut shop.
Predatory Pricing: This means establishing merchandise prices to drive competition
away, from the marketplace and it is illegal. A retailer can however sell the same
merchandise at different prices at different geographic locations if the costs of sale or
delivery are different.
In the Indian context, government exercises a very strong influence on the prices through
its legal and policy directives. As per the Weights and Measures Act, it is illegal to sell
goods above MRP (Maximum Retail Price). A customer can negotiate and purchase
goods below MRP, but a retailer is not supposed to sell the product above the mentioned
MRP. However, in practice, it is not uncommon to see goods being sold above their
prescribed MRP in various geographic locations.
Activity 1
List from your observation for each retailer adopting the above mentioned pricing
technique
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10.4 RETAIL PRICING OBJECTIVES

Retailers are supposed to determine their objectives as first step in pricing. When
deciding on pricing objectives retailer needs to consider:
1) the overall financial, marketing, and strategic objectives of the retail business;
2) the characteristics of product or brand;
3) consumer price elasticity and price points; and
4) the resources available.
With these broad objectives, the retailer could be trying to fulfill four specific objectives
such as:
1) Profit-Objective
The retail store may price its product with the objective of maximizing profits in the
short run or long run or both. The objective of profit maximisation must be studied
carefully because: it may lead to unethical practices such as overcharging or deceiving
the customers. This in turn may lead to some form of intervention by either the
government or consumer groups (NGOs). At other times, the marketer may price his
products with the objective of obtaining only a target rate of return on his investment.
This is particularly so with products in the mature stage of the product life cycle.
152
2) Market Share-Objective Retail Pricing Strategy

The retailer or marketers may also price his product with the, intention of increasing his
market share, or stabilizing his market share. He can set the price of his product lower
than that of his competitors.
3) Competitor-Oriented Objective
The retailers or marketer may price his product to counter any existing or prospective
move by his competitors. Retailer may deliberately price its merchandise low to:
 Discourage potential retailer from entering the market,
 Advance the exit of the potential competitors and marginal firms from entering
the market,
 Spoil the market of retail competitors with the eye on getting future benefits.
With a low price, the marketer can prevent price-cutting by competitors. At other
times, the retailers may cooperate with his competitors by setting a common price. A
good example of this type of pricing is very common among traditional business centres
in India where all retailers dealing in similar merchandise set similar common prices.
This practice is common among retailers of Beauty salons, Garment Retailers and
Grocery etc.
4) Buyer-Oriented Objective
Another pricing objective adopted by retailer may be buyer-oriented. The aim of such
pricing is to maintain socially acceptable prices and to be fair to customers. The prices
of goods of super bazaars Margin free (Kerala) and Rythu (Andhra Pradesh) can be
considered buyer-oriented as these retail chains practice the professed pricing objectives
of bypassing intermediaries and sharing savings with the ultimate consumers. Most of
the five star hotels stress on the kind of ambience and services extended by their hotel,
as these are of prime concern to their customers. Tanishq, the jewellery retail chain,
emphasises on the other elements of the marketing mix, such as heavier promotion and
advertising, as well as highlighting the quality and the characteristics of their offerings
primarily to justify the relatively higher prices charged by them.
5) Government-Oriented Objectives
The pricing of some products may be constrained by existing laws or may be influenced
by government action. The prices of petrol, grocery items, and vegetables in India are,
to a large extent, controlled and influenced by government action.
Consumer Protection Act 1986, Indirect Tax provisions and Competition Act of 2002
has a bearing on the pricing of the merchandise.
6) Product-Oriented Objectives
The retailers or marketers at times make their offerings more “visible” by means of
pricing. Customers are usually attracted by the advertisements in newspapers highlighting
special offers and discounts. With a lower price, the retail store can therefore catch the
attention of buyers and this will help him to introduce new offerings, increase the sale of
weak products etc. Many of the retail stores in India such as Big Bazaar are using
these pricing techniques.
153
Retail Mix Strategies Activity 2
Compare the pricing objectives of
a) an independent retailer dealing in footwear.
b) a retail chain outlet dealing in footwear.
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10.5 RETAIL PRICING APPROACHES

You would appreciate that Pricing strategies affect both margins and positioning of the
retailer. Various pricing strategies can be followed by the retailer depending on his
business objectives, the influence of other external factors and the impact of the pricing
strategy on other aspects of the marketing mix.
There are three retail-pricing approaches based on the long-term objectives of the
pricing decision. They are:
a) Discount Orientation: Here low prices are used as the major tool for competitive
advantage wherein the store portrays a low status image while profit margins are
kept low to target price-based customers. The model works on high inventory
turnover and lower operating costs. This is arguably the most common model in
India because of the low per capita income and price consciousness. For example,
Janpath market in New Delhi.
b) At-the-market Orientation: These kinds of stores normally set average prices.
It offers solid service, a nice atmosphere to the shoppers, margins are average to
good, and it stocks moderate to above quality products. Since this model caters
to the middle class, it has a huge target market. Westside in India focuses on
providing value for money merchandise for the entire family along with an
international shopping experience. The private label of the company gives it the
flexibility of a wide range of merchandise and also has the advantage of generating
better margins for the company.
c) Upscale Orientation: Here competitive advantage is derived from the prestigious
image of the store. The profit margins per unit are high, but coupled with higher
operating costs and lower inventory turnover. These stores usually stock distinctive
product offerings and provide high quality service, building up customer loyalty.
The products stored generally go with the image of the store. Like such stores
would stock Christian Dior perfumes and Rolex watches. It may be appropriate in
situations of inelastic demand in which an organisation decides to keep its prices
high.
These approaches may be implemented using various pricing strategies. Discount
orientation may take the form of every-day-low-pricing strategy or high-low strategy.
Up-scale orientation is reflected in premium pricing strategies. At-the market orientation
154 is reflected in strategies that offer average prices for most products. Hence while stores
like LifeStyle and Arcus do reflect an up-scale pricing orientation they do offer rebates Retail Pricing Strategy
and discounts at various intervals.
Hence, the pricing approaches adopted by a retailer should be in accordance with the
other elements of the retail marketing mix. The following table offers a representative
list of the pricing approaches along with their complimentary retail mix strategies.
This is only an indicative list and many retailers do follow a different set of combination
to meet their specific requirements.

10.6 RETAIL PRICING STRATEGIES

So, in order to select the various pricing approaches, certain effective pricing strategies
need to be implemented in its support. The adoption of these strategies is guided by
the basic pricing approach of the retailer.
Every Day Low Pricing (EDLP)
EDLP has been popularised by large international retailers like Wal-Mart and Home
Depot. This strategy demands stability of retail prices below MRP (maximum retail
price)-mentioned on the goods i.e. at a level somewhere between the regular price at
which the goods are sold and the deep discount price offered when a sale is held. In
India, many co-operative stores have adopted this strategy. One store that uses EDLP
155
Retail Mix Strategies is Big Bazaar. Here, goods are either sold below their normal prices, or some sales
promotion scheme is available. Subhiksha also adopts the essentials of a discount
store. Most of these retailers have discovered the benefits of adopting this EDLP
strategy such as:
 Less reliance on price reduction by retailers
 Reduced need of advertising
 Improved customer service
 Better inventory management
High Low Pricing
In High/Low pricing, retailers offer prices that are sometimes above their competition’s
ELDP, but they use advertisements to promote frequent sales. Nowadays, retailers
also use sales to respond to increased competition and a more value-conscious customer.
Some of the benefits of adopting such a strategy are:
 Same merchandise can be used to target different segments
 Interest is created amongst customers
 A quality image is created
Leader Pricing
Retailers sometimes price particular fast moving products at a lower price to attract
customers to the store. For example: A grocery retailer can sell eggs cheaper than
other competing stores so that customers consider him while purchasing foodstuff since
the customer is also likely to buy milk, bread, flour etc along with eggs, these products
are priced slightly higher. So, the profit foregone on eggs is more than recovered on
other items of groceries.
Sometimes, the fast moving products are sold at cost, or even at a loss. So, these are
also called loss leaders. If the sale of other profitable products is insufficient to cover
the losses incurred on sales of loss leaders, then this strategy can backfire. The retailer
normally chooses his own store brands for higher pricing. Items such as pulses, rice,
flour, etc are priced higher because it is also not easy to compare the price against
quality offered by other stores.
Skimming Pricing
Price skimming is a pricing strategy in which a retailer sets a relatively high price for a
product or service at first, and then lowers the price over time. It allows the firm to
recover its sunk costs quickly before competition steps in and lowers the market price.
However positive, there are some potential problems with this strategy such as:
 The inventory turn rate can be very low for skimmed products.
 Skimming encourages the entry of competitors. When other retailers see the
high margins available in the industry, they may decide to quickly enter.
 The retailer could gain negative publicity if he lowers the price too fast and
without significant changes in product profile.
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Penetration Pricing Retail Pricing Strategy

Penetration pricing is the pricing technique of setting a relatively low initial entry price,
a price that is often lower than the eventual market price. The expectation is that the
initial low price will attain market acceptance by breaking down existing brand loyalties.
Penetration pricing is most commonly associated with the marketing objective of
increasing market share or sales volume, rather than short term profit maximization.
Price Penetration is most appropriate when
 Product demand is highly price elastic.
 Substantial economies of scale are available,
 The product is suitable for a mass market.
 The product is likely to face stiff competition.
 There is inadequate demand in the low elasticity market segment for price
skimming.
Price Lining
Price lining refers to the offering of merchandise at a number of specific but,
predetermined prices. Once set, the prices may be held constant over a period of time,
and changes in market conditions are adapted to by changing the quality of the
merchandise. A limited number of predetermined price points are set at which
merchandise may be offered for sale-e.g., Rs. 79.50, Rs.109.50, Rs.149.50
respectively,
Psychological Pricing
Psychological pricing is a method of setting prices intended to have special appeal to
consumers. This can be conducted in several ways to name a few
 Prestige Pricing
Prestige pricing uses -high prices to convey a distinct and exclusive image for the
product. This is done in order to evoke perceptions of quality and prestige with the
product or service. Various clubs like Gymkhana Clubs and DLF Golf Club price their
products to indicate exclusivity similar strategy is adopted by five star hotels like Taj
and Radisson in terms of their menu offerings..
 Reference Pricing
Reference pricing uses consumers’ frame-of-reference that is established through
previous experience purchasing the sports product or high levels of information
search.
 Traditional Pricing
Here, traditional pricing uses historical or long-standing prices for a sports product to
determine the pricing.
 Odd-Even Pricing
This is quite a popular. Here the prices are set at odd numbers (e.g. Rs.99.95) to
denote a lower price or a “good deal” or setting prices at even numbers (e.g., Rs.
100.00) to imply higher quality. Many discounters like Big Bazar in India and Wal- 157
Retail Mix Strategies Mart use odd prices to denote lower prices. Many retailers in Japan use even pricing
to denote quality - a very important issue with Japanese consumers.
Besides, these few other popular strategies of setting retail prices are:
Multiple Unit Pricings
Retailers use multiple unit pricings to encourage additional sales and to increase profits.
The gross margin that is sacrificed in a multiple unit sale is more than off-set by its,
savings that occur from reduced selling, and handling expenses.
Bundle Pricing
It is the practice of offering two or more different products or services at one price.
Price bundling is used to increase both unit and rupee sales by bringing traffic into the
store. It can also be used to sell less desirable-merchandise by including it in a package
with a product of great demand. Like a hotel can offer a 2 days stay for Rs.8000/-
inclusive of lunch, even though separately these two items (stay and lunch) would cost
more than Rs.8000/-. In many cases a retailer may bundle a set of extra-large T-shirts
with large -size T-shirts to promote the sale of the slow moving item. Same strategy is
sometimes used in across product and categories.
Pre-emptive Pricing
Pre-emptive pricing is a strategy which. Involves setting low prices in order to discourage
or deter potential new entrants, to the retailer’s market, and is especially suited to
markets in which the retailer does not enjoy any market privilege and entry to the
market is relatively straightforward.
Extinction Pricing
Extinction pricing has the overall objective of eliminating competition, and involves
setting very low prices in the short term in order to ‘under-cut’ competition, or
alternatively keep away potential new entrants. The extinction price may, in the short
term, be set at a level lower even than the suppliers own cost of production, but once
competition has been extinguished; prices are raised to -profitable levels.
Perceived-value Pricing
A method of pricing in which the seller attempts to set price at the level that the intended
buyers value the product. It is also called value-in-use pricing or value- oriented pricing.
If the perceived value is high the retailer can charge a premium price for the product.
The example of well-established traditional independent retailers in small townships
can be cited in this respect. They charge a premium price on their offerings because of
quality and variety offered to their customers. Kala Mandir, the ethnic women apparel
store in Ludhiana, provides exclusive collection of sarees and ladies suits to their
customers at prices above the market average
Demand-Oriented Pricing
A method of pricing in which the seller attempts to set price at the level that the intended
buyers are willing to pay. It is also called value-in-use pricing or value- oriented pricing.
Fixed and variable Pricing
Most firms use a fixed price policy i.e. they examine the situation, determine an
158 appropriate price, and leave the price fixed at that amount until the situation changes,
at which point they go through the process again. The alternative has. been variable Retail Pricing Strategy
pricing, a form of first degree price discrimination, characterized by individual bargaining
and negotiation, and typically, used for highly differentiated items, like real estate,
unbranded garments, fresh vegetables and fruits etc. In India there are certain markets
which are well known for bargaining e.g. Gaffar market in Delhi, Fashion street in
Mumbai, Ranganathan street in Chennai,S.M street in Kozhikode, Kerala. There are
some shops in markets like Sarojini Nagar and Lalpat Nagar in Delhi which specifically
advertise that they do not bargain and have a “Fixed Price”
Considering all the above choices of pricing strategies, it is observed that very few
retailers have a clear cut, simple to understand pricing strategy. It differs from time to
time, product to product, location to location. Take a look at the below table to
familiarize yourself with some of the issues faces by retailers while setting a price.

10.7 TACTICS USED FOR FINE TUNING THE BASE

PRICE
Following are some of the tactics used by retailers to fine tune the base, price:
a) Coupons
These are documents that provide a right to the holder to purchase at a reduced price 159
Retail Mix Strategies or entitle him or her to a discount on the product. The coupons are disbursed by
retailers through various means, depending on the type of customers that they want to
target, economy of distribution, etc. Sometimes coupons are issued in newspapers for
cut-out; they can be given along with purchase or purchases of particular product/
products categories above a certain amount. E.g. anybody who buys a television would
get a coupon entitling him to avail of a discount on microwave oven purchases. Or,
anybody who buys goods worth Rs 10,000 would get a coupon to purchase Rs 1000
worth of goods free of cost. Coupons are used to attract customers to buy for the first
time, convert those first-time customers to regular ones, induce large purchases and
increase usage.
b) Rebates
Rebate is basically money returned to the buyer on the basis of some portion of the
purchase price. The buyer would return the empty packaging, or anything that would
serve as a proof of purchase, and the retailer/manufacturer returns the mentioned amount
to the buyer. For example, one scheme could be that if the future purchase. Or, if the
pack is worth Rs.50, then on returning the pack, the buyer would be returned Rs.5.
Rebates are used when the price is large, because for small amounts the handling costs
do not justify rebates.
Activity 3
Select any two food supermarkets in your city/location and compare their pricing strategy
for their respective private labels.
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10.8 SETTING- RETAIL PRICES

To set retail prices it is important to understand some of the concepts and calculations
related to it, basic methods employed for setting prices and factors like price elasticity
and price sensitivity which impact the effectiveness of the pricing strategy.
Concepts and Calculations for Setting Retail Prices The price that a customer
pays for an offering comprises of two main components: the cost of the offering or the
price that retailers pay to a supplier/ manufacturer, and the gross profit margin, which
is selling price minus the cost of the product.
In the retail business, the cost of goods (costs of acquiring products) includes the price
paid for the merchandise, handling, freight charges, and import duties. Operating
expenses include rent, wages, advertising, utilities, and supplies.
A) Mark Up
Markup is the difference between the price you pay for the product and the selling
160 price. The markup can be established as a percentage of the cost or as a percentage of
the retail price. A price based on markup percentage on cost is determined by adding Retail Pricing Strategy
a percentage of cost to the cost of goods as follows:
Cost of shirt: Rs 20.00
X Markup % 25%
Markup amount Rs 05.00
Cost of shirt Rs 20.00
+ Markup amount 5.00
Selling price Rs 25.00
Percentage Mark up is expressed as a percentage of cost.
(Mark up _ Cost of goods) x 100
Retailer can decide to use a standard markup percentage for all the merchandise, or
have different markups for different products. The key is to make sure the average
markup or gross margin is enough to cover the operating expenses and meet its target
profit margins. When establishing the markup on particular merchandise, two points
should be noted:
 The cost of the merchandise used in calculating markup consists of the base
invoice price for the merchandise plus any transportation charges minus any
quantity and cash discounts given by the seller.
 Retail price, rather than cost, is ordinarily used in calculating percentage markup.
The reason for this is that when other operating figures such as,, wages,
advertising, and profits, are expressed as a percentage, all are base on retail
price rather than on the cost of the merchandise being sold.
But while calculating such prices, it is essential to know the following important data:
 Cost of Goods Sold (COGS)
COGS takes into consideration every expense incurred to bring the goods to the
point of sale, it includes other expenses besides the invoice cost of goods moved
out of stock. COGS are the largest expense incurred by a retailer and the price is
generally determined by adding a margin for other expenses plus profit to service
and replaces the capital.
COGS would typically include:
a) The purchase cost of all the goods that have moved out of stock. This
movement may be by means of sales, or theft, breakage and other losses.
This purchase cost is the price charged in the purchase invoice. Trade discounts
given in the invoice are considered (therefore subtracted from purchase price)
however, cash discounts are not considered.
b) Taxes charged in the invoice are added to the cost.
c) Expenses incurred to bring the goods to the point of sale such as carriage
inwards (freight), travelling expenses incurred by the buyer to purchase the
goods, etc.
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Retail Mix Strategies d) Depreciation on the remaining stock at the end of the period.
e) Transfers from other departments or branches.
Therefore, Cost of Goods Sold can be calculated by the given formula:
 Opening Stock (at cost or market price, whichever is lower) + Purchases &
additions during the year (after including the costs as detailed above)
 Closing Stock (valued on the same basis as opening stock)
Therefore the Cost of Goods Sold (COGS) refers to the direct costs incurred in
producing or acquiring the goods that a company sells to its customers. These costs
include the cost of materials, direct labor, and overhead expenses that are directly
related to the production or purchase of goods.
COGS are an important financial metric that is used to determine a company’s gross
profit margin. Gross profit is the difference between a company’s total revenue and the
cost of goods sold. It represents the profit that a company makes before deducting
operating expenses such as rent, salaries, marketing overheads, and taxes.
To calculate COGS, a company needs to add up all of the direct costs associated
with producing or acquiring the goods sold during a specific period. This includes
the cost of raw materials, labor, freight charges, and other expenses related to the
production process. Any indirect costs that are not directly related to the production
or purchase of goods, such as administrative expenses, are not included in the
calculation of COGS.
Once the COGS have been calculated, it can be subtracted from the total revenue to
determine the gross profit. This figure is an important indicator of a company’s
profitability and can be used to analyze trends and make informed business decisions.
Limitations of Cost of Goods Sold (COGS):
While Cost of Goods Sold (COGS) is an important financial metric, there are some
limitations that need to be considered.
I. It does not include all costs: COGS only includes the direct costs of
producing or acquiring the goods sold. It does not include indirect costs such
as rent, utilities, salaries, and other overhead expenses. As a result, COGS
may not provide a complete picture of a company’s true cost structure.
II. It assumes consistent inventory levels: COGS is calculated based on the
assumption that inventory levels are consistent over a period of time. This
assumption may not hold true for companies that experience significant
fluctuations in inventory levels, which can lead to distorted COGS calculations.
III. It may not reflect the true value of inventory: COGS assumes that all
inventory items have the same value, regardless of their age or condition. This
may not reflect the true value of inventory, particularly for products that have
a short shelf life or are subject to obsolescence.
IV. It does not account for changes in production costs: COGS assumes
that production costs remain constant over time. However, changes in raw
material prices, labor costs, or other expenses can affect the cost of producing
goods, which can impact the accuracy of COGS calculations.
162
 V. It does not consider other factors affecting profitability: While COGS Retail Pricing Strategy

is an important metric for analyzing profitability; it does not take into account
other factors that can affect a company’s bottom line, such as marketing
expenses, research and development costs, and taxes.
In short, COGS is a useful metric for analyzing a company’s cost structure and
profitability, it should be used in conjunction with other financial metrics and qualitative
factors to gain a comprehensive understanding of a company’s financial health.
Net Sales
This is the total sales figures adjusted for goods returned by customers and allowances.
Net sales are therefore, gross sales less returns and allowances.
Gross margin (also called gross profit)
It is the difference between net sales and the cost of goods sold. Net sales means sales
adjusted for any goods returned.
Percentage Gross Margin (or Gross profit percentage)
This is the gross margin expressed as a percentage of net sales (Gross margin, Net
sales) x 100
B) Markup and Margin
Markup is a percentage of the cost. Margin is the same rupee amount as mark-up, but
expressed as a percentage of the selling price.

This is the easiest way to determine prices but can get into trouble if the margin between
the cost of goods and the suggested retail price is not enough to cover operating
expenses. The income of the retail business is determined on the basis of the gross
profit margins and number of goods sold. This provides resources to incur expenditure
towards the stock purchases, meeting operating costs and investing funds for expansion
of business. In order to achieve desired success in retail business, setting of prices by
retailer is important. Retailers are expected to take into account these factors while
setting prices of its offerings:
 Owner’s returns
 The portion of rent going for storage space
 Maintenance and repairs
 The costs of business services (such as accounting and legal services)
 Advertising and promotion costs, insurance premiums, interest payments
etc.
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Retail Mix Strategies C) Mark Down

This is a reduction on the normal selling price. Sometimes, a particular line of goods is
not moving; therefore the retailer reduces the price on such goods to make them
attractive to the customers.

Mark down = Normal selling price - reduced selling price

One needs to understand the various uses of mark-downs and factors that ultimately
result in a mark-down.

1) Correctional mark-downs are used to encourage customers to respond more

satisfactorily to a line. For example, if a new product has been launched, it may be
sold at a reduced price to induce customers to purchase it.

2) Operational mark-downs are used to sell off obsolete, end-of-season goods. Or

goods that are damaged, shopworn and broken. For example, if a lot of crockery
has been chipped, then it can be sold at a reduced price.

3) Promotional mark-down is used to increase sales by offering the customers the

incentive of lower prices.

4) Correctional mark-down is used to correct errors resulting from wrong pricing,

buying or selling.

10.9 METHODS FOR SETTING RETAIL PRICES

Generally one of the following three methods could be used for setting retail prices -
cost oriented, competition oriented and demand oriented method.

1) Cost Based Method

This is the most fundamental method of setting prices. The retailer adds a standard
mark up to the cost of goods to arrive at the selling price. This is a fairly simple approach
an easy to implement. However, it ignores the prices set by competitors and the demand
for the product.

2) Competition Based Method

This method means closely matching the prices of competing retailers. This method is
very easy to implement, as it does not need forecasted demand as in the case of
demand oriented pricing. A retailer merely follows his competitors and cannot
differentiate himself from his peers. It does not allow a retailer to maximise profits
because demand and costs are not considered while pricing.

The competitive markup method is used to price the goods similar to those of the
competitors. In effect, the markup is controlled by competitors and it fluctuates based
on what the competitors are charging for their products and services. Retailers can
price either above, below or at parity with the competition. A low-cost provider would
try to price below competition while a retailer with high quality image, unique
merchandise, etc would price above competition. Stores like Shoppers Stop, which
has a significant brand image, sell above competitor’s prices.
164
3) Demand Oriented Pricing Retail Pricing Strategy

Demand oriented pricing should ideally be used along with cost-oriented pricing. When
these two are used in conjunction, the retailer cannot only consider their profit structure
but also the impact of price changes on sales. For example, if the customers are
insensitive to price (the demand is price inelastic), an increase in prices would result in
higher profits, as sales would decrease insignificantly. Similarly, if customers are price
sensitive, a decrease in prices would actually result in greater profits, as sales increase
much more to offset the decrease in prices. Demand oriented pricing, therefore, seeks
to maximise profits.

10.10 ROLE OF PRICE ELASTICITY AND

SENSITIVITY: CONSUMER
RESPONSIVENESS TO PRICES
While setting retail prices it is important to understand the impact of various price
points on demand. In this context the various price elasticity’s need to be factored in
for the calculation of price. While price elasticity is a characteristic of the product price
sensitivity is a characteristic of the consumer. Price sensitivity in turn affects price elasticity.
Price Elasticity
Price elasticity of an offering plays key role in the setting of prices. Price elasticity
determines the extent to which demand for an offering responds to change in price.
Retailers required to identify will customers still buy its offerings, even if the price are
high? Or do significantly more customers buy the product if the price is low?
 If an offering is price elastic, a change in price will cause an even larger change
in the quantity demanded. This usually means that if retailer lower price of its
merchandise, the quantity demanded of product or service will increase.
 If retailer is selling price inelastic product or service, a change in price will
cause less of a change in quantity demanded. So, whatever price you charge,
your demand will be relatively stable. Items that are price inelastic usually
have no similar items available, and no substitutions for the product exist.
Price Sensitivity
To determine retail prices, the price sensitivity of the customer needs to be determined.
Price sensitivity is influenced by a number of factors like substitute awareness effect
and income effect.
 Substitute awareness effect
When there are a lot of substitutes available to the customers, and comparing
prices among them is easy, the price sensitivity is high. The customers can switch
easily if they perceive that the price they are paying is high.
 Total expenditure effect
The customers are price sensitive when the expenditure incurred on the particular
product is high. The expenditure is large both in terms of absolute rupees as well
as a percentage of the customers’’ income.
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Retail Mix Strategies
10.11 STEPS TO ESTABLISH A REAL WORLD
PRICING STRATEGY
Establishing a real-world pricing strategy requires a comprehensive understanding of
the target market, competitive landscape, and business goals. Here are some steps a
retailer can take to establish a pricing strategy:
1. Define the target market: Understanding the customer base is essential for
establishing a pricing strategy. The retailer needs to identify the target market,
including demographics, psychographics, and buying behavior.
2. Analyze the competition: The retailer needs to research the competition
and understand how they are pricing their products or services. This analysis
should consider the pricing of similar products or services, as well as the
overall value proposition.
3. Determine the cost structure: The retailer needs to determine the cost of
producing or acquiring the product or service. This analysis should consider
all the costs associated with the product or service, including production costs,
overhead, and marketing expenses.
4. Establish pricing objectives: The retailer needs to determine the pricing
objectives, such as increasing market share, maximizing profits, or increasing
sales. This will help the retailer to determine the pricing strategy that best
aligns with their objectives.
5. Select a pricing strategy: Based on the target market, competition, cost
structure, and pricing objectives, the retailer can select a pricing strategy that
is best suited for their business. This may involve using a single pricing strategy
or a combination of different pricing strategies.
6. Test and adjust: Once the pricing strategy is established, the retailer needs
to test it in the real world and monitor the results. Based on the data, the
retailer can adjust the pricing strategy as needed to ensure that it aligns with
their goals and objectives.
Establishing a real-world pricing strategy requires a data-driven approach that considers
the target market, competition, cost structure, and pricing objectives. By following
these steps, the retailer can establish a pricing strategy that maximizes profits, attracts
customers, and achieves their overall business goals.

10.12 SUMMARY
Retail pricing strategy is the process of determining the optimal price for products or
services sold by retailers. This involves understanding the target market, analyzing the
competition, and considering the cost of goods sold (COGS). There are various pricing
strategies that retailers can use, including cost-plus pricing, value-based pricing,
psychological pricing, and dynamic pricing. The goal of a retail pricing strategy is to
increase sales, maximize profits, and achieve a competitive advantage. However, there
are limitations to pricing strategies, including the difficulty of predicting customer behavior
and the impact of external factors such as economic conditions and technological
166
advancements. Establishing a real-world pricing strategy requires a data-driven approach Retail Pricing Strategy
that considers the target market, competition, cost structure, and pricing objectives.

10.13 SELF - ASSESSMENT QUESTIONS

1) How important is the role of pricing in retail marketing mix?
2) Examine the various pricing objectives in the retail sector?
3) What is the difference between margins and mark down? Explain it with an example
and also when and how is it implemented?
4) Discuss any three pricing strategy used in retailing and how commonly is it adopted
by retailers.

10.14 FURTHER READINGS

Chetan Bajaj, Rajnish Tuli, Nidhi. V. Srivastva (2005) Retail Management, Oxford
University Press.
Dodds, W’B and Monroe, K B (1985), ‘The effect of brand and price information on
subjective product evaluations’, Advances in Consumer Research.

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Retail Mix Strategies
UNIT 11 RETAIL COMMUNICATION MIX
STRATEGY
Objectives
After reading this unit you should be able to:
 enlist and understand the elements of communication mix.
 understand the concept of integration of communication mix.
 strategic decisions for communication mix.
 strategies for Integration of IMC.
 impact of technology on communication mix.
Structure
11.1 Marketing Communication Mix and its Elements
11.1.1 Definition of Communication Mix / Promotion Mix
11.1.2 Element of Communication mix
11.2 Traditional Elements of Communication Mix in Retail Management
11.2.1 Advertising
11.2.2 Sales Promotion
11.2.3 Personal Selling
11.2.4 Publicity
11.2.5 Public Relations
11.3 Modern Elements of Communication Mix in Retail Management
11.4 Innovative Steps in Retail Communication Mix
11.5 Summary
11.6 Self-Assessment Questions
11.7 Further Readings

11.1 INTRODUCTION TO COMMUNICATION MIX

IN RETAIL MANAGEMENT
In the previous units of this course, we have studied the concept of retail management
and its types, strategies for location, product, and price mix etc. In this unit, we will
study the concept of communication mix, its traditional elements and then would explore
the impact of modern information technology on communication mix. In the last section
we would also explore the integration of these elements along with the future of
communication in retail.
Retail management can be defined as the processes which help the customers to procure
the desired products/ services from the retail stores for their consumption/use. Retail
management is one of the oldest as well as newest branch of sales management due to
e-commerce making strides in business ecosystem.
168
11.1.1 Definition of Communication Mix/ Promotion Mix Retail Communication
Mix Strategy
Marketing is based on the four pillar of marketing mix, popularly called as 4Ps of
marketing. Since retail marketing is more towards the services on the product-service
continuum, it also uses the extended three Ps of marketing mix. Therefore before moving
ahead, let’s recap of the basic concepts of Communication Mix and Integrated
Marketing Communication (IMC):
Communication mix is combination of not just the mix and match of communication
platforms but also the communication methods.
Communication mix is a combination of all the tools, techniques, channels and platforms.
These involve advertising, sales promotion, public relations, publicity, direct marketing,
social media, events, exhibitions, websites and weblinks etc.
Communication methods are broadly classified into four categories on basis of the
sender and receiver of the message:
1. One-to-One i.e., the communication that is personalised and targeting
individual customers. The SMS that we receive, WhatsApp messages, emails,
Facebook messages etc. are examples of one-to-one communication.
2. One-to-Many Promotional campaigns with mass messaging; pamphlets
distributed, mass emails etc. are some of the examples of this type of
communication.
3. Many-to-One type of communication involves one receiver with multiple
senders. The common examples are customer feedback being received by
the marketing executive to further refine the services.
4. Many-to-Many are also called as bi-directional flow of communication.
Advertisements by marketer (including both manufacturer as well as
intermediaries), online chat rooms and other such public messaging platforms
are best examples of this type of communication.
This basic differentiation of communication arises due to the nature of information,
urgency and longevity of communication, and the marketing objectives of the
organisation. Prof. Neil Borden1 is considered the pioneer of marketing mix, and
illustrated how organisations successfully use different advertising method to engage
the customers.
Communication/promotion as an important element of marketing mix, it is used for
achieving the various marketing objectives and strategically ensuring the success of the
business.
Today promotion mix in marketing literature is commonly replaced by the term integrated
marketing communication (IMC). Although in this unit we would use the term
communication mix and IMC interchangeably.
Integrated Marketing Communication (IMC) is defined as, “process of unifying all
the elements (advertising, sales promotions, personal selling, public relations,
publicity, digital marketing and experiential/ Guerrilla) of marketing
communications.”
1
Harvard University’s advertising professor published the popular article ‘The Concept of
Marketing Mix’ in 1964, which is considered as the birth of Marketing Mix.
169
Retail Mix Strategies IMC - the process of unifying a product/brand’s message to make it consistent across
all the media and touch points used to reach the target audience in retail management.
It is part of the organisation’s strategic decision and guides communication strategy
used across all marketing channels. With the changing times IMC has become more
complex and challenging, moving from five basic elements to more than twenty elements,
and still evolving to be integrated and managed.
According to American Marketing Association (AMA)2, IMC is defined as, ‘a planning
process designed to assure that all brand contacts received by a customer or prospect
for a product, service, or organization are relevant to that person and consistent over
time.’Marketing Guru Philip Kotler3 has done extensive research on the need, role,
and importance of communication [Link],communication mix is described
as, ‘the concept under which a company carefully integrates and coordinates its many
communications channels to deliver a clear, consistent message about the organisation
and its products.’ The whole retail industry is dependent on the timing and placement
of the communication mix.

11.1.2 Elements of Communication Mix

Communication mix consists of both the traditional as well as the modern information
technology based elements, closely integrated into the communication strategy. The
traditional five elements of communication mix are:
i) Advertising
ii) Sales Promotion
iii) Personal Selling
iv) Public Relations, and
v) Publicity
You must have studied some of these elements and their characteristics in some previous
units. The current communication mix involves following modern elements as well:
i) Email Marketing
ii) Online /blogs/ Websites /Forums etc. advertising
iii) Content marketing
iv) Social Media Marketing
v) Mobile marketing (SMS, WhatsApp, telegram etc)
vi) Search Engine Optimisation
vii) Paid Search, AdWords
viii) Reputation Marketing
ix) Virtual Communities etc.

2
[Link]
imc
3
170 [Link]
The list is not exhaustive, as the elements in today’s digital era are constantly evolving. Retail Communication
Mix Strategy
The shelf life of various elements is getting shorter, and hence they are quickly replaced
by new elements. For example, in early 2000 SMS marketing was new and diffused
very quickly, today it is not the leading elements for reaching potential customers, and
social media marketing is more prominently used.

11.2 TRADITIONAL ELEMENTS OF

COMMUNICATION MIX IN RETAIL
MANAGEMENT
We all regularly see different communications from the retail outlets around us. Retail
outlets of different types are the most visible and common contact points with the
customers, and also the effective point of communication. A walk into a mall near you
(ref figure 11.1) can give an exposure to many elements ofcommunication mix,
advertisements at the entrance, outer walls, sales person trying to sell you credit cards,
discounts and deals representing sales promotion and customer care executives involved
in public relations etc. The characteristic of retails sector, their different types and
models and other distinctive features have been covered in the previous units. In this
section, we explore the various traditional elements of communication mix specifically
relevant to retail sector.

Figure 11.1: Retail Sector- Typical Mall in India

11.2.1 Advertising
Advertising is the most common, diverse channels and commonly used mode of
communication. Advertisement is ubiquitous, we see advertisements all around us, as
we are exposed to advertisements throughout the day; starting with the morning
newspaper, radio jingles in the car, billboards outside, television commercials,
advertisements and scrolls when browsing internet etc. It is so common that in layman’s
terms marketing and advertising are sometimes used as synonymous terms.
Before moving into details of retail advertising, we look into the definition of advertising.
According to American Marketing Association (AMA), “advertisement is defined as -
any paid form of non-personal presentation and promotion of ideas, goods and services
by an identified sponsor.”This is most popular definition in marketing literature, as it
highlights the key characteristics of advertising –
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Retail Mix Strategies  Paid Form: Advertisement is always paid for, and hence it becomes a burden
on the organisation. The money spent on advertisement is evaluated in terms
of increased demand or sales.
 Non-Personal: Advertisements are designed for mass audience and not for
individuals. Therefore, we see use of mass media for advertisements, and
hence the omnipresence.
 Presentation and Promotion of product 4: Advertisement involves
presentation and promotion of product (i.e., goods, services, ideas, places,
events etc.) through mass media like television, radio, publications (newspapers,
magazines etc.
 Identified Sponsor: Advertisements are paid for by an identified sponsor.
Hence, advertisements are not without origin (like grapevine) and there is
always a responsible party (person/ organisation) who would bear the cost.
This definition although very comprehensive, ignores and miss an important characteristic
of advertisement i.e., persuasion. The definition focuses on presentation of idea, goods,
or services, like an announcement as in publicity or other elements of IMC, and do not
include the strategic or creative considerations. This missing element is given due stress
in the retail advertising.
Advertising is the placement of any message/announcement through any suitable media,
by business firms, government agencies, NGOs or even individuals, with a purpose to
inform, persuade the target audience regarding their products, services, organisations,
or ideas. Retail advertising is the process of using advertising by retailers in their store
(online and offline) to spread awareness about their products or services, and generate
interest, and convince them to buy the product /service in comparison to the competitors.
The specific aim of retail advertising is to influence the audience to take the specific
action of buying the product at that time in as large a quantity as possible.

Figure 11. 2: National /MNC Retail Advertising

Retail advertising is generally divided into two parts i.e. National advertising and local
advertising. As the retail stores are of many types- outlets of MNCs, national
manufacturers and local producers, single brand and multi brand outlets. Products
presented in the retail advertisements are intended to be sold at the earliest.

4
Anything that can be offered to a market for attention, acquisition, use or consumption that
might satisfy a want or need. It includes physical objects, services, persons, places, organizations
172 and ideas”. Kotler, Wong, Saunders, Armstrong
 Retail Communication
Mix Strategy

Figure 11.3: Local Advertising in Retail Management

National /International Retail Advertising: The big organisations and MNCs follow
their centralised communication policies in alignment with the corporate objectives.
The overall promotion policy would involve a judicious mix of different elements. The
advertisements for the products by such organisations would be similar at all levels and
throughout the country. These retail advertisements depend on the brand recognition
by the customers. Hence the same theme, colour style and content are used in
advertisement at all levels. The common examples are Coca Cola, Pepsi etc. i.e. the
products that too not need too much differentiation and adoption.
Local Advertising: This form of advertising is mainly used by regional store owners
who have shops in a local market or deal with particular products. This can be used by
the retail chains as well as by standalone local shops. The focus of these types of
advertisements would be on reaching the local audience and attract them to the store.
Hence, there would be two types of local advertisements one for the store as a whole
and inside the store smaller product specific advertisements informing about the schemes
and sale offers. Retail advertising is at times a combination of both local advertising
(focused on regional audiences residing in nearby areas) and national advertising
universally used by popular brands.
The main objective of retail advertising is to attract the customers to the stores and sell
the product very quickly, and ensure the customer get information on the various sales
offers. Products which are advertised in retail ads are intended to be sold out as early
as possible. Some of the important retail sectors are automotive, grocery, general
merchandise, restaurants etc.
Activity 1
1. During your next visit to retail store/mall near you, prepare a list of different
advertisements that you see. Prepare a list of five national and five local
advertisements.
[Link]. National Advertisement Local Advertisement
1. ………………………....... …………………………....
2. ………………………....... ……………………….......
173
Retail Mix Strategies 3. …………………………… ….…………………….……
4. …………………………… ………………………………
5. ……………………………… .……………………………..

11.2.2 Sales Promotion

The second element of communication mix is the sales promotion, which uses
advertisements as the tool to reach the audience. Sales promotion is defined as, ‘An
element of promotion mix in which businesses use temporary /time bound campaigns,
offers, schemes and incentives in order to generate interest, create demand and boost
sales.’ The main characteristics of sales promotion are: i) time -bounded i.e. every
sales promotion must have a fixed duration and validity period; ii) incentive to buy i.e.
persuasion to buy the product/service within that period is the basic objective.

Figure 11.4: Different Types of Sales Promotions

The commonly used sales promotion tools are coupons, scratch cards, product samples,
loyalty programs, discount, bundle buying and many other point-of-purchase plans.

Figure 11.5: Application based E-retail Store

174
On basis of the target audience, there are two types of sales promotions in retail Retail Communication
Mix Strategy
management:
1. Intermediary oriented: When the sales promotion schemes are designed
for motivating the dealers, retailers, and other intermediaries to boost the
sales. The commonly used promotion schemes are discounts and monetary
incentives, sponsored holidays, travel and club memberships, trade shows,
sales contests, trade allowances, training opportunities, product demonstrations
etc.
2. Customer Oriented: The sales promotions commonly used in retail stores
and the point of purchase are customer oriented. Buy one get one free,
clearance sale, flat 30% off, now 15% extra, etc. that you see around you
during your visit to the retail stores. The internet or mobile -application based
e-stores / e-tailers also use similar types of schemes and offers. Along with
the monetary and quantitative discounts, the platforms also provide limited
time schemes for cash on delivery, EMI-plans, free home delivery and bundle
purchase (for e.g., Rs. 100 discount on purchase of sugar if 5kg rice is
purchased).
The common advantages of using sales promotions are:
1. The biggest advantage of such successful schemes is the instant increase in
sales. The immediate rise in numbers is measurable and can clearly show us,
what it works and what is not appreciated by the audience.
2. The incentive-based time bounded offers play a key role in preventing
competitors’ entry into the local markets. This led to ensuring stable position
of the organisation and ensuring customer loyalty.
3. A successful sales promotion would ensure the support of the intermediaries
in reaching the customers, and the strengthening of this symbiotic relationship
ensures profits in the long run.
4. Another advantage of sales promotion is unlimited creativity scope, and flexible
designing. Unlike advertising, which is a costly option, sales promotion is
relatively easy to design, execute and measure.
5. Some people use the term well-choreographed dance to describe sales
promotion strategies. Organisations use affiliate marketing strategies for
designing bundling of complementary products. For example, induction
Cooktop Company can bundle an offer with utensils and Cookware
Company.
6. Sales promotion also results in building traffic, and generating demand. In
store excitement, loyalty programs etc. ensure a long-term relationship with
the customers.
Activity 2
We all love discounts and freebies. What are the common sales promotional schemes
you have witnessed around you? Which type of sales promotion is your favourite for
your daily needs? Can you recall any uncommon /interesting sales promotion scheme/
offer that was very creative?
175
Retail Mix Strategies ...............................................................................................................................
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11.2.3 Personal Selling

Personal selling is defined as the face-to-face selling in which a person known as
salesperson uses his communication skills and sales abilities to convince the customer
to buy the products. It is an integral part of promotional mix, and is commonly used in
retail management. As the salesperson’s aim is to boost sales, answer queries and give
demonstration of the product, so that the customer can make a rational decision. The
common tools and techniques used in personal selling are field selling, door-to-door
selling, store selling, reference selling and demonstrations in malls and sale-points. The
whole domain of sales management involves understanding the characteristics of good
salesperson, selling situation, sales planning and budgeting, types of sales etc. The
selling process is the interaction between a seller and a potential buyer or client, generally
a business uses for to replicate for consistent performance among salespersons.
There are several common steps involved in the selling process, the first few steps
involve research into the need identification, understanding wants and insights into
prospects, whereas the final steps include addressing the queries, answering the doubts,
and closing the deals and maintaining long term connections. Businesses use the common
seven steps of the selling process to complete sales and ensure continued profits.
1. Prospecting: This involves identification and research regarding the ideal
potential customer. This screening process is based on preparation of qualifying
questions, determining buyer’s needs and attempt in understanding the product
-need alignment.
2. Preparation and Pre-approach: This crucial step which involves preparation
of information regarding product description, prices, payment schemes and
options, competitor rates and other terms and condition of sales. This is like
the ground work before approaching the potential customers with the product
proposal. This step decides the success of the sales person in handling the
potential customers in terms of queries, concerns and persuasion. It ends with
a well drafted initial presentation. It involves practicing what is to be said,
how it is to be said and also preparing for potential questions and queries.
3. Approach: This is the stage which involves actual process of approaching
the prospect and initiating the first personal connection with them. The timingof
the first meeting, state of readiness of the buyer and creating the right set of
circumstances for the presentation of the product/service. This step is crucial
for the first impression.
4. Presentation: This step in the selling process establishes an understanding
of the prospect’s individual needs and wants. The presentation prepared
previously is now tailor- made according to the circumstances, and
demonstration of the product is given in such a way that the prospects consider
176
 it as the best solution for their needs or wants. This step involves focus on Retail Communication
Mix Strategy
personalizing the presentation/ demonstration and creating a value proposition
and a solution to the problem. Presentation can use the multimedia and
information technology along with visual and hands on experience.
5. Handling objections: After the presentation, the prospect is given the
opportunity to raise concerns, questions, and objections related to the product,
proposal or price. This stage involves patiently handling the objections, queries,
comparisons with the competitors etc. If the previous steps are completed
properly, the salesperson would be well prepared for this stage. This stage
ensures that the prospect moves from the interest to desire stage of buyer
readiness. In order to be successful, this step involve listening to the prospect’s
concerns and asking additional questions to better identify and understand
the objections and help them in decision-making.

Figure 11.6: Personal Selling Process

6. Closing: Depending on the convincing or persuasive power of the

salesperson, this stage marks the sale deal as a success of the process. Once
the prospect is convinced that the product or service is the better option in
comparison to the competitors, salesperson must help them to take the
purchase decision and ensure that they fully understand all the terms of the
sale. Closing the sale would also involve drafting the final proposal, negotiation
of the terms and conditions, pricing, signing the contract, completing the
transaction etc.
At this stage the salesperson ensures that the additional conditions related to
refunds, guarantee/warranty, delivery, installation/maintenance etc. are clearly
understood by the customer. Salesperson must ensure guaranteed customer
satisfaction, and can also attempt to up sell, by offering additional products,
complement their original purchase, upgradation etc., to take advantage of
the customer engagement and readiness.
7. Follow-up: This step is the continuation of the relationship built due to
successful sale between the buyer and the seller. Follow up is to express the
commitment of the seller to ensure buyer satisfaction, retain customer loyalty
177
Retail Mix Strategies and also help in identifying new prospects. The aim is not to continue selling at
this stage, but instead to nurture the existing relationship. From a simple thank
you, a call to take feedback, to sending a token gift can cheer up the customer
and convince them to share their experience of the new product or service. A
satisfied customer is the best advertisement and often leads to multiple referrals
or reviews which can ensure boost in sales and profits.

11.2.4 Publicity
Publicity is defined as use of various communication channels, public and media outlets
to showcase the products, services, mostly in the form of company news, events, and
updates. The basic goal is to attract the attention of the target audience, and make
them aware of the company’s CSR commitment, new product launches, social
interactions, or any message that would ensure the awareness and visibility of the
organization. It also improves the credibility of the organisation, ensures people have
positive perception regarding business, products, or services. There are many
advantages to publicity in comparison to other elements of communication mix:
1. It is less expensive than other marketing efforts. Specially when good public
relations are maintained with the media, it ensures space in news items and
regular media coverage.
2. The credibility of publicity in form of news items is much higher than the
sponsored advertisements which are very costly and yet not trusted by
audiences.
3. Publicity opens new opportunities for collaborations and partnering and shows
the organic way of showcasing the products.
4. The more exposure the brand gets, the stronger and more recognisable is the
brand value.
5. With social media and advancements in the information technology, the publicity
strategy has improved in terms of reach and scope and is even more effective
and efficient today.
Some of the common types of publicity strategies are:
a) Press Release: A statement shared by the organisation with the media on
regular basis, which includes information about the company that need to be
shared with the general public on regular basis. For eg. AGM notice and
other financial reports.
b) News Outlets: When newspapers, and media houses cover the organisation
during seminars, events, new product release or public relation events, the
organisation gains publicity. This publicity is much appreciated and valued by
the target audience, and helps in creating a favourable brand image.
c) Events: Sponsoring of public relations events like health camps, child welfare,
or participation in trade fairs, competitions and shows result in media coverage
and publicity.
d) Experts and Influencers: Organisation use subject experts and influencers
178 to speak about their products / services at various platforms. Their views
 within news items, on social media platforms and other social gathering like Retail Communication
Mix Strategy
seminars and conferences, results in effective publicity for the organization.
e) Social Media: Creation of organic content on social media is also very cost-
effective publicity strategy. When an organisation engages the audience through
informative, thoughtful, and creative content.

11.2.5 Public Relations

Figure 11.7: Differentiation between Publicity and Public Relations

The last element in the traditional communication mix is public relations defined as, “a
strategic communication process that builds mutually beneficial relationships between
organisation and public.”Public relations strategy aims at sending the right message to the
right people at the right place and right time, with the objective to create a strong brand
reputation. Public relations are planned and executed with the help of PR agencies along
with their clients. It would involve the following steps to plan an effective PR campaign:
 Objectives: Setting the PR and communication mix objectives in line with the
corporate objectives.
 Goal: The objectives need to be broken down into SMART goals with
measurable outcomes.
 Target Audience: The target audience are identified, and the PR campaign is
designed according to their characteristics and receptivity.
 Create a timeline: The blueprint in the previous steps is now modified into
timeline and concrete steps to be taken.
 Action Plan: The perfect sequence or action plan is verified reshaped according
to the inputs in the environment and moved to the next stage.
 Execution of the campaign: Finally, the planning takes a concrete shape in
terms of execution of the public relation campaign.
There are various types of PR communications; the commonly used are strategic,
media relations, community relations, crisis communications, and public affairs. A
179
Retail Mix Strategies successful public relations campaign would result in 4Cs of cooperation, containment,
control and cauterize. Public relations need to focus on the personal relationships,
patience and persistence in order to ensure that the campaign is successful.

11.3 MODERN ELEMENTS OF COMMUNICATION

MIX IN RETAIL MANAGEMENT
Along with the traditional elements of communication mix explained in the previous
section, there are some modern elements too, possible due to the advancements in
information technology. Digital marketing communication mix is the broad discipline
that brings together all forms of communication through various elements of
communication mix. The common modern elements are:
1. Email marketing: It is earliest form of digital marketing communication, and
involves database management, segmentation of customer data, delivering
personalised, targeted messages at appropriate time. Bulk emails are cost
effective and an effective tool for CRM.
2. Online Advertising: Advertisements presented on virtual space, like banner,
scrolls and links on specific websites, by buying the virtual space is such type
of advertisement. The skills involved in this type of advertising are design,
creativity, negotiation, data analysis, and also decisions related to placement
and timings.
3. SEO (Search Engine Optimisation): SEO is the art and science of increasing
the visibility of the online content and websites in the searches. Through use of
keywords, appropriate content can increase the ranking of a website during
search. There are variety of SEO techniques, on site technical analysis and
improvement, to content creation, outreach, blogging and link-building.
4. PPC (Pay per Click): This type of search is called paid search and involves
the management of paid advertisements, typically above or to the right of the
organic search results. The cost varies and depends on the competitiveness
of the keyword bidding.
5. SMS and Text message/ Mobile advertising/ WhatsApp and other
platforms message: Mobile based communication is very popular element
of communication mix in retail management. These are used both by MNCs,
big retail chains and also by the local stores.
6. Social Media/ Virtual Communities and Blogging: Platforms like in Twitter,
Facebook, Instagram etc. are regularly used by organisations to communicate
with the target customers.

11.4 INNOVATIVE STEPS IN RETAIL

COMMUNICATION MIX
Some of the specific and innovative steps taken by the retailers are as follows:
1. Omnichannel distribution and experience: Today retail management has
become a mix of brick-and-mortar stores, online websites and mobile applications.
180 A customer can make the purchase at any real or virtual store and hence the
 retailer has to ensure that there is collateral message conveyed to the customer Retail Communication
Mix Strategy
through all possible media.
2. Product Customisation: With advancement in the technology, today every
product and service can be customized according to the individual customer needs.
This uniqueness in the offer and the ease of reaching the customer opens huge
opportunities for creativity and growth.
3. Virtual-Visual presence: Through a combination of various viral advertising and
communication techniques, organisations must ensure regular visual presence on
virtual platforms. Through use of various algorithms, customer tracking and neuro-
marketing techniques, the customers can be offered the product of their choice on
multiple platforms and can be convinced to purchase it online just like personal
selling face-to-face in traditional marketing.
4. Social Shopping: WhatsApp live streaming is another innovative way through
which small retailers and even big players have started attracting customers, do
presentations and demonstrations online and persuade the customers to buy
instantly. Similar streaming is taking place on other social media platforms as well.
5. Store events and Competitions: Customer engagement through some events,
competitors or other experiential marketing techniques is another communication
element extensively used by retailers. Creativity is limitless in designing of such
events which can be small micro engagement to big planned campaigns.
6. Loyalty and word-of Mouth: The use of reviews, comments and social blogging
regarding customer experience of a product and retail store along with traditional
loyalty points programs are becoming very creative today.
Activity 3
Prepare a list of various communications received from local stores near you after your
visit? Do you see any difference in the communication before and after purchase at a
retail store?
...............................................................................................................................
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...............................................................................................................................
...............................................................................................................................
...............................................................................................................................

11.5 SUMMARY
In retail communication mix the process of evaluation of the elements involved in a sale
to increase the business is the crux of this unit. It includes a set of procedures and
techniques commonly used to enhance the retail atmospherics, marketing mix including
- people, processes, physical evidence along with the communication [Link]
communication or simply communication is the most important aspect of retail
management, which aims at promotion of firm values, present specific products, and
services, target potential customers, retain existing customers, and create a specific
brand position in the mind of the target customers. 181
Retail Mix Strategies Retail management faces the challenge of reaching out to the customers through a
judicious mix of traditional and modern communication channels. This is becoming
more challenging due to increasing share of online retail sector in the overall purchases.
The traditional tools and techniques have become absurd and obsolete and need heavy
investments, whereas the modern techniques have better reach, cost effectiveness, but
have short life span.

11.6 SELF-ASSESSMENT QUESTIONS

1. What is communication mix? What are the characteristics of retail management
that plays a critical role in designing the communication strategy?
2. The communication-mix has transformed with advancements in information
technology. Write a detail note on the current digital media channels commonly
used in retail communication mix.
3. Define the following:
a. Advertising in retail management
b. Steps in personal selling
c. Virtual Visual Presence of Product
d. Events and Competition in retail management
4. Explain the steps in effective integration of traditional and modern elements of
communication mix?
5. Creativity and critical thinking play a key role in the success of any communication
mix. With the help of suitable examples explain the use of creativity in communication
mix of retail sector.

11.7 FURTHER READINGS

Singh, H., & Ahmad, F. (2010). Retail Management-A Global Perspective. Al-Barkaat
Journal of Finance & Management, 2(2), 1-2.
HR, G., &Aithal, P. S. (2020). Integrated Marketing Mix Framework for Baby Care
Retailing in India. International Journal of Applied Engineering and Management
Letters (IJAEML), 4(1), 191-218.
Malik, R. (2019). An Empirical Study on Adoption of Mobile Apps among Youth in
India, International Journal of Emerging Technologies and Innovative Research, Vol.6(4),
472-482.
HR, G., &Aithal, P. S. (2020). Organizing the Unorganized Lifestyle Retailers in India:
An Integrated Framework. International Journal of Applied Engineering and
Management Letters (IJAEML), 4(1), 257-278.
HR, G., &Aithal, P. S. (2020). Consumer communication deployment tactics: an
integrated framework for lifestyle brands and retailers in India (CCF-
LS). International Journal of Applied Engineering and Management Letters
(IJAEML), 4(2), 1-21.
182
Malik, R. (2013). A Study of Sectoral Analysis of Retail Industry in India, Intellectual Retail Communication
Mix Strategy
Resonance DCAC Journal of Interdisciplinary Studies, Vol. 1 (2), 132-140.
HR, G., &Aithal, P. S. (2020). Establishing True Lifestyle Brand in India: An Integrated
Marketing Mix Framework. International Journal of Management, Technology,
and Social Sciences (IJMTS),(June 2020), 5(1), 261-284.
Malik, R. &Deshwal, P. (2012). A Study of social media: A Marketing Tool for the
Youth, Global Journal of Finance and Management, Vol. 4(5), 16-20.

183
Retail Mix Strategies
UNIT 12 PHYSICAL EVIDENCE
Objectives
After reading this unit you should be able to:
 appreciate the role of physical evidence in retailing.
 evaluate the various components of store atmospherics.
 understand the techniques of retail space planning and performance measures.
 explain the concept and techniques of visual merchandising.
 appraise the context of retail environment planning; and
 recognize the issues related with atmospherics in e-tailing.
Structure
12.1 Introduction
12.2 Importance of Atmospherics Planning
12.3 Key components of Retail Atmospherics
12.4 Visual Merchandising in India
12.5 Store Space Management
12.6 Retail Performance Measures
12.7 Atmospherics in the context of e-tailing
12.8 Summary
12.9 Self-Assessment Questions
12.10 Further Readings
12.11 Online Resources

12.1 INTRODUCTION
As a regular shopper we visit a number of shopping malls and shopping complexes
and understand the strategic importance of atmospherics and Retail Space Management
which is vital to any form of retail business. Its significance emerges from the link
between shopping behavior and physical environmental factors. These physical
environmental factors influence the perception of shopping time spent and the evaluation
of merchandise and hence it becomes important for the retailer to effectively plan and
organize all aspects related to atmospherics and retail space to be able to optimize
scarce resources and improve profitability.
Atmospherics refers to the physical characteristics associated with the store that
includes interior and exterior elements, as well as layout planning and display.
Atmospherics play a major role in attracting customers to the store, improving the
quality of service, experience, creating a brand positioning for the outlet, and improving
customer retention rates.
An equally important and related concept is retail space management. Effective space
184 management attempts to ensure optimum utilization of retail space and convenience to
customers and employees. There are also emerging critical issues related to atmospherics Physical Evidence
in the context of internet retailing. The effective use of technology and design element is
the key to higher clicks, browsing time and sales.

12.2 IMPORTANCE OF ATMOSPHERICS PLANNING

Atmospherics planning is increasingly gaining importance for all kinds of retail setups
like planned shopping centers and life style stores. The exterior atmospherics refers to
the aspects like store front, display windows, surrounding businesses, look of the
shopping center etc., while interior atmospherics refer to aspects like lighting, color
and dressing room facilities that enhance the display and provides customer with relevant
information. Therefore, Atmospherics plays an important role in creating a brand
positioning for the outlet, attracting new customers, facilitating better organization of
the store and its merchandise and enriching the shopping experience. The role of
atmospherics in Retail Strategy is mainly to:
 Enhances the image of the retail outlet and attract new customers,
 Creates a definite Unique Selling Proposition (USP),
 Facilitates easy store movement and access to merchandise,
 Ensures optimum utilization of retail space,
 Reduces product search time for the customer,
 Reinforces the marketing communication of the outlet and influence the service
quality experience.
The physical surroundings, in service settings such as retail outlets, are vital signs to
service quality expectations. Some of these are:
a) The choice of fixtures, decor and signage can greatly alter consumer perceptions
of a store.
b) Signs indicate services offered and often hang above or behind the service
counters. Effectively placed signs can help to reinforce customers in their role
in service encounters.
c) Uniforms, or similar attires for employees, help alleviate customer anxiety as
they feel embarrassed to ask if somebody works there. It also reassures
customers that the service employee is a professional.
d) Inexpensive and cheap fixtures may indicate that the retailer cuts corners,
while overly expensive fixtures may indicate that the retailer is making large
profits and over-pricing products. Hence, quality of fixtures is a symbolic cue
to the consumers.
e) In-store elements such as color, lighting, and music may have a bigger effect
on purchase decisions than other marketing stimuli such as advertising or point-
of-purchase displays.
f) Background music enhances customer perception of the store’s atmosphere
and influences the amount of time a customer spends in a store. An added
benefit is that employees perform better when there is background music,
which increases job satisfaction. 185
Retail Mix Strategies g) All these settings contribute to an integral part of the service quality experience
for the customer.
Environment should be such so as to encourage or discourage approach behaviors. In
this regard, following three effects of retail unit environment stimuli merit attention:
 Pleasure-Displeasure, which entails whether shoppers have perceived the
environment as enjoyable or not enjoyable. For example, playing classical
music in Hindi should enhance shoppers’ enjoyment in specific kind of service
settings in north India, whereas same music might diminish shopping experience
in retail units in Punjab.
 Arousal assesses the extent to which environment stimulates the shoppers in
particular environment. Playing slow instrumental music may result in subdued
activity level from customers in service settings such as restaurant relative to
no music or fast music. Therefore, nature of music in specific retail environment
can decrease or increase in arousal.
 Dominance concerns whether customer feels dominant (in control) or
submissive (under control) in the service environment. This is a feeling that
could be related to environmental aspects like the height of the ceiling that
makes one feel small (in control). Individuals associate the color red with
active, assertive, and rebellious moods whereas they associate blue with sedate
tranquility and a suppression of feelings. The nature of mood that needs to be
portrayed therefore depends on the right choice of color.
Activity 1
Record some important features of atmospherics of three kirana stores in your locality
and list out some facts if any.
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12.3 KEY COMPONENTS OF RETAIL

ATMOSPHERICS
The essential inputs of atmospheric design like the use of lighting, color, and signage
play a valuable role in both internal and external atmospherics and in visual
merchandising. Likewise, the nature of physical materials used and wall painting etc.
also play an important role in the following key four components of retail atmospherics
i.e.:
 External atmospherics
 Internal atmospherics
 Store layout

186  Visual merchandising

External Atmospherics Physical Evidence

Exterior atmospherics refers to all aspects of physical environment outside the store
which includes store entrance, main board, marquee, windows and lighting etc. Store-
front of every retail store exhibits a specific image such as traditional, up market or
discount store to the shopper. In competitive markets, retailers can use the store-front
as a strong differentiating factor and attract and target new customers. The major
influencing aspects of external atmospherics are as follows:
 Retail Store Entrance: In India, most of the traditional retail stores enjoy
open entrance with no provision for entrance doors and. security guards while
in some leading markets retailers or owners of the stores even stand outside
and invite passing by shoppers to visit their store and communicate the
availability of specific merchandise. New age planned shopping centers and
retail stores ensure accessibility to all customers, including those using wheel
chairs and also provide for security of the store when it is closed. Most of the
independent retailers prefer open entrances even in central district markets
which are open market areas, in order to place a part of their merchandise
outside the store. The most common store entrance alternatives used these
days are: shutter-covered, modular fabrication, prefabricated structure and in
prototype store-front.
 Display Windows: Display windows are very common features among
retailers dealing in garments and gifts items. This feature is also very prevalent
among small town retailers. For example, Titan watches provides valuable
inputs to Time Zone (First organized chain of retail stores in India) franchisers
to install impressive moveable windows to display their merchandise, which
not only communicate with prospective shoppers but attracts all new customers
to the store.
 Marquee or Sign Board: A marquee includes painted or neon light, printed
or script, and store name alone or mixed with trademark and other important
information. Pizza Hut, McDonald, Barista, and Bombay selection owns widely
acknowledged marquee. In India, most of the independent retailers use tin
board and get it painted and place it outside the store-front. The quality of
marquee influences the image of the store perceived by the customers.
 Parking Facilities: Parking facilities play an important role in the success of
a retail firm. The importance of parking facility is of great significance in urban
shopping centers where number of car owners is increasing by the day.
Internal Atmospherics
Interior atmospherics refers to all aspects of physical environment found inside the
store. Point-of-purchase interaction and retail unit decoration influences the customer
and in turn sales of the retail unit. Store physical environments have influence on shopping
behavior through mediating emotional states. The retail unit environment contains various
stimuli that might be perceived by the customer’s senses and each stimulus offers many
options with regard to shopping behavior. For example, store music varies by volume,
tempo, pitch and texture and by the specific songs played. In addition, various individual
stimuli can be combined to create unique atmospheres.
To project an upscale image, a retail owner/manager choose folk music, modest colors,
187
Retail Mix Strategies elegant perfumes, cool temperatures, inadequately displayed merchandise, and low
lighting.
Two key aspects of internal atmospherics are:
a) Retail Store Image is one of the most powerful components of retail
positioning strategy and powerful tool in attracting, influencing, and, satisfying
consumers. Retailer or manager is expected to design or redesign a store,
with an objective of influencing customer’s buying decisions and shopping
behaviors.
 For example McDonald uses bright lights in their stores as it keeps
customers in high spirits and ensures a high activity level. On the other
hand, Ruby Tuesday maintains a more dull lighting, which ensures a
subdued customer activity level and makes sure that most of them remain
confined to their table.
b) Music: Music is one of the key environmental variables that can impact
shoppers. Environmental factors like music affect the time spent in the store,
propensity to shop and satisfaction with the shopping experience.
Store Layout
Store layout refers to the interior retail store arrangement of departments or groupings
of merchandise. It involves decision about allocation of floor space, product groupings
and nature of traffic flow. Nature of traffic flow can take the form of straight or Grid
traffic flow, free-form flow (curving) or racetrack flow. Some retailers also operate a
storied layout to meet their specific requirements.
Grid: It is commonly used by conventional grocery stores as it facilitates planned
shopping behavior since customers can easily locate products on their shopping list.
Kirana and drugs stores owners or managers commonly employ the grid layout. Grid
design is considered cost effective by retailers in terms of space utilization, besides
aisles of same width and design permit easy movement of shoppers and carts.
Free-form: It is mainly used by large department stores (for e.g., duty free shops).Also,
commonly used in small specialty stores and departments of large retail stores. In free-
form layout places fixtures and aisles asymmetrically. This provides informal setting to
shoppers, which facilitates shopping and browsing. It is also referred to as boutique
layout. Role of sales people on retail floor becomes more important in this layout in
comparison to grid or racetrack layout since customers are not drawn easily to stores
in free form layout.
Racetrack: It offers an unusual, interesting, and entertaining shopping experience
while it increases impulse and promotional purchases. Customers visiting shops with
this particular layout are required to navigate through specific paths and therefore, visit
as many store sections or departments as possible. They are therefore, exposed to a
great number of products and promotional material.
Storied Layout
This is very common variant of store layout design among Indian independent and
leading retail chains in organized sector. This layout not only provides the best utilization
of floor area but also permits the retailer to set separate section for particular product
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category. Storied layout is very popular among the leading fashion departmental stores Physical Evidence
and supermarket in India such as Lifestyle, Shoppers’ Stop, Sarvanas and pantaloon.
Storied layout save a substantial amount of initial investment of the retailer or developer
with increased real estate prices in the emerging retail market in India.
Visual Merchandising
Visual merchandising is defined as presentation of products in order to sell them. Good
displays shout out to the world that the retailer cares about his image and merchandise
and, most importantly, about entertaining, informing and educating his customers.
Frequent changes encourage the customer visiting his normal section to also wander
about and discover additional novelties.
Visual merchandising includes various aspects like: store floor plan, store windows,
signs, merchandise display, space design, fixtures and hardware, and the elements that
come with it. Visual merchandising has been around since humans started selling
merchandise to a customer. Visual Merchandising has become more sophisticated and
more encompassing than arranging merchandise for easy access to customers. Visual
Merchandising elements are put into practice from designing the floor plan of the store
to the beautiful mannequins that grace the store floor.
When buying store fixtures and display merchandise for a retail store, a number of
factors must be considered to be able to make the best possible choice. Some of the
key factors are:
Product Line: Characteristics of merchandise need to be considered while deciding
the fixtures to be used for display. Wooden racks or shelves can be effectively used for
apparel or packaged FMCG products. However, mirrored showcases are preferred
for jewelry or gift items since they ensure better safety and presentation.
Customer Profile: Retailers must take into consideration the profile and expectations
of its target segment. Stores, which primarily cater to functional rather than hedonic
needs, do not require very fancy fixtures. Hence, they can reduce large investments in
fixtures and pass on the benefits to the customer. Examples of such stores are kirana
shops, chemist store, and other neighborhood stores.
Many smaller eating joints and Dhaba use inferior quality or low cost furniture and
fixtures. This is done keeping in mind the socio-economic profile of its customers and
also the fact that customers do not expect Dhaba to provide fancy and expensive
decor. Stores targeting the high-end customers invest a lot in fancy and unique fixture
design and arrangement to generate an exciting and inviting store environment, thereby
attracting customers and building its store image.
Level of Competition: Level of competition is a significant factor in determining the
kind of fixtures to be used by a retailer since it provides him with a unique selling
proposition. For instance, most of the eating outlets and garment stores in urban centers
of India were using very limited display options. However, the advent of international
players such as McDonald’s, KFC, Marks and Spencer, Benetton, Levy etc. the
more up-market retailers are pushed to refurbish their display and interiors to keep
pace with competition and continue to attract customers.
With a theme of the display determined and the location for it planned, the retailer
needs to examine the components of the display. The various components of the display
are as follows:
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Retail Mix Strategies Wall Displays: refers to slatwall panels and fixtures, gridwall panels and displays,
slotted wall standards, face-outs, handrails, and shelving.
Floor Fixtures: gridwall panels and accessories, garment racks, display cases and
counters, metal shelving gondolas, floor, and cube merchandisers. A dump display is
merchandise displayed by being dumped or heaped in a pile, usually in a bin or on a
table. Dump display can be used as Bulk Dump Display and Dump Table Display.
Display Products: like mannequins and body forms, clear acrylic displays, counter-
top and jewelry displays.
Supplies and Equipment: include hangers and steamers, tagging supplies and labelers,
packaging, and shopping bags.
Promotional Items: like window signs and banners, sign holders and sign cards, sale
tags and tickets. These items should be used to enhance the product for sale or help in
furthering the story or theme
Lighting Fixtures: include track lighting and accessories including rope lights. It is
important to use proper lighting to make the product “pop” in the display. Incandescent
(glowing) spots are very effective here. Lighting needs to come from more than one
direction for a balanced presentation.
Signage: should be professional, never handwritten, and regardless of the size. Bin
tags, bin labels, peg tags, shelf labels, planogram tags. Shelf tags aid in the proper
placement of product and frequently include price information for customers in lieu of
price marking the individual items.
Activity 2
Compare the various components of visual merchandising in:
a. Two independent apparel retailers in central business shopping area.
b. A branded footwear outlet.
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12.4 VISUAL MERCHANDISING IN INDIA

Unlike the western countries, where visual merchandise receives highest priority in
commercial planning of a product, the Indian retail industry understands and practice
of the concept of visual merchandise is primitive. With the advent of foreign players
and chain stores, independent retailers have to compete purely on the competitive
edge of the merchandise and visual merchandise will be a helpful tool in projecting the
uniqueness of the products and thereby increasing the market access and sales. It is
high time that the Indian retailers are opting for new age visual merchandise management
in place of the traditional practices of display of merchandise. Still majority of the
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retailers in unorganized sector accord limited importance to visual merchandise in the Physical Evidence
retail marketing mix.
Two interesting examples can be discussed in this regard - Raymonds and Parade, a
retail store in Mumbai. Raymonds, the first men’s garment retail chain in India, has
always taken visual merchandising seriously. Their management hired a professional
agency for consistent and picture-perfect window display. They prefer a theme-based
merchandise display that does not involve the use of expensive raw materials. They
feel that a theme-based display provides management with required flexibility and
incorporating new ideas. Some time back, they did a window display with a construction
theme. However, it had to be scrapped because “it failed to target the right clientele”.
They have appointed a professional agency to train the sales staff of Raymond’s branches
all over India by conducting workshops and slide shows. Management penalizes branch
personnel who skip such training programmes. Most Raymond’s stores ensure’ one
huge deep window, which provides sufficient and attractive scope to display
merchandise.

12.5 STORE SPACE MANAGEMENT

Space and inventory are the two most important resources of the retail firm. The best
possible allocation of the store space to departments, product categories, storage
space and customer space is a major challenge for the owners and managers of the
store. Retailers acknowledge the importance of space management for the success of
business. It has two-way bearing on retail business - it not only attracts business by
ensuring convenience to customers but also places the merchandise in accordance
with the salespersons’ work allocation. The key objectives of retail space management
are:
1) To obtain a high return on investment by increasing the productivity of retail
space. This requires effective utilization of space for merchandise display and
customer movement.
2) To ensure compatible, exciting, and rational interface between customer;
merchandise and sales people.
The space management decision also has an important influence on following decisions:
a) Location of various departments
b) Arrangements between departments within the shop floor
c) Selecting the layout with customer behavior in mind
d) Planned traffic flow of customers

12.6 RETAIL PERFORMANCE MEASURES

Sales and profitability are considered established measures of retail unit success.
Similarly, they can be used to measure the performance of retail space management.
The measures of retail space performance indicate the productivity of retail space. The
three commonly used retail space performance measures are sales per square meter
or profit per square per meter, sales per linear meter or profit per linear meter and
sales per cubic meter or profit per cubic meter.
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Retail Mix Strategies a) Sales per Square Meter or Profit per Square per Meter
It measures retail space performance on the basis of sales/profits according to the area
of floor space covered. This measure is conducive to use when only single layer of
merchandise is displayed and various type fixtures are placed. This is a common measure
for the fashion retailing. Take a look at following figure for a better idea.

Figure: 12.1 Sales/Profit per Square Metre

b) Sales per Linear Meter or Profit per Linear Meter

It measures retail space productivity on the basis of income generated by footage of
shelf space allocated. This measure is more suitable for the stores using multi-shelved
fixtures such as a gondola or racks. It takes into consideration linear meter value of
shelf rather than the area of space exposed in terms of the height value of shelf.
Figure given below will help you understand this better.

Figure: 12.2 Sales/Profit per Cubic Metre

c) Sales per Cubic Meter or Profit per Cubic Meter

It measures retail space performance on the basis of length, width, and depth of the
fixtures placed in the store. This measure is necessarily used by retailers in the frozen
food business or those who place dump bins on the retail floor. Take a look at figure
given below:

Figure: 12.3 Sales/Profit per Cubic Metre

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Space-to-sales ratio, turn rate and gross margin R01 analyses can help create the Physical Evidence
most profitable planogram for the retailer. In effect the performance of retail space
depends on the levels of sales and the profitability of the merchandise place within the
space and the value of the retail space. Retail space allocation decisions are conceived
and implemented at department level, category level and SKU level in respect of big
departmental super market stores. Whereas, small retailers’ major concern is to ensure
the placement of all kinds of merchandise in the limited shop floor area and to have
smooth access to merchandise for themselves rather than customers, as no provisions
for customers to enter store. Space allocation is the process of distributing the right
amount of space to the right merchandise at the right time according to a detailed
analysis of customer demand. It is loaded with tremendous complexity, spanning systems
for data warehouses, distribution centers, transportation networks and product planning.
 Sales as basis of space allocation
Retailers must decide about the sales data to be used for the allocation of space
among merchandise. Three options available with retailers are historical sales data,
market share and projected sales.
 Profitability as basis of space allocation
Profits are taken into consideration for determining the optimum allocation of retail
space amongst the product categories. Product profitability is measured by gross
margins, and gross margin return on investment etc. Profitability measures help the
retailers to allocate quality and quantity of retail space to the profitable product
categories and departments at priority. It also keeps check on the retailers’
unnecessary allocation of large space for the merchandise that would sell just as
well in a limited place.

12.7 ATMOSPHERICS IN THE CONTEXRT OF

E-TAILING
The development of the web as a retailing medium requires one to understand the
implications of web atmospherics. In context of e-tailing factors like web site
organization, server performance, product data, a search option, and shopping carts
all contribute to a positive web shopping experience. The easy navigability in the web
site for a shopper who wishes to buy through the net is one of the first facilitating
factors. Server performance directly affects the waiting time that is required for the
obtaining results of searches. The easy access to product data and a click & browser
friendly search option add to the convenience of the consumer.
There is a negative correlation between waiting time and the evaluation of service
satisfaction in brick-and-mortar retail stores. Though this can be mitigated through
store atmospheric variables, the association is strong. Similarly, system response time
is inversely related to computer user satisfaction (i.e., the longer the wait, the greater
the dissatisfaction).

12.8 SUMMARY
Atmospherics and retail space management are important tools for success for retail
business. They contribute to customer acquisition, retention through improved service
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Retail Mix Strategies experience, reduced costs and higher overall profitability. Atmospherics is referred to
as a store’s physical characteristics that are used to evolve the retail store image, and
attract and retain customers. It has four key components; interior and exterior
atmospherics, store layout planning and visual merchandising. Interior atmospherics
refers to all aspects of physical environment found inside the store and includes attributes
like interior flooring, interior store design, level of cleanliness etc.
Exterior atmospherics refers to all aspects of physical environment found outside the
store and includes attributes like nature of store entrance, main board, marquee, windows
display, parking facilities etc. Store layout refers to the interior retail store arrangement
of departments or groupings of merchandise. Visual merchandising, also referred to as
display, is defined as presentation of products in order to sell them.
Store space management deals with the best possible allocation of the store space to
departments, product categories, storage space and customer space. It is a major
challenge for both owners and managers of the store. Research has also indicated that
the multiple uses of color and how it can be integrated into the entire store design and
layout. It is important to organize the atmospherics as per the recommended color
schemes. Physical materials used in store construction and designing impact both the
cost and presentation of the store interior and exterior. In the context of Internet e-
tailing factors like web site organization, server performance, product data, a search
option, and shopping carts all contribute to a positive web shopping experience.

12.9 SELF-ASSESSMENT QUESTIONS

1. Explain atmospherics and its importance in retail marketing mix?
2. What are the key components of atmospherics and discuss each of them?
3. What is the relevance of store layout planning for a retail unit and discuss any two
types of store layout?
4. Discuss visual merchandising and its important components to leverage its benefits.
5. What are the components of merchandise display fixtures and give brief account
of any three?
6. What are the major concerns of store space management and discuss retail space
performance measures.

12.10 REFERENCES/ FURTHER READINGS

Berman B, Evans JR, Chatterjee P, ‘Retail Management A Strategic perspective, 13th
edition, 2017, Perason India (P) Ltd., New Delhi
Birkin, M., [Link], [Link], and [Link]. Intelligent GIS: Location Decisions
and Strategic Planning. New York: John Wiley & Sons.
Dale M. Lewison, ‘Retailing 6th edition-Prentice Hall.
Ghosh,A. and [Link]. Location Strategies for Retail and Service Firms.
Lexington, Mass.: Lexington Books.
Jones, K. and J Simmons. 1990. The Retail Environment. London: Routledge.
194
Michael L, Barton A W, Retailing Management, 5th edition, 2004, Tata McGraw Hill Physical Evidence
Publishing company Ltd, New Delhi.
Pradhan Swapna, Retailing Management : Text and Cases, 6th Edition, 2020, McGraw
Hill
Education (India) Pvt Ltd, Chennai.
Sheikh A., Fatima K, Retail Management, 2022, Himalaya Publishing House, New
Delhi
Thrall, G I. J. C. Valle, and G. fbuzmaoo. 1998. Retail Location Analysis, Step four:
identify situation targets. Geo info Systems.

12.11 ONLINE RESOURCES

Retail Atmosphere: Retail Strategy, Store Management,
[Link]
Retail/Shopping Atmospherics [Link]
Important elements of visual merchandising in retail, [Link]
watch?v=9-Ng8wPd9Z4
Improve Retail Store Ambience and Atmosphere,
[Link]

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Retail Mix Strategies

196
 Block-4
Retail Operations Management
BLOCK 4 RETAIL OPERATIONS
MANAGEMNT
Having decided the type and category of retail business to embark upon the next
step would be the modus operandi of the new retail business. Retail operations
thus forms the crux to the overall retail business to be successful in a competitive
scenario. All these operations mutually supplement and complement each other to
accomplish the retail objectives of performance and profitability.
This block includes 4 units.
Unit 13 : Operations pertaining to store design, store atmospherics including the
interior and exterior features are discussed at length in the light of customer pull to
the retail outlet. The store space management and its technicalities have been
commented for optimal utilization of the premise. In addition the importance of visual
merchandising has been mentioned.
Unit 14 : Success of a retail store primarily lies on the kind of merchandise and
more specifically the sourcing decisions and the steps involved in the sourcing process
is crucial. Establishing and managing the vendors is another key area of concern
which has been dealt holistically.
Unit 15: Any business small or big, domestic or global irrespective of the size and
nature it has to run and operate by people and processes which is the core of this
unit. This unit stresses the need for people and processes and their role and relevance
for consistent growth and development
Unit 16 : Every product/service is conceived, developed and targeted at a specific
customer segment enabling them to derive value for money and help them make
repeat purchase of the firms offering. Precisely, we conclude this last unit of the
course with Customer Relationship Management (CRM).
Retail Operations
Management

200
 Managing Store Operations
UNIT 13 MANAGING STORE OPERATIONS
Objectives
After reading this unit, you should be able to:
 understand what elements make ‘store operations’ for retailers.
 know the role of store operations in retail business.
 get a complete overview of role and composition of a store’s internal and
external atmospherics.
 acquaint with the concept and tools of visual merchandising.
 appreciate the concept and details of store space management.
 be familiar with the techniques of retail space planning and performance
measures.
 identify the issues related with store operations in internet retailing.
Structure
13.1 Introduction
13.2 Importance of Store Operations Planning
13.3 Store Operations: Overview
13.4 The Consumers’ Angle
13.5 Store Design
13.6 Store Atmospherics
13.7 Store Space Management
13.8 Retail Space Performance Measures
13.9 Atmospherics and Internet Retailing
13.10 Summary
13.11 Self-Assessment Questions
13.12 Further Readings and Online Links

13.1 INTRODUCTION
As a shopper, you might have visited a number of small or big retail stores, shopping
malls, shopping complexes, departmental stores, exclusive company outlets and many
such premises in and around your location and had a chance to see and understand
how retailers manage their store space. Creating an appropriate retail store
environment (for optimum shopper experience has a strategic importance for a retailer.
Its significance emerges from the link between shopping behavior and physical
environmental factors. These physical environmental factors influence the perception
of shopping duration spent and the evaluation of merchandise and hence it becomes
important for the retailer. On this basis, retailers can effectively plan and organize
all the aspects related to store operations (includes atmospherics and retail space
management) so as to optimize scarce resources and improve profitability.
201
Retail Operations From an operations perspective, the field of retail store operations (Rsop in short)
Management
concerns all of the activities that keep a store functioning well each day. In the best-
run stores, everything is carefully considered, planned, and executed. Operations
includes many aspects, such as store design, display placement, customer service,
money and credit handling, shoplifting prevention, premises maintenance, staff
management, inventory optimization, and dealing with the entire supply chain in a
way to mutually fulfill stakeholders’ objectives.

13.2 IMPORTANCE OF STORE OPERATIONS

PLANNING
Two major components of Rsop are – atmospherics and retail space management.
Both of them relate to improving customer experience and strengthening store’s
profitability. A brief on what these include and how they impact retailer’s objectives
are given below.
Atmospherics refers to the physical characteristics associated with the store that
includes interior and exterior elements, as well as layout planning and display.
Atmospherics plays a major role in attracting customers to the store, improving the
quality of service experience, creating a brand positioning for the outlet, and improving
customer retention rates.
On the contrary, store space management has to do with how retail area is allocated
across departments and retailer’s processes (like billing, storage, display) so that
the productivity based on performance could be optimized. Effective space
management attempts to benefit both customers and employees. There are also
emerging critical issues related to atmospherics in the context of Internet retailing.
The effective use of technology and design element is the key to higher clicks, browsing
time and sales.
The retail sector is divided into two broad categories: organized and unorganized
– an important characteristic that makes this division is the way supply chain is
managed for optimum solutions. This in turn is expected to have an important bearing
on how the store’s operations are managed. While there is normally a lot of
commonality in the structure of a store’s offline and online organization of operations,
their backend fulfillment processes might differ. However, in both cases the end
objective is to optimize both process operations and customer satisfaction.
This unit aims to provide a brief overview of what, how and why of store operations.
The aim is to enable the understanding of the importance and implementation of
this concept in retail business.

13.3 STORE OPERATIONS : OVERVIEW

Rsop covers most store services and jobs within a given store. What Rsop will
indeed include would depend on the type of store and the company’s product planning,
ordering and category management practices. In general, these tasks would envelop
domains like – displaying and pricing items, store ambience (which includes aspects
like store lighting, music, layout & signs, cash and credit related tasks, arrangement
for refunds and returns, store security, staffing inside store, store maintenance and
202 basic supplies like electricity and tagging, handling point of sale (PoS) data.
Sometimes when the scope of work is complex or large, like in large retail set- Managing Store Operations

ups, few of these functions may fall beyond the store operations department to other
departments like finance/accounting, marketing, HR, and IT departments. It must
be noted that retail store’s operations will mostly have similar conceptual components
irrespective of the whether retail is a goods or service retail (for example, grocery
is goods retails while ‘dry-cleaning’ is a service retail).

A category is essentially any group of similar items that a company wants to buy
under the umbrella of a single deal.

Category management practices: is the process of pooling similar products into a

single category and then addressing all business initiatives for that category as a
whole. These initiatives can include the procurement process, merchandising, sales,
product lifecycle management, and other retail efforts.

The rest of the unit is organized around five sections that give a detailed overview
of important Rsop components listed below:

1. Customer’s Angle

2. Store Design Overview

3. Store Atmospherics

4. Store Space Management

5. Internet Retailing Atmospherics

While the unit divides the entire gamut of Rsop activities based on their similarity
of characteristic and overarching purpose into the above-mentioned broad categories,
on ground level, the activities are intricately interwoven with each other and therefore
need to be handled in tandem for effective results.

Activity 1

Visit one large store (area more than 20,000 square feet) and one small store (area
about 5000 square feet) in your area. Identify the 10 most important/prominent
Rsop activities they are doing inside the store. Make a list for each size of store in
the format given below.

Large store activities Small store activities

203
Retail Operations
Management 13. 4 THE CONSUMERS’ ANGLE
One of the purposes of designing the retail environment is to encourage or discourage
approach behaviors. Three immediate effects of retail unit environment could be in
the form of stimuli given below:
I. Pleasure-Displeasure: Which entails whether shoppers have perceived the
environment as enjoyable or not enjoyable? For example, playing classical music
in Hindi should enhance shoppers’ enjoyment in specific kind of service settings
in North India, whereas same music might diminish shopping experience in Punjab
retail units.
II. Arousal: Assesses the extent to which environment stimulates the shoppers in
particular environment. Playing slow instrumental music may result in subdued
activity level from customers in service settings such as restaurant relative to
no music or fast music. Therefore, nature of music in specific retail environment
can decrease or increase in arousal.
III. Dominance: Concerns whether customer feels dominant (in control) or
submissive feels (under control) in the service environment. This is a feeling
that could be related to environmental aspects like the height of the ceiling that
makes one feel small (in control). Individuals associate the color red with active,
assertive, and rebellious moods whereas they associate blue with sedate tranquility
and a suppression of feelings. The nature of mood that needs to be portrayed
therefore lies in the right choice of color.
Activity 2
Visit a large store in your city. Observe the five elements of store design given here
and provide a brief detail about each element in 10-15 words. For each element,
observe shopper behavior and try to identify which of the three stimuli mentioned
above is/are provided by each design element.
Design element name and its description Stimulus provided.

13.5 STORE DESIGN

Store design is the architectural setting of a store, which includes its layout and
decorative style. It refers to how both the store exterior and interior look and feel
for potential shoppers. Briefly, it is aimed at creating a specific store image and
conveys to the potential customer “what the store is all about.” While the range of
design elements is large and depends on factors like store’s kind, size and geographical
location (refer unit 8), design is about two components like: store’s atmospherics
204
and store space management. A brief overview of the important aspects of each of Managing Store Operations
these components is given in next section. Figure below shows sample arrangements
for two store designs in

13.6 STORE ATMOSPHERICS

Store atmospherics is about stores physical characteristics that are used to develop
the retail stores image and draw potential customers by appealing to them. While
it includes all the physical elements in the store that have been designed to enable
and appeal to customers, it also has implicit connotations for the perceptions drawn
from these elements. Store atmospherics play a very important role in a store’s brand
positioning and subsequent image creation. A few words on what ‘brand positioning’
means here it would be helpful.
The term ‘positioning’ in marketing is used to mean where in the minds of the audience
(here consumers) is the brand placed. This would depend on the brand attributes
that consumers perceive and how they look at benefits (values), the brand provides
for the consumer. Gradually, over few or more interactions with the brand, customers
slowly and steadily associate with the values or ideas portrayed by the brand (via a
large number of touch points) and an image is consistently formed in the consumer’s
mind. A positive image in due course of time drives repeat purchase and brand loyalty.
In a nutshell, store atmospherics is expected to deliver on the following benefits:
 Attract consumers
 Create a unique selling proposition
 Facilitate movement across the store
 Make access to merchandise easy
 Make effective display of merchandise possible
 Reduces store search time from consumers
 Reinforces the communication element
 Enhances retail service quality experience
The two main components of store atmospherics are the exterior atmospherics and
the interior atmospherics (which includes store layout and visual merchandising).
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Retail Operations How each of these elements is planned and executed can have a considerable impact
Management
on shopper’s satisfaction and behavior. These in turn strengthen store’s image and
drive repeat purchase behavior and long-term customer loyalty as mentioned above.
A. Exterior Atmospherics:
This includes all aspects of physical environment found just outside the store. For
new customers it creates the first impression and drives a lot of store traffic and
sales, exterior includes store entrance, doors, windows, name boards, marquee,
window displays, outer colouring and any other decorations. Additionally, aspects
like, building height, shape, surrounding stores and area, parking facilities also make
up for the exterior of any store.
Retail store entrance:
Retail store entrance serves only purpose- aesthetic and functional. aesthetic refers
to the store front matching up to the perception intended to be created by the
retailer: for example, an every day low price (EDLP) store will usually have simple
looking, big sized and bigger number of entrance points. Similarly, up-scale store
entrance may have more ornate and classic look. Functional aspects of store entrance
enables automatic security systems, temperature control and auto-open and close
to let customers in. Doors meant for employees to enter could have some sort of
bio-metric identification facilities. Space near main entrance could also display week-
specific or occasion specific promotional materials like ‘sale promotion’ information.
Store’s doors and windows
These structures, serve functional needs like ventilation, movement of traffic, displays,
special decorations and providing a view to passing by shoppers. Glass windows
are also used for displaying items for attracting shoppers’ attention and creating
the right image for the store in terms of its product categories and type. In several
instances, the space on the glass windows is specially designed and managed by
brand manufacturers and could be available to manufacturers on a paid basis. They
also serve as extra protection from weather and let sunlight come in selectively into
the store for a better ambience. This could be critical for food retailers or salons.
In today’s settings, where many stores are also present in online platform as e-
commerce or m-commerce formats, the concept of omnichannel shopping is becoming
popular, where consumers could decide what products to buy by visiting a local
physical store but order online or vice-versa.
Marquee or name boards
A marquee or a name board is usually a painted, flex printed for neon lighted
large board displaying the name of the store, its logo and few other important
information ( like open and close time) and is placed above the store entrance.
While the main purpose is identification of the store, it also helpful in creating the
right image, make a Unique Identification and create branding and trademarks of
the store’s ownership. Importantly, it provides the store with more visibility and
generates familiarity over repeated visits.
Parking facilities
The use of personal transportation for shopping chore, especially in urban settings,
makes a good parking facility very desirable for store visits. Old areas of the city,
206
where markets were built several years ago, when urban traffic was not very high, Managing Store Operations
typically see lack of organised parking space thereby forcing the shoppers to far
of parking spaces. However, in most shopping areas and malls, a structured and
preplanned parking facility is designed and developed either as basement parking
or as a separate building dedicated for parking.
B. Interior Atmospherics:
This includes the entire area inside the store from point-of-purchase to exit of customer.
It has four important components are: the store layout, visual merchandising (design
elements of internal architecture, floors and walls fixtures, displays, labeling, aisle)
and store ambience (music, lightning, temperature control, store cleanliness and use
of different colors), store personnel. These not only create easy access to consumers
and employees but also make the consumer’s stay comfortable for a pleasant
experience and better branding of store.
I. Store layout
Internal arrangement of store in terms of display areas, walking spaces, and modifying
spaces so on for s free movement within the store for customers so that they can
reach to the desired part of the store easily and hassle-free a key concern of a
good store layout. Important factors that determine it are - customer flow patterns,
type of retail store (a grocery store is more packed and staked while in a furniture
store items are spread out more for better display and trials), and the cost of creating
layouts. The store layout not only helps to create the departments and functions
across the store like billing, trail rooms, packing facilities or child play area, but
also ensure safety, good display of products and overall enable a positive shopping
experience. While layouts could be of several types, the three important and
commonly found ones are - grid, race track and mixed or free flow layout.
1. Grid layout is observed in supermarkets, drug shops, and many big box retail
stores when carrying a large variety of goods or when a retail site wants to
make the most of its available space. This layout makes categorizing products
and displaying them easy and shoppers are able to locate their desired items
more easily. However, this layout could also obstruct the line of sight, make
short-cuts difficult and breaks might be required.
2. Race track layout is the choice of retailers when they are dealing with such
products that have to be seen closely, touched and sometimes trialed before
making a purchase decision. Examples of such products include - jewellery,
furniture, apparel, handicraft and electronics.
While this format enables a retailer to enhance the shopping experience, put
promotional materials more effectively and flexibility encourages more browsing
by the customers, It makes the shopping process more time consuming (so a
disadvantage for rushes shoppers). This format is not appropriate where the
store turnover is high but ideal only for high value items.
3. Mixed or free flow layouts used to take care of customer movements, which
are more random with respect to their choice and sequence attending to different
product categories. While this enables more customer choice and flexibility in
browsing routes (such as in duty-free shops and large department stores), it
could also increase confusion and chances of theft.
207
Retail Operations Storied Layout
Management
This is very common variant of store layout design among Indian independent and
leading retail chains in organized sector. This layout not only provides the best utilization
of oor area but also permits the retailer to set separate section for particular product
category. Storied layout is very popular among the leading fashion departmental
stores and supermarket in India such as Lifestyle, Shoppers’ Stop, Sarvanas and
Pantaloons. Storied layout saves a substantial amount of initial investment of the
retailer or developer with increased real estate prices in the emerging retail market
in India.

Figure below provides model representations of popular store layouts.

Activity 3
Visit at least four retail outlets in your city dealing with different product categories
(for example, grocery, apparel, footwear, books, luxury items etc.) Identify the type
of store layout you see in these retail outlets. Record them. Also, check if different
parts of the same store have different layouts? Identify and note the placement of
important activities like billing, packing, returns, customer care queries handling and
storage. Note them in the given format.
Retail store names Primary layout Other sub-types Location of
& category type of layouts other
within store activities

Retail store 1:

208
 Managing Store Operations
Retail store 2:

Retail store 3:

Retail store 4:

II. Visual Merchandising

In order to draw customers’ to the products inside a retail shop area, a marketing
technique known as “visual merchandising” is used which makes use of floor designs,
colour, lighting, displays, technology, and other aspects. It covers the elements like
design elements of internal architecture, floors and walls fixtures, displays, labeling,
aisle styles and placements. The ultimate goal is to increase sales by utilizing the
shop area. Its physical manifestation elements include window installations, in-store
displays, interactive displays, shelving and tagging, point-of-sale displays, posters
for information displays, awareness generation and those having promotional deals’
information, and things like mannequin styling.
The purpose of visual merchandising is threefold:
1. To engage the shoppers and get their attention
2. To push them to make the final purchase
3. To create an image for retailer compatible with store’s positioning and
also ensures consistent image across outlets
When buying store fixtures and display merchandise for a retail store, factors like
– ‘product line’ and ‘customer profile’ become important. For example, while wooden
racks or shelves can be effectively used for apparel or packaged FMCG products,
mirrored showcases are preferred for jewelry or gift items since they ensure better
safety and presentation. When it comes to customer profile, such demographic
variables like age, occupation, household income would become important in
determining for example, the level and sophistication of fixtures.
Similarly, the level of competition could be an important determinant for decisions
relating to visual merchandising efforts and investments. Several studies show that
1
Clement, J. (2007). Visual influence on in-store buying decisions: an eye-track experiment on the
visual influence of packaging design. Journal of marketing management, 23(9-10), 917-928. 209
Retail Operations a very high number of buyers’ impressions are based on sight – meaning, what they
Management
see inside the store. Many studies from Indian context too conclude similarly1. This
in turn means that if retailers are able to manage inside the store impressions they
make on potential buyers, they can gain a competitive edge.
It must also be noted that whether one is using racks and shelving from a functional
or aesthetics or for a combined impact, retailers today have a wide variety to choose
from. The fixtures and racks could vary in terms of shapes, product displays they
can support, the material of which they are made, features they come with like tagging
and flipping or how they can be flexibly arranged and altered as per new needs.
Even the manufacturers of these fittings provide a whole lot of customization and
improved features for easy installment, transport and maintenance these not only
maximize store space usage, but also enable retailers to house many related products
at the same location for easy pick-up by shoppers.
Visual Merchandising in India
Unlike the western countries, where visual merchandise receives high priority in
commercial planning of a product, while the Indian retail industry’s understanding
and practice of the concept of visual merchandise is still developing. With the advent
of foreign players and chain stores, independent retailers have to compete purely
on the competitive edge of the merchandise and visual merchandise will be a helpful
tool in projecting the uniqueness of the products and thereby increasing the market
access and sales. It is high time that the Indian retailers are opting for new age
visual merchandise management in place of the traditional practices of display of
merchandise. Still majority of the retailers in unorganized sector extends limited
importance to visual merchandise in the retail marketing mix.
It is relevant and interesting to discuss Raymond’s in this context- in Mumbai.
Raymond’s, the first men’s garment retail chain in India, has always taken visual
merchandising seriously. The management has hired a professional agency for consistent
and picture-perfect window display. They prefer a theme based merchandise display
that does not involve the use of expensive raw materials. They feel that a theme-
based display provides management with required flexibility and incorporating new
ideas. Sometime back they did a window display with a construction theme. However
it had to be scrapped because “it failed to target the right clientele”. They have appointed
a professional agency to train the sales staff of Raymond’s branches all over India by
conducting workshops and slideshows .Management penalizes branch personnel who
skip such training programmes. Most Raymond’s stores ensure’ one huge deep window,
which provides sufficient and attractive scope to display merchandise.
Activity 4
Compare the various components of visual merchandising in Atmospherics
a) Two independent apparel retailers in central business district.
b) A fashion department store
...................................................................................................................
...................................................................................................................

Rathee, V., & Prakash, C. (2017). Influence of Visual Merchandising on Customer Buying Deci-
sion-A Review of Literature Approach. World Wide Journal of Multidisciplinary Research and
210 Development, 3(12), 103-105.
 ................................................................................................................... Managing Store Operations

...................................................................................................................
...................................................................................................................

13.7 STORE SPACE MANAGEMENT

Retailers ought to manage and establish a trade-off between two most important
resources namely retail space and inventory. Given that retailers have limited space
they want to optimally allow it across product category, important processes like
customer service and space for movement of people. Good space allocation benefits
retailers by attracting more consumers and by enabling better display of an optimum
number of products for shoppers.
Accordingly the key objectives are:
1. To obtain high return on the investment made by increasing the
productivity of space - This requires effective utilization of space for
merchandise display and customer movement.
2. To implement a comfortable and rich experience for shoppers
On a more detailed level, we can see that the space management decision also has
an important influence on sub-decisions like:
 Location of various departments
 Arrangements between departments within the shop-floor
 Selecting the layout with customer behavior in mind
 Planned traffic flow of customers
How much weight should be allocated to different product categories, and brand
would depend normally on the following factors:
 Profitability of the merchandise
 Display requirements of the specific item
 Contextual demand depending on seasons or festivals
How much space and where it is allotted would then in turn determine the placement
of various departments, the relative location of the departments, the selection of
layout of the store and how the store traffic could be directed to move. Many
times retailers would like to order stack up their items like in grocery stores or
spread out the items for or ideal view and selection as in furniture stores. Accordingly
retailer’s pickup different racking arrangements and layout formats, a lot of which
could be inspired by the industry practices.
From the operational point of view, retailers would aim to go for space management
that facilitates shipping of items from the back storage area to different locations
across the store. At the same time, retailers want to accommodate the customer
need for being able to browse seamlessly throughout the store and be able to see
a fairly large portion of the store at the same time. While both these objectives
may be to represent tradeoffs, an optimum solution usually takes care of both the
requirements, with customer needs playing the veto if needed. 211
Retail Operations Given that retailers undertake implementation of several processes on their space,
Management
they often face the decision, which involves trade-offs of allotting space – meaning,
allotting more space to one process or activity and less to another or even re-
organizing space allocations from time to time. To take these decisions, they would
use both quantitative measurements of performance and judgmental inputs.
While sales and profitability are considered established quantitative measures of
retail unit’s success and these are used to measure the performance of retail spaces
across processes, qualitative inputs like identifying which activities or processes have
a positive impact on long term or strategic issues like relationship management with
suppliers or customers would play an important role too. For example, in a bank,
although only few customers could ask for session with managers for a more detailed
discussion regarding how to manage their portfolio of investments, this activity would
be a critical activity requiring a dedicated comfortable corner as this would decide
if those seeking such discussions would continue with the bank’s services.
A brief understanding of selected quantitative measures of retail space performance
which indicate the productivity of retail –space are given in the next section.

13.8 RETAIL SPACE PERFORMANCE MEASURES

Retail space performance measures enable the retailer to measure the productivity
of different retail spaces. Such measures include “sales per square meter” or “profit
per meter square”. Sometimes using running length measures like “sales per linear
meter” or “profit per linear meter” makes more sense from quick measurement
perspective, which can avoid the complexity of measuring width of racks. Where
the retail space is actually maintained by volume of storage, like refrigerated areas
or areas that have to be kept humidified, the more appropriate measure is “sales
per cubic meter” or “profit per cubic meter”. Thus, area, running length and volume
are the three most commonly used denominators for measures of retail space
productivity. Each of these measures is briefly outlined below.
A. Sales per Square Meter or Profit per Square per Meter
It measures retail space performance on the basis of sales/profits according to the
area of floor space covered. This measure is conducive to use when only single
layer of merchandise is displayed and various type fixtures are placed. This is a
common measure for the fashion retailing. Take a look at figure at the end of this
section for a better idea.
B. Sales per Linear Meter or Profit per Linear Meter
It measures retail space productivity on the basis of income generated by footage
of shelf space allocated. This measure is more suitable for the stores using multi-
shelved fixtures such as a gondola or racks. It takes into consideration linear meter
value of shelf rather than the area of space exposed in terms of the height value of
shelf.
C. Sales per Cubic Meter or Profit per Cubic Meter
It measures retail space performance on the basis of length, width, and depth of
the fixtures placed in the store. This measure is necessarily used by retailers in the
frozen food business or those who place dump bins on the retail floor.
212
Space-to-sales ratio, turn rate and gross margin analysis can help create the most Managing Store Operations
profitable planogram (schema for arranging items across the retail space) for the
retailer. In effect the performance of retail space depends on the levels of sales
and the profitability of the merchandise place within the space and the value of the
retail space.

Figure: Different measures of retail space performance: A- Sales/profits per meter square;
B - Sales/profits per running/linear meter; C - Sales/profits per meter cube

Often, how much space should be allocated across product categories, brands and
SKUs is determined using past sales and profitability data like stated above. Other
factors like seasonality and festival demands are accommodated from time to time.
Retailers also try to maintain a good balance between fast-moving items (example,
everyday consumables like milk and bread) on one hand with slow moving yet
profitable ones on the other (like refrigerators, televisions, laptops).The proportion
of items which come from different product categories is aligned with the image
retailers want to establish and maintain in the consumers’ minds.
From the perspective of retailer’s own size, usually these decisions become more
complex and involving for larger retailer. While both small and large retailers would
conceive and implement retail space allocation decisions are conceived and
implemented at department level (example, household appliances) followed by
category level (example, small equipments like toasters, grill machine) and SKU
level (like Kent 16025 Sandwich Grill 700W), the sheer volume of items to be
handled is manifold for big departmental super market stores.
Additionally, small retailers’ major concern is to ensure the placement of all kinds
of merchandise in the limited shop floor area and to have smooth access to merchandise
for themselves rather than customers, as there might be hardly any provision for
customers to enter store. One of the primary objectives for large-scale retailers
will be to make it operationally manageable and make consumer movements across 213
Retail Operations the store easier and more conducive to locating items easily. Overall, Space allocation
Management
is the process of distributing the right amount of space to the right merchandise at
the right time according to a detailed analysis of customer demand. Sales and
profitability are by far the most used measures for taking space allocation across
departments and product categories.
 Sales as basis of space allocation
Retailers have to decide about the sales data to be used for the allocation of space
among merchandise. Three options available with retailers are historical sales data,
market share and projected sales. Sales could be considered in terms of number
of units sold across a specific span of time or value of the units sold (in the product
category or department being considered) over a specific period (like a day, week,
month or quarter). Usually, determining the value of items sold (measured in currency
units) is easier when there is heterogeneity across SKUs in the range considered.
 Profitability as basis of space allocation
Profits are taken into consideration for determining the optimum allocation of retail
space amongst the product categories. Product profitability is measured by
1) Gross margins (equals ‘sales revenue’ – ‘cost of goods sold’) and
2) Gross margin return on investment or similar measures.
Profitability measures help the retailers to allocate quality and quantity of retail space
to the profitable product categories and departments at priority .It also keeps check
on the retailers ‘unnecessary allocation of large space for the merchandise that would
sell just as well in a limited place.

13.9 ATMOSPHERICS AND INTERNET RETAILING

The development of the web as a retailing medium needs us to understand the
implications of web atmospherics. In context of e-tailing factors like web site
organisation, server performance, product data, a search option, and shopping carts
all contribute to a positive web shopping experience. The easy navigability in the
web site for a shopper who wishes to buy through the net is one of the first facilitating
factors. Server performance directly affects the waiting time that is required for the
obtaining results of searches. The easy access to product data and a click & browser
friendly search option add to the convenience of the consumer.
There is a negative correlation between waiting time and the evaluation of service
satisfaction in brick-and-mortar retail stores. Though this can be mitigated through
store atmospheric variables, the association is strong. Similarly, system response
time is inversely related to computer user satisfaction (i.e., the longer the wait, the
greater the dissatisfaction).

13.10 SUMMARY
Atmospherics and retail space management are important tools for success for retail
business. They contribute to customer acquisition, retention through improved service
experience, reduced costs and higher overall profitability. Atmospherics is referred
214 to as a store’s physical characteristics that are used to evolve the retail store image,
and attract and retain customers. It has four key components - interior and exterior Managing Store Operations
atmospherics, store layout planning and visual merchandising. Interior atmospherics
refers to all aspects of physical environment found inside the store and includes at
tributes like interior flooring, interior store design, level of cleanliness etc.
Exterior atmospherics refers to all aspects of physical environment found outside
the store and includes attributes like nature of store entrance, main board, marquee,
windows display, parking facilities etc. Store layout refers to the interior retail store
arrangement of departments or groupings of merchandise. Visual merchandising,
also referred to as display, is defined as presentation of products in order to sell
them.
Store space management deals with the best possible allocation of the store space
to departments, product categories, storage space and customer space. It is a major
challenge for both owners and managers of the store. Research has also indicated
the multiple uses of colour and how it can be integrated into the entire store design
and layout. It is important to organize the atmospherics as per the recommended
color schemes. Physical materials used in store construction and designing impact
both the cost and presentation of the store interior and exterior. In the context of
Internet e- tailing factors like website organisation, server performance, product
data, a search option, and shopping carts all contribute to a positive web shopping
experience.

13.11 SELF-ASSESSMENT QUESTIONS

1) What constitutes retail store operations? What are the benefits of doing well
on a store’s operations and why? Support your answer with a couple of examples.
2) Define atmospherics. What is its importance in retail marketing mix? Can its
scope of coverage differ across small vs. big retailers? Support your answer
with a few real world examples.
3) What are the key components of atmospherics and discuss each of them?
4) What is the relevance of store layout planning for retail unit? Discuss
5) Define visual merchandising and discuss the important components of visual
merchandise to leverage its benefits.
6) What are the components of merchandise display fixtures and give brief account
of any three?
7) What are the major concerns of store space management and identify any two
commonly used retail space performance measures.
8) How can retailers balance the use of quantitative measures of retail space
performance with qualitative measures? Give two examples to support your
view.

13. 12 FURTHER READINGS AND ONLINE LINKS

Chetan Bajaj, Rajnish Tuli, Nidhi.V. Srivastva (2005) Retail Management, Oxford
University Press.
215
Retail Operations Ghosh, A.(1994) Retail Management, 2nd edition. New York : The Dryden Press.
Management
Kotler, P. (1973-4), Atmospherics as a Marketing Tool, Journal of Retailing 49:
48-63.
Berman and Evan’s (2002), Retail Management: A strategic Approach, ed. 8, New
Delhi Pearson Education.
See “25 Examples of Innovative Coffee Merchandising” – to understand visual
merchandising in real world from this link:
[Link]
For more on store layouts, see: “Modern Retail Rebrands” on this link:
[Link]
See several impressions of visual merchandising on this link:
[Link]

216
 Managing Store Operations
UNIT 14 SOURCING AND INVENTORY
MANAGEMENT
Objectives
After reading this unit, you should be able to:
 discuss the significance of sourcing in retailing.
 explain the process of sourcing in a step wise manner.
 elucidate the factors influencing vendor negotiations and vendor relationship
management.
 distinguish the basics of warehousing and stocking.
 understand the overview of inventory management by retailer.
 elaborate the critical factors and process of ordering.
 highlight the shrinkage and its handling.
 acquaint how to carry out performance measurement for retailer.
Structure
14.1 Introduction
14.2 The Sourcing Process
14.3 Factors influencing Vendor Negotiations
14.4 Vendor Relationship Management
14.5 Warehousing and Stocking
14.6 Inventory Management
14.7 How Much to Order and When?
14.8 Shrinkage
14.9 Merchandise Performance
14.10 Summary
14.11 Key Words
14.12 Self- Assessment Questions
14.13 Further Readings

14. 1 INTRODUCTION
In a retail store, one finds dozens of product categories, hundreds of brands and
thousands of stock keeping units (SKUs) placed on the shelf. These come from several
suppliers/vendors and the number could be in thousands for truly big hypermarket
format stores like Walmart. A retailer buys from suppliers/vendors of products after a
lot of deliberation about quantity, quality and pricing considerations. This means a lot
of the retailer’s time and effort goes into negotiations for purchase with many vendors.
Thus, merchandise sourcing is a complex and tedious process.
217
Retail Operations The golden rule of sourcing is to buy quality merchandise at the most competitive price
Management
and then sell it to the customers at a reasonable profit. Without thorough planning and
strategy, a retailer cannot be successful in this critical function of retailing. Therefore, it
is essential to understand the significance of sourcing of goods and its method. Today,
the procurement function deals with more than regular set of annual negotiations with
large manufacturers of selected brands. Rather, the attention of retailers is focused on
procurement from medium and small manufacturers (primarily in the category of SMEs)
and buying raw materials for their own in-house production of private labels. These
and other trends have important impacts on procurement processes within retailer’s
organization. Even new team, procurement structures, skills, new approaches and tools
are becoming relevant and essential.
14.2 THE SOURCING PROCESS
Sourcing is a process involving several steps which are discussed below:
A. Determining the Categories:
The retailer must first determine the categories in his store. Each category may have
distinct features and therefore different points of attention from buying point of view.
Categories in a bicycle store can be men’s bicycles, ladies bicycle, sports and health
bicycles and kids bicycle. However, you must realize that different categories of
bicycles may not need so many vendors as is needed for grocery stores. Diverse
categories of a supermarket or departmental store need many vendors to supply the
required products.
B. Estimating future demand
Once the retailers have established the product categories for its store, they will estimate
the future demand for these categories for their geographical area. In case the retailer
has past data from his own store or industry data, they can use this data to extrapolate
the expected future sale quantities. Sometimes they must substantiate this data with
data available from other sources like consulting reports, expert interviews published
on internet or data about the future performance of the economy obtained from authentic
sources like university, government, industry or consulting research reports. Retailers
could also post information about the prospective products/ categories on the various
search engines like Yahoo, Google, e-commerce websites and gauge the number of
inquiries by the web surfers. They could use other web services like chat sites, social
media platforms or consumer forums. Based on the feedback gathered a retailer can
take decision in this regard.
C. Identifying the Vendors or Sources of Supply
Very often, we find retailer sourcing certain categories from the authorized dealers.
For instance in a supermarket, products like detergent bars, cigarettes, and similar
products may be procured from authorized dealers of the respective brands. As a
retailer depending upon your turnover, you may also like to procure it directly from the
manufacturer. On the other hand, products like food grains and other edibles may be
sourced either from the whole seller or directly from the food grain mandi (local
wholesale stores).
D. Develop Evaluation Criteria
In this step, the procurement team would use an evaluation framework (this may be
218
self-constructed or following industry practice) that would have a set of evaluation Sourcing and Inventory
Management
criteria and a corresponding weight for the criteria according to criteria priority. Examples
of criteria would be – product quality, product price, transport time, transport cost,
product packaging. Further, if the vendor meets a requirement – say, product quality,
with a score of 7 (on a scale of 1 to 10 – 10 being best) and the priority of this
requirement is 3 (on a scale of 1 to 5 – 5 meaning most required), then the final score
for the vendor on given criteria would be 7*3= 21. This helps to amplify and assess the
differences among vendors on more granular levels.
E. Interaction with selected Vendors
The retail procurement team would then normally conduct a bunch of interactions
with selected vendors (this is especially important when the vendors, products or
retailer settings are new or changed). These interactions include vendor briefings
to discuss stated retailer’s requirements, vendor’s capabilities (example, for supply)
to ensure a common understanding and some level of assurances. Retailers could
also ask the selected vendors to give a solution overview to the organization’s
current business and technological requirements. Additionally, each vendor would
provide an overview of benefits to retailer from his services. Sometimes, vendors
are asked to provide a “demo” to display the functioning and capabilities of their
solution.
F. Complete Vendor Selection
At the conclusion of the evaluation process, the team will identify one or few vendors
as primary option (the winner) and few others as secondary alternative. This is important
in the case where individual vendor capacities to supply are much lower than the retailer’s
total requirement. Such an arrangement would also help to mitigate the risk where a
specific vendor is not able to supply as promised due to unexpected breakdown of
infrastructure, contractual terms or other external exigencies. This step gets concluded
with drawing up of formal contract statements, duly signed by both parties, which acts
as an important reference document for either party at all stages of implementation. A
contract would clearly give all the important prerequisites, terms and conditions of the
contract and to provide precise information on what goods and/or services the vendor
should provide, at what cost and transport terms.
In case of sourcing from international destinations a retailer must be cautious about the
country of origin, foreign currency fluctuations and taxes.
Example: Apparels retailer’s sources of supply
Retailers like Wal-Mart are going for global sourcing of their products. International
sourcing is an area still new for India although some players have been doing it for quite
a number of years. While going for International sourcing the retailer has to be very
sure about the rules and regulations of foreign trade, issues related to foreign currency
and transport. As a retailer once you decide to source merchandise internationally you
should be confident about the credibility of the supplier and the expected return on
investment.
It is worthwhile for the retailer to go through the financial statements of the various
vendors. This will help in ascertaining the financial worth of the vendors. It also helps
the retailer study and visualise the financial position of all the individual vendors.
219
Retail Operations Activity 1
Management
Make a visit to a small retail outlet and a large multiband store in your city/ location.
Compile brief details on their sourcing process – like the items they sources from
vendors, location of their vendors, mode of transport and its frequency of such
transactions. Also, find out if they have a dedicated team to take care of the sourcing
activities. Record your answers in the following format.
Details Small retailer Large retailer
about
Items
sourced

Location of
vendors

Mode of
transport

Frequency of
transactions

Sourcing
team

14.3 FACTORS INFLUENCING VENDOR

NEGOTIATIONS
Negotiating with vendors for sourcing merchandise is a comprehensive and an in depth
process, which involves time, effort and meticulous documentation. It is useful to know
the broad factors, which must be considered in this process. Selected important factors
are discussed below:
1. Complete Information: A retailer or merchandise buyer should have complete
information about the vendor – location, size, years of existence, track record
of supplying products etc. These could become strong bargaining and
supportive basis in immediate as well as strategic decisions.
2. Situation analysis of a Product: It is desirable to do a real, ground level
assessment for understanding the ground realities of the vendor-supplied
product in the market. Each vendor has an image in the market, formed over
hundreds of transactions with his/her buyers, which makes his products sell to
the customer – knowing this can be very valuable to retail buyers.
3. Target setting of contact items: While negotiating retailer has to keep in
mind various aspects of the contract such as terms and conditions of payment,
freight, transportation, delivery, terms for goods return etc. Based on his
experience, retailer will have a list of negotiation points to be competed with
220 the vendor. Making sure the checklist is well addressed will help retailer to
 make the best deal as well as have assurance regarding quality of the goods, Sourcing and Inventory
Management
on-time delivery and surety about the redress of grievances (if needed).
4. Deadlines for Delivery: In retail business, not to be out of stock is
important and therefore meeting deadlines for product deliveries and
payments should be clarified and confirmed at the time of negotiation. A
clear deadline confirmed and acknowledged by both the parties removes
any chances of misunderstanding and conflict between the two parties. This
is more in the interest of the retailer since any misunderstanding on such
issues definitely will be loss incurring for the retailer due to out-of-stocks
and lost consumers.
A brief list of vendor selection criteria are mentioned below:
 Quality of good/service
 Cost of items
 Transportation costs
 Service features
 Discounts for volume and early payments
 On-time delivery of items
 Financial strength of vendor
 Strength of customer references
 Vendor’s communication systems
 Trustworthiness of vendor
 Regulatory compliance by vendor
 Achievement of sustainability targets of retailer
 Readiness to participate in product development
 Vendor’s production capacity
Making assumptions by the retailer regarding any terms and conditions of sourcing at
the time of negotiation could prove counter-productive. Rather, each aspect of the
contract ought to be discussed, clarified, confirmed, written down and duly signed by
both the parties for safety. This removes any doubt or misconception in the minds of
any of the parties.
Retailers must take care not to spoil relationships with vendors as they are the supply
chain partners. Good relationship with vendors during the course of business based
transactions or otherwise is a long-term strategic asset for retailers. Vendors can support
retailers in not only supplying products but also in product development and lending
credit when needed.
Activity 2
Make a visit to a small retail outlet and a large multiband store in your city/ location.
Identify two product categories for each retailer. Compile a brief report on their vendor
selection process for each of these retailers by identifying the three most important
221
Retail Operations factors that determine which vendor(s) have high likelihood of selection. For each
Management
factor, provide a one line reason for its importance as mentioned by the retailer. Use
the given format for this activity.
Small retailer Large retailer
Category1- (name) Eg. Footwear …
Factor* 1

Factor 2

Factor 3

Repeat for category 2

* Vendor selection factor

14.4 VENDOR RELATIONSHIP MANAGEMENT

(VRM)
Vendor relationship management (VRM) is strengthening of “buyer-vendor relationships”
to achieve mutually beneficial goals, establish trust to enable a longtime connect. An
efficient VRM can provide several strategic and operational benefits – like, quality
increments, improved total cost of ownership of goods, innovations, smooth flow of
data and mitigation of supply chain risks.
VRM is more than managing an up-to-date database of vendors and communicating
with them regularly. In fact, via VRM, retailers can know their vendors better, making
them an active partner in your business operations. In addition to keeping basic vendor
information, VRM involves things like efficient vendor on boarding, transparent vendor
performance reviews and robust risk mitigation. While several of these processes are
handled offline by retailers (especially small ones in developing nations like India), the
processes are shifting from offline records and standalone computer systems to cloud
based software. Latter gives high number of new features (like real time collaboration,
automated vendor enrollment and payments), which can be implemented faster, and
error free thereby bringing agility, higher effectiveness in transactions and lowering
costs.

One of the emerging aspects of retailer-vendor relationship is vendor-managed inventory

or VMI. VMI is an inventory management technique in which a supplier of goods,
usually the manufacturer or the vendor, is responsible for optimizing the inventory held
by a distributor (retailer in our case). VMI requires a communication link—typically
electronic data interchange (EDI), or an Internet based platform, that provides the
supplier with the retailer’s sales and inventory data (usually in real-time) based on
which supplier plans inventory movements. In a related arrangement called vendor-
owned inventory management (VOIM), the vendor retains replenishment and
maintenance responsibilities for the inventory items residing on the retail store shelves,
until the item is sold to the end consumer.
222
Few of the best practices to manage a good and lasting relationship with Sourcing and Inventory
Management
vendors are:
1. To have frequent and open communication,
2. Establish feedback channels, have dedicated team
3. To address vendors’ concerns related to operational and payments,
4. Conducting annual vendor scorecards that include key performance index or kpis,
5. Plan and share demand forecasts and concerns as early as possible,
6. Include vendors in product development
7. Have a systematic plan for vendor business strengthening (when retailers are more
powerful and financially stronger).
The figure below provides a brief idea on cloud capabilities when it comes to
VRM practices.

Source:[Link]
management/

Activity 3
Make a visit to a medium sized retailer in your city/location that has an online presence
via e-commerce– a website or a mobile application. Study its online platform and
make a list of retailer’s activities (at least four) that are conducted for the potential
consumer by online platform. For each activity, find out with the retailer, what are his
corresponding backend arrangements with retailer’s vendors. Also, identify how
223
Retail Operations retailer plans to strengthen vendor relationships in identified domains. Use the given
Management
format.
Details of retailer (name, location, product categories, IT platform)
Activity 1 name Description of activity here:
Backend
arrangements with
vendors
Plan for
strengthening
relationship
Repeat for 3 more activities

Impact of Life Cycle on Sourcing

While sourcing merchandise the buyer needs to be sure about his decision regarding
the quantum of purchase. This confidence of the decision comes from the experience
the buyer has. This is because most of the product categories generally follow the
typical life cycle of a category. However, variations in the life cycle stages can take
place due to seasonal changes fad or fashion. While seasonal changes may be easier to
assess or forecast, those that are driven by fashion or fad are typically trickier. Between
fashion and fad – fashions exist for a much longer duration and are more predictable
than fads.

Therefore, whenever a retailer is planning for sourcing his merchandise he must take
into consideration the prospect of changes in the preferences, lifestyle of the target
customers and upcoming seasonal or festive changes before deciding on specific
categories as well as assortment and quantities to be purchased.

It is worth understanding that the demand of staple merchandise is more consistent and
usually follows a smooth trend. Stable/basic merchandise shows a continuous and
consistent demand. While, it is possible that demand of some of the staple brands of
merchandise declined over a period due to new brands and substitutes; the demand
for product category remains stable. The demand in such cases is affected by other
factors like population, income or mega-trends in lifestyle changes and the consequent
changes in favor for certain products.

An example for vendor management:

Walmart, was one of the first big retailers to have innovated in the vendor management
area. They partnered with manufacturers like P&G to lay out a vendor managed inventory
system. It allowed vendors access to sales data so they could better forecast product
needs, sync this with their production and delivery accordingly. Walmart’s extensive
manufacturer relationships, network of distribution hubs, and fleet of trucks helped it
to keep its cost low, enabling it to become a consistent discount retailer. What we can
see is that, even if retailers are nowhere near Walmart’s size, they can still gain from
managing vendor networks and resulting seamless product flow for improved productivity
and large savings.
224
 Sourcing and Inventory
14.5 WAREHOUSING AND STOCKING Management

This is the last step in the sourcing of merchandise process. Receiving the merchandise
and then stocking is perhaps one of the critical functions of sourcing. This involves
various tasks such a receiving the goods, checking the invoice, matching the goods
received with goods ordered list, adding the goods received to stocks. Finally making
payment and planning for its entry in the store .At this point, it is the duty of the retailer
to check for damaged goods, unordered goods and any deficient goods (ordered but
not delivered). Since generally payments’ are not made in advance, the retailer has a
better chance of getting his fresh grievance redressed early. In case the retailer has a
chain of stores, stocking becomes much more critical as it precedes distribution to
various stores in different quantities and may be at different times too.
In store merchandise handling is an important issue, which needs to be dealt with a lot
of care. Retailer has to be cautious about the quality and quantity of merchandise
delivered vis-à-vis the order. At this stage, risks includes less than agreed quantity is
delivered, embezzlement of existing stocks by collusion between vendor and store
staff, theft by other parties, damaged goods or damaged packaging etc.
Few suggestive practices for optimum merchandise handling include:
1. Product shipments be received in a set procedure to ensure everything
arrives in good condition and in the proper quantity (checking activity
to be jointly carried out by a team of retailer and vendor staff)
2. Products be routed in an efficient manner to right store location (may be
shelves, storage, or holding area)
3. Product details be recorded in inventory system for tracking (viewable
by both parties)
4. Damaged goods be returned according to standard operating procedures.
Allocating Merchandise to Stores:
After the merchandise is received, the next important task is to allocate the products to
different stores belonging to the same chain (assuming a chain store) or to different
departments in a single store. While allocating merchandise to different stores retailer
generally uses the historical sales information. However it is very important to pay due
attention to the current supply and demand situation so as to maintain proper inventory
situation. The retailer also has to keep in mind the geographic and, demographic factors
influencing each of the stores. It means that due to the concentration of specific
community or people of specific region in a particular area demand for the specific
category type of products rises in a specific season or month due to some festival or
custom. Therefore, demand for that specific category of products will be more in that
particular store than other stores in the chain.
Another factor, which plays an important role while allocating merchandise, is the
generation of percentage of total sales. It works like this- in case a retail chain has ten
stores in a particular area/location and demand for a product has suddenly risen across
in all the areas. In such a case, the demand for a particular product will dramatically
rise however, with the limited supplies the retailer has to take a decision regarding
allocation of merchandise. Decision will then be taken based on percentage of sales
225
Retail Operations generated by individual stores. The store generating maximum amount of sales will
Management
have the authority to demand more percentage of the product.
Each store has to keep adequate stocks to generate confidence in the customers. It
has been generally felt that under stocked stores attract lesser number of customers.
Under any circumstances, customers must not feel that just because the store is relatively
small or is not doing well, therefore it is not well stocked. In case the retailer wants to
generate sales through a push strategy, then he has to keep large quantities of the
stock. On the other hand, if the strategy is to generate sales through pull strategy then
larger display of merchandise is desirable.
Activity 4
During a weekend, visit to a small retail outlet and a large multiband store in your city/
location. Identify two product categories and compile a concise report on ‘merchandise
handling’ practices for these retailers on the basis of these aspects: check on product
shipments received, products routing, product details recording, important aspects of
inventory system for tracking & return process and policies for damaged goods. Use
the given format.
Details of small retailer (name, location, product categories)
Merchandise handling’ practices
1. Check on product
shipments received
2. Products routing,
product details
recording
3. Inventory system
for tracking
4. Return process
and policies for
damaged goods
Repeat for 2nd retailer

14.6 INVENTORY MANAGEMENT

Inventory management is the process of ordering, handling, storing, and using a
company’s stock of assets like raw materials and components, semi-finished goods or
stock items ready for sale. For a retailer, inventory primarily means the stock of items
received from vendors and kept either in back-of-the-store warehouse or on the retail
store’s shelves. When a retailer is dealing with private label items, the inventory will
also include items at semi-finished stage. The chief essence of inventory management
boils down to having the right amount of stock, in the right place, at the right time.
Importance of inventory management for retail business has important financial and
market related benefits. Few of them are mentioned below:
1. Enhancing customer experience: Retail is a promise to consumers of finding
226 the products they are looking for from the store. Thus, not having enough stock to
 fulfill orders already taken by retailer for which payments are made can lead to Sourcing and Inventory
Management
negative experience for consumers.
2. Improving cash flow: Locking too much cash into inventory at once means it’s
not available for other expenses - like payroll or marketing. Thus while inventory
is necessary, it must be optimally decided as per the need so as to save finances
for other critical activities.
3. Avoiding shrinkage: If inventory requirements are correctly made, this will help
in avoiding over-purchasing of wrong inventory items (which are selling slowly).
This can also protect from these items becoming expired, spoiled, or stolen.
4. Optimizing fulfillment tasks: When inventory is available, it can be picked,
packed and shipped off to customers more quickly, easily and lead to satisfied
customers.
5. Saving on warehousing space and staff: When inventory quantities are kept in
the right amounts, they are optimized for fulfilling customer requirements on time
and take only the minimum space from warehouse. In the same context, staff
requirements for taking care of inventory could be optimized.
Today a lot of IT intervention and support in supply chain tracking and monitoring
inventory with different stakeholders is available which help in streamlining the process
and making information about stocks at different locations known to all relevant parties
involved. One such technology is radio frequency identification or RFID.

14.7 HOW MUCH TO ORDER AND WHEN?

The primary questions faced by retailer for managing inventory are:
1. How much to order (category wise)
2. When to place orders.
A retailer should always develop a mechanism in this regard, since this is a critical
issue. Broadly, retailer needs to focus on the following:
a. Average current demand for individual items. Also called SKU (stock keeping
unit) – for example, retailer can find demand/day by using a weekly average
measure.
b. Future SKU demand obtained by using forecasting techniques like linear or
non-linear trend forecasting methods
c. For items affected by seasonality or other fluctuations, retailer can use special
forecasting methods, which use seasonality index
d. For optimum restocking what sort of ordering policy or rules would suffice –
For example, this involves setting parameter values for economic order quantity
method.
In order to take these three decisions we need to get some vital information for which
we need to have the following critical info:
1) Inventory Report:
This describes each SKU and summarizes the inventory position. 227
Retail Operations An inventory report gives vital information from the retailer’s point of view. A
Management
retailer based on’ this information can calculate how much of specific merchandise
should be purchased to meet customer demands for a relevant period. It also
gives vital indication regarding shrinkage1if any as well as the movement in the
market demand conditions – example, demanding going up or down. Based on
the inventory report a retailer can always take necessary steps to add stocks
before they reach alarmingly low levels. Moreover, it also gives a clear picture as
to what sort of assortment should the retailer order, how much of each constituent
of the assortment of the ordered, so as to meet the demand.
Product Availability Report: This indicates that in a month on an average how
much the product was available when required by the customer.
This report enables the retailer to understand the vital statistics regarding availability
of products in the store. One of the most critical factors for the success of any
store is the availability of a product as and when demanded by the customer.
However, at times it is just possible that a specific product is not available in the
specific size or denomination as required by the customer. Going through this
report a retailer can very well apprised himself/herself about the trends in the
market and consumer preferences. For instance, if a supermarket owner finds that
100 grams pack of Parle G biscuits were not available for a considerable number
of times, an indication is given by this data. In this data is code related with the
inventory report data regarding the same brand of biscuits, a vital clue can be
derived as to which pack size is not moving vis-à-vis the hundred grams pack.
2) Reordering level: It is the amount of inventory below which the availability
should not go down. At this point order is placed with the supplier.
Each supplier/vendor needs x number of days or weeks from the order received
by supplier/vendor to reach the retailer’s warehouse or store. This is called lead
time. On the other hand, every retailer has his limitation of space and money.
Based on these two considerations retailer can fix the level of stock which, once
reached at the retailer’s end, an order, of that merchandise will automatically be
placed with the supplier. This is known as the reordering level. For example, a
grocery retailer want to keep 500 units of an SKU in the detergent category, but
at any point he does not want to have lower than 50 units on the shelf. He would
know the rate at which sales happen (say 15 units per day) and the lead-time (say
a week). So in this case, the stock reaches 50+ (15*7) = 155 units, an order will
be automatically triggered.
One more consideration here can be the inventory turnover2 of the retailer.
Therefore, reordering level for the same merchandise can be different for different
retailers even if they are based in the same city or maybe in the same area.
3) Order quantity: This is very subjective and varies from one retailer to another,
even when they look similar in operations. It’s based on the frequency of
consumption and delivery lead time.
Once again, order quantity is based on the four factors namely
i. Frequency of sale and inventory turnover level

1
Inventory shrinkage. An accounting term, it refers to inventory items that have been stolen,
damaged beyond saleable repair or otherwise lost between the point of purchase and point of
228 sale.
 ii. Storage capacity Sourcing and Inventory
Management
iii. Capacity of the retailer to block funds in the specific merchandise
iv. Anticipation if any, for shortage of the specific merchandise

14.8 SHRINKAGE
It is the reduction in inventory caused by shoplifting, misplacement or damaging of
merchandise. Such shrinkages can be measured by comparing purchase records with
available inventory physically in the store. Amount of shrinkage would affect the ‘quantity
decision ‘of sourcing merchandise.
In places where shrinkage through customer and employee theft becomes problematic,
retailers would adopt steps to minimize such happenings. Nowadays, a visual surveillance
is in place which is helpful and is found in majority of the stores. Retailer has realized
that the cost of shoplifting could reduce their profit and worsen their business’s bottom
line. This can be very detrimental to those retailers who already operate on thin margins.
Tracking systems using RFID has been successfully adopted in the stores commonly in
the western nations. However, in India while its use is picking up (it has still not become
a common phenomenon due to the exorbitant costs involved3
While discussing the issue of shrinkage, it is important and one should not forget the
scope of shrinkage in transit. There have been instances that goods have disappeared
while the goods where in transit in small quantities to avoid recognition in the first
instance by the retailer. According to ‘The Global Retail Theft Barometer 2009’, India
ranks No. 1 in retail shrinkage among nine countries surveyed in Asia Pacific. Here the
pilferage can be between the vendor and the transporter as well as any third party and
the transporter. Further support to this is available in the above-mentioned report,
which says, that nearly 10 per cent of shrinkage occurs at the supply-vendor level,
most of which can be combated with effective tracking and inventory management
tools (like RFID).
To avoid such thefts the retailer must go for only credible transport agencies. Moreover,
it is important that the vendors also share responsibility. This however has to be
communicated to the vendor at the time of executing the contract of purchase

14.9 MERCHANDISE PERFORMANCE

Merchandise planning process is an ongoing process. Retailers usually have several
departments and carry tens of categories in each department. They must constantly examine
performance not only across departments and categories but also across SKUs and
vendors. This will help in establishing its profitability across these divisions and take
decisions regarding future investments. Those departments, categories or SKUs, which
are not profitable, may be dropped, making place for ones which are more profitable.
For this, a retailer can go for the following:
1) Sales analysis: by which retailer can
 compare their actual sales and targeted sales

2
Inventory turn over: Measures how many times your inventory is sold over a given time period 229
Retail Operations  compute average inventory investment
Management
 finding inventory turnover ratio
 finding what portion of inventory is sold using ‘sell through rate’;
2) Profit analysis using gross margin return on investments or GMROI
3) ABC analysis.
4) Alternatively, retailers can also use a complex method of weighing the vendors on
a multi attribute basis to assess which ones provide enough business and margins
– for details of this refer to an earlier section no. 14.3 & 14.4 in this unit.
A brief overview is discussed below:
I. Sales Analysis Tools:
A. Comparing actual to targeted sales: Generally the retailer compares the
actual sales over a pre-determined period with the targeted sales for the same
period. If retailer has a chain of outlets, he may aggregate this over all the
stores for a particular category as well as do the exercise store-wise. For
example, if the targeted sales (based on past experience and forecasted values)
was to sell 1500 units in a week, and the actual sales was 1200 for store 1
and 1600 for store 2, then actual by target (actual as a percentage of targeted)
would be 80% and 106% respectively for stores 1 and 2.
B. Average inventory investment: This measure, average inventory estimates
the mean financial value (investment) or units of an SKU or items in a category
during two or more specified periods. It tells the retailer about how much he
has invested in the said goods on an every-day (or week or month) basis.
Thus, average inventory measures the average volume (or invested value) of
inventory kept on-hand throughout a given period.
Average inventory is the mean value of inventory within a certain period, and
is computed by averaging the starting or beginning inventory (BI) value and
ending inventory (EI) values over a specified period. Thus, it is computed as:
{(BI) + (EI)}/2. For example, if beginning of week inventory value= 1000
units and end of week inventory value = 1500 (meaning, that over the week
sales as well as purchases have happened), then the average inventory =
2500/2 = 1250 units. This means, on an average, the store carried 1250 units
per day in that week.
C. Inventory turnover ratio: Inventory turnover measures how many times
your inventory is sold over a given time period. The metric shows how
effectively inventory is managed on two counts – the purchases and sales
made. It is calculated by dividing cost of goods sold by average inventory
value or units of goods sold by average inventory in units.
For example, if the sales in the above mentioned example is 5000 units then
the inventory turnover ratio will be = 5000/1250 = 4.0, which means the
inventory is sold 4 times in this period. Compared with this, if the sales was

3
Check: [Link] Nascent-RFID-application-in-
230 retail.m19-2-12
 only 1250, then, ratio will be = 1250/1250 = 1.0 which means the average Sourcing and Inventory
Management
inventory is sold only once. Higher this ratio better is the sales performance
and the purchase decisions.
D. Sell through rate: This method takes the amount of inventory a retailer
receives, and compares it against what is actually sold over a given period.
It’s usually expressed as a percentage. For example, if for an inventory of
1000 units, sales for a period are 700 units, then the sell through rate is 70%.
What this figure immediately shows is how quickly the inventory is paying off.
While it is important to note that retailers always want to keep substantially
more inventory then the expected sales, so that any consumer can find enough
choice and doesn’t feel left with small number of unsold SKUs. This measure
is also useful when comparing one product or variant against another or when
comparing the sell-through of a specific product from one month to another
or across different store locations. Low sell through rates mean that either
items were overbought (in quantity) or priced too high, while high sell through
rates indicate you may have under bought or priced too low.
2) Profit analysis using Gross Margin Return on Investment (GMROI)
This ratio is to measure the profitability of retailer’s inventory over a given period.
It gives the gross profit a retailer makes for every units of investment in inventory
that has been purchased. Gross margin itself is the market price – cost of the good
(also called cost of goods sold or COGS). Gross margin from each unit multiplied
over the total number of units sold will give the retailer total gross margin from
sales. For example, if the retailer sold 1000 units over a week, for which he paid
Rs. 50 per unit to the vendor and the market price was Rs. 75, then the gross
margin per unit will be Rs. 75 – Rs. 50 = Rs. 25 and the total gross margin will be
Rs. 25,000. During this period, if the average inventory was worth Rs. 8,000,
then GMROI will be = 25,000/ 8,000 = 3.125 meaning that for every unit of
rupee invested in this period, a return of 3.125 is earned.
3) ABC analysis
This method helps to identify your most valuable inventory. It works on the Pareto
principle –that is, the 80/20 rule. In the context of a retailer, this would mean that
around 80% of sales would typically come from 20% of a company’s total
[Link] analysis uses this theory to sort inventory into three types:
1. A inventory. Where inventory shows the highest value –where, typically,
20% stocks bring in 80% of sales/profits. These are items with highest profit
margins and/or most sales revenue.
2. B inventory. Is where, inventory sells regularly, but doesn’t provide as much
value as A in profit margins–this could also be due to higher carrying or servicing
costs.
3. C inventory. C type is that category of inventory that does not sell as much
as A or B, therefore generates the least revenue and is generally least valuable
(also this one is mostly low on margins), so that the overall profits are low and
slow to achieve.
ABC analysis helps identify the key players in a retail business’s inventory. A inventory,
for example should rarely (if ever) be out-of-stock and be given the highest priority 231
Retail Operations and focus. While C inventory may not warrant quite so much attention and items in this
Management
category may even be discontinued. If C inventory items are not selling in the bigger
market, it may mean that they are obsolete items and candidates for discontinuation.
However, if C items are selling elsewhere well but show dismal performance with the
current retailer, some other reason may be causing low sales, and they need to be
checked by retailer before taking a ‘drop item’ decision.
Activity 5
Make a visit to a medium sized grocery store in your locality. Talk to the retailer about
different product categories he keeps. Select two categories with the help of the retailer
which are his best performers, two, which are medium performers, and two which are
low performers. Find out about the approximate % of his investments in these categories
and the corresponding profit percentage that he is able to achieve from the three
categories. Then report all these details here in an ABC analysis format.
Retailer details:
Category names % of total investment % of total profits
A

14.10 SUMMARY
Sourcing, warehousing and inventory management are critical functions of retailing and
constitute the core of retailer’s merchandising activities and business. This unit initially
speaks about the process of sourcing. In this process, it is important to thoroughly
assess vendor capabilities against a pre-determined checklist and conduct short-listing
vendors for procurement. Factors like product quality, price and terms of delivery of
merchandise normally carries the maximum weight. A retailer develops a mechanism
based on his business and funds to indicate how much to order and when to order.
Shrinkage is one of the risks, which all the retailers are facing as of today. Once the
merchandise is received, the retailer must pay attention to allocating it to the store(s).
Sourcing is a large-scale purchase decision of a recurring nature. Retailers undertake
measurements to monitor their merchandise performance using analysis of sales, profits,
inventory turnover done across vendors, departments and product categories.

14.11 KEY WORDS

Reordering Level : The level of stocks at which the retailer will order for
merchandise.
Shrinkage : Reduction in stocks due to shoplifting, pilferage etc.

232 SKU : Stock-Keeping Unit.

Sourcing : the function of purchasing goods from vendors for Sourcing and Inventory
Management
further selling.
Vendor Relationship : is strengthening of “buyer-vendor relationships” to
Management (VRM) achieve mutually beneficial goals
Electronic Data : Using electronic platforms for transfer of data and
Interchange (EDI) reports
Vendor-Owned Inventory : the vendor retains replenishment and maintenance
Management (VOIM) responsibilities for the inventory
Warehousing : Receiving merchandise from vendors and storing them
safely
Stocking : Storing safely of stocks to be sold ether in warehouse
or in stores.
Inventory Management : the process of ordering, handling, storing, and using a
company’s stock of assets like raw materials and
components
Shrinkage : the reduction in inventory caused by shoplifting,
misplacement or damaging of merchandise.
Radio Frequency : is a form of wireless communication that incorporates
Identification or RFID the use of electromagnetic or electrostatic coupling in
the radio frequency portion of the electromagnetic
spectrum to uniquely identify an object, animal or
person.
Inventory Report : summarizes the inventory position at the level of SKUs.
Product Availability : Indicates how much the product was available when
Report asked by the customer on an average in a given time.
Reordering level : The lower quantity of stocks availability at which a
new order is placed
Order Quantity : The units of an SKU for which a purchase order needs
to be put
Sales Analysis : Making investigations on sales already completed to
know its performance against pre-determined metrics.
Average Inventory : estimates the mean financial value (investment) or units
Investment of an SKU or items in a category during two or more
specified periods.
Inventory Turnover : measures how many times your inventory is sold over
Ratio a given time period.
Sell Through Rate : Compares amount of inventory a retailer receives with
what is actually sold over a given period.
Gross Margin Return on : ratio to measure the profitability of retailer’s inventory
Investments or GMROI over a given period.
233
Retail Operations ABC Analysis : Helps to identify your most valuable inventory and
Management
works on the Pareto principle –that is, the 80/20 rule.

14.12 SELF-ASSESSMENT QUESTIONS

1. Why collecting information about the merchandise sources/vendors a tedious task?
Discuss
2. How will you explore the possibility of having long-term relationship with the vendor?
What are the benefits of long-term relationships with vendors – identify any 4
benefits.
3. How can we assess the performance of vendors on a regular basis? Explain your
answer in terms of key performance indicators.
4. What measures can we take to minimize shrinkage?’
5. What are the main factors, which should guide allocation of merchandise to stores
in case of a chain of stores?
6. With examples explain what points should be kept in mind before entering into a
negotiation with the vendor?
7. How can the inventory performance be measured? Explain the measure with an
elaborate example from grocery retail.
8. What is ABC analysis? How can its use help retailers to become more profitable?
Can it enhance customer experience too?

14.13 REFERENCES/FURTHER READINGS

Berman Barry, Evans Joel R, (2002) Retail Management- A Strategic Approach 8th
Ed (Prentice Hall of India)
Dunne Patrick M, Lusch Robert F, Griffith David A, (2002) Retailing 4th Ed, (Thomson
South Western).
Levy Michael, Weitz Barton A (2001) Retailing Management, 5th Ed, (McGraw-Hill
Irwin).
Sinha,Piyush Kumar and UniyalDwarika, Retail Management - An Asian Perspective,
Thomson Learning, Singapore, 2005.
[Link]
[Link]

234
 Sourcing and Inventory
UNIT 15 MANAGING PEOPLE AND Management

PROCESSES
Objectives
After reading this unit you should be able to:
 understand the concept of retail management mix.
 understand the steps in people management.
 understand and ascertain the concept of process management in retail mix.
 elaborate the steps in process management.
Structure
15.1 Introduction to Important Essential Element in Retail Mix
15.1.1 Retail Mix– Elements of Service Mix
15.2 People: An important Element of Retail Mix
15.3 People Management: A key to Success in Retail Management
15.4 Essential Skills for people Management
15.5 Process Management: Essential element in Retail Mix
15.6 Importance of Process Management in Retail Management
15.6.1 Simplified model of Process
15.6.2 Interlink between People and Process Management
15.6.3 Benefits of WELL Managed People & Processes
15.7 Summary
15.8 Self-Assessment Questions
15.9 References/Further Readings

15.1 INTRODUCTION TO IMPORTANT ESSENTIAL

ELEMENT IN RETAIL MIX
Indian retail sector is fifth largest in the world, projected to grow at 9% over 2019-
2030, and is expected to reach US $ 1.8 trillion by 20301. Despite covid’19 pandemic
and other challenges, the Indian consumption story is robust, driven by affluence,
accessibility, awareness, attitudes and behaviour, the household consumption has
multiplied to US $ 1.63-1.75 (Rs. 130-140 trillion) trillion in 2022. Indian retail sector
alsoinclude third- highest number of e-tail shoppers, following the giants China and the
US. Retail sector is one of the pillars of India’s economy and accounts for approximately
10% of its GDP. The spectacular growth of Indian economy in last few decades is on the
backbone of the retail sector – its employees and people working in retail sector. Today
Indian retail sector employees over 43 million people making it second largest employer.
Since retail is more of a service sector, the concept of marketing mix involves the
combination of 4Ps (Product, Price, Place and Promotion) along with the extended
3Ps (People, Process and Physical Evidence). The primary 4Ps are covered in the
block 1 and 2 of this course. Among the extended Ps,physical evidence is already 235
Retail Operations covered in Unit 12 of block 3, and some parts of process management are covered in
Management
Unit 13 and 14 of block 4. In this unit we would focus on the people management and
also throw some light on process management in successful retail business.

PLACE
l Retail
l Wholesale
l Mail order
l Internet
l Direct Sales
PRODUCT l Peer to Peer PRICE
l Design l Mul -Channel Strategies:
l Technology Skimming
l Usefulness Penetra on
l Convenience Psychological
l Value Cost-Plus
l Quality Loss leader, etc.
l Packaging
l Branding
l Accessories
l Warran es

PROMOTION
Physical l Special Offers
Environment l Adver sing
l Smart l Endorsements
l Run-down l User trials
l Interface l Direct mailing
l Comfort l Leaflets/posters
l Facili es l Free gi s
l Compe ons
l Joint ventures

Process People
l Especially relevant to l Employees
service industries l Management
l How are services l Culture
consumed? l Customer Service

Figure 15.1 : Elements of Retail Mix

15.1.1 Retail Mix – Elements of Service Mix

Retail marketing mix is dened as the mix of various elements and methods required to
identify, formulate, and execute retail marketing strategy. Retail managers, target to
create an optimum mix of retail-mix and coordinate all the Ps to create a distinct image
of the store, various products, and services in the consumer’s mind. The mix may vary
on basis of the types of market, target customers, nature of retailer, and the type of
product/ service along with product line- length and width. It can also be considered
as the mix of retailing activities and coordination of all plans and actions, in order to
boost sales and earn optimum prots. As we can see in gure 15.1, with multiple
elements for each P, it is called the mix of mixes. All these sub-elements are the various
marketing decisions and act as the guiding force for business processes. All the retail
mix decisions if performed and executed properly, must add up to the rm’s marketing
mix and led to attainment of marketing objectives.
The retail mix must be guided by three basic principles:
a) The mix must be consistent with the expectations of target customers. The
market research to identify the target market, study of its characteristics, proper

1
236 [Link]
 segmentation, targeting and positioning must be the foundation for the retail Managing People and
Processes
mix decisions.
b) Synergistic effect of the elements must be ensured through a judicious mix of
the elements and sub-elements. For e.g.,when planning a sales promotion the
advertising decisions must include the message in it, and this must reach the
audience before the launch of the sales promotion.
c) The retail mix must give the organization’s a competitive advantage over its
competitors, along with boosting strengths and taking care of the weaknesses.
A good retail mix must help in identifying and exploiting the opportunities and
protect the organisation from threats in the business environment.
Retail marketing mix is a mix of mixes, the variables of product (merchandise and
assortment) along with the services, offered at different prices, communication through
promotion mix like advertising, personal selling etc., store location, design, layout,
visual presentations etc. adjusted as per the dynamism of the environment.

15.2 PEOPLE : AN IMPORTANT ELEMENT OF

RETAIL -MIX
People intensiveness is the biggest trait of the retail industry, both on service provider
side as well as service receiver side. As mentioned earlier, currently retail industry in
India employees over 43 million people (in the organised sector), making it second
biggest employer. When we talk about people management in retail sector, we need to
focus on both types of people categories (provider and customers), but for the sake of
better understanding, we only consider ‘employees and employers’ in organisations as
PEOPLE in retail mix.
Managing people in retail environment is not an easy task, employers always look
for well-trained, hardworking teams, they work towards maintaining a healthy and
safe environment in the organisation. The challenge is to manage differing personalities,
maintain work schedules as complex as 24x7, along with smooth maintenance of
various business processes. To ensure the success, on top of such a demanding
array of responsibilities, retail managers must be organized, patient, empathetic, and
determined.
The following five best practices are recommended for the successful people management
in retail [Link] started on the right foot enhances the possibility of finding the
right fit for the job, attract best talent and create the right perception about successful
retail business.
1. Sourcing and finding the right employees:The first step towards people
management is finding the right people, people with the desired skill set, attitude,
and experience. Liaison with recruiters, colleges and universities, placement
agencies and other relevant sources, would ensure that the right people become
part of the recruitment and selection process. The job descriptions, position
specific pay, qualifications, terms and conditions of employment, along with
scope for future growth must be well drafted and clearly presented to the
prospects. The interview and selection procedure must be organised,
transparent, consistent, and unbiased, not just allowing the best to come
towards the organisation, but also to create the right brand image. 237
Retail Operations 2. Create a healthy retail environment and cohesive team: The organization
Management
culture plays a huge role in deciding the well-being of the employees and
cohesiveness in the teams. The policies and procedures, organisational
structure, communication between various levels of management, conflict
resolutions, compensation policies etc. are important in ensuring the individual’s
growth as well as growth of the organisation.
3. Right set of goals, targets: With determination and competency, the senior
management must set the right set of goals for individuals as well as the teams.
These goals must result in motivating the employees and keeping their morale
high. Since retail jobs involves a lot of customers dealing, therefore the behaviour
and people management skills of employees are critical. Training of the staff in
cross roles, so that there is seamless transition during long hours and 24x7
functioning of the organisation. Retail environment is normally hectic and
unpredictable, hence the employees need to be treated well, so that they can
take care of customers efficiently.
4. Effective and Calm Communication: Retail is all about communication
with the customers, both in terms of identifying their needs and also suggesting
the [Link], for successful retail business people must be trained in
effective communication, providing the relevant information at the right time,
handling queries and objections, and persuading the customers to buy the
best solutions for their problems. Similarly, the employees must be
communicating with their seniors and juniors in such a way there is positive
and constructive feedback given, and performance appraised. The retail sector
with its dynamism is very stressful place from time to time, making rational
and calm communication, avoiding over-reaction in difficult situations is
important skill.
5. Provide Support and Benefits: Often retail management environment is
difficult; it is important that we provide the right benefits to the staff. There
should be honesty in organisation’s /stores performance, team, and individual’s
performance, and ensure that the people in the organization knows the
management have their back. It’s important to provide the right benefits to
make sure the staff is well taken care of. The common benefits include providing
insurance, extra paid time off, schedule flexibility, adding store discounts,
supporting employee mental health, or paying performance-based bonuses
etc.
Modern retail software/automation has helped management of retail stores, including
people and process management. This conjunction of information technology saves
the time, improves efficiency and productivity among the employees, and enhance the
efficiency of service delivery. During upgradation of the operations, we can improve
the operations digitally. E-Commerce, inventory management, payroll, pricing, and so
much more can be more effectively managed with the help of the right technology.

15.3 PEOPLE MANAGEMENT : A KEY TO

SUCCESS IN RETAIL MANAGEMENT
People management is the most important aspect and element of retail marketing mix.
We know people management refers to the practice of recruiting, training, engaging,
238
and retaining people and placing them at the right place in the organisation. It is a sub- Managing People and
Processes
category of Human resource management (HRM), and it includes all the processes in
the HRM. It is also the process of hiring, leading, and developing team members to
support the organization’s overall mission. People managers handle all people-related
tasks involving new talent, employee engagement, and career [Link] also
includes the capacity of the staff and the efficiency and [Link] staff should be
capable and efficient to carry out the functions of the store smoothly. The interaction of
the staff with customers should be professional, well behaved and [Link] a particular
product needs internal marketing, it is the people who make sure that the internal
marketing is done in accordance with the marketing rules and also ensures that the
message reaches the right people/ customers. The following 5Cs are essential to
successful people management:
1. Creation: Creation, i.e., genesis of the organisation, its vision and mission,
including the company culture. The culture starts with the very first step into
business plan and takes a concrete shape with the first hire. Meritocracy
must be overtly visible, talent acquisition processes must be thorough and
backed by a strong employer brand. With engaging candidate experience,
informative onboarding and clear road mapping techniques utilized to build loyalty,
people manager can ensure that employees are ready to grow with the company,
and face challenges in business environment. Creating their own workforce,
with the desired attitude and commitment towards the organisation’s vision.

Figure 15.2: VUCA of Retail Industry

2. Comprehension: The culture in retail sector must appreciate the differences

innate to each person in a workplace, this is necessary for designing the right
set of motivation, compensation and training plans and policies. The
239
Retail Operations comprehensiveness in understanding, appreciating the people, skills, culture,
Management
and society, helps the retail ecosystem to flourish. People as customers must
be handled by the people in humanistic way and not in mechanised manner.
3. Communication: Communication is the key to success in any retail
organisation. The organisation culture must ensure that the employees have
the confidence that their voice would be heard, and they can speak up in all
situations. When people have the confidence in culture and leadership, there
is open communication, the conflict resolution is effective. The perception of
the workplace and company is positive, which automatically attracts better
talent and reduce the turnover. Communication is often considered only
speaking or writing, ignoring the fact that listening is an important and critical
part in its effectiveness.
4. Collaboration: Collaborative, positive internal environment, and work culture,
is visible in the team cohesiveness, mutual trust, and shared vision for the
[Link] people when valued as the most important asset, transforms
all other assets as the contributors towards overall success of the organisation.
People management team must work towards fostering a spirit of collaboration
between, various team members, and among all stakeholders of the business.
This must be done in such a way, that the employees value their role and
contribution in the success of the organisation, much beyond their daily roles.
The collaboration must make them understand their importance in shaping the
future of the organisation, and value their contribution.
5. Confront: Organisations regularly face opportunities and challenges/ threats
in the ever-dynamicVUCA (Volatile, Uncertain, Complex and Ambiguity)
business environment. People management involves the power of confrontation
or facing the ups-and -down in the business environment. Overcoming
challenges is an integral and important component of building a successful
organisational culture. Effective people management strategy must be prepared
to find resolutions for all types of challenges (interpersonal-intrapersonal,
environmental, or competitive) regardless of the internal composition/ nature
of the organisation. People management team must be proactive in taking
necessary and appropriate disciplinary action as per the need. People in an
organisation decides the resilience of the organisation.

15.4 ESSENTIAL SKILLS FOR PEOPLE

MANAGEMENT
The success of any retail organisation whether traditional brick-and-mortar, modern
e-commerce based or hybrid, depends on the right set of people at the right places.
The other element of marketing mix- product, price, promotion, place, process and
physical evidence, depends on the right people for their success. Following are the
skills essential for successful people management in any retail organisation:
1. Cohesiveness and Trust-Building:Teamwork works- is the biggest
indicator of the productive work environments. The success of the organisation
depends on the sense of camaraderie, and the organisational culture, which
percolates from top management to lower management. Gaining the trust of
individuals and employees is big challenge for the people management task
240
 force. Active listening, empathy, and conducive culture to speak, are some of Managing People and
Processes
the basic requirements for building trust. Understanding the aspirations, goals,
skills, and talent, before forming the teams, would result in internally cohesive
teams, which can work towards attainment of the organisational success.
Patience and flexibility during conflicts, handling progress blockers, and
empowering people with the skills and motivation, needed during hardship,
people managers can build engaged and dedicated teams.

Figure 15.3: Significant People Management Skills

2. Active listening2 and Mediationas part of Organisational culture:When

people are the centre of function, communication strategy is the most important
lubricant for smooth functioning. Conflicts arising due to miscommunication,
difference of opinion, difference in temperament and lifestyles, are common
at retail organisations/ and complex workplaces like hybrid retail chains.
However, when managed properly, these conflicts can result in an environment
where all employees feel that their opinions are valued, and their contribution
is critical in the success of organisation. Successful people management
involves taking an active role in mediating conflicts before these reach a point
where it becomes insurmountable. Through active listening and mediation,
people manager must incorporate every employee’s point-of-view and create
a path forward for everyone associated with the organisation. This results in
creating a culture of understanding, omni-representation and accountability
for all,leading the teams towards [Link] listening, along with genuine
empathy, and appreciation,tied with actionable steps during communications
and conflict handling would ensure that all employees feel validated and
respected in the workplace.
2
People managers must learn to activel y listen, maintain eye-contact, give verbal cues, and ask
questions to show that they are engaged with the employee. 241
Retail Operations 3. Knowledge-Setting and Organization: Workplaces are constantly
Management
evolving, and so should the entire teams — including managers. Having access
to high-quality data about projects, company, and employee performance
over periods of time is crucial to streamline the success in an organization.
Demonstrating the ability to stay upto date is also important for proving self-
awareness to team members, and by consistently learning new skills and
capabilities that can be applied to the workplace, managers can foster a spirit
of quality career [Link] is the key to people management.
4. Visionary/ Dynamic Leadership:Staying on top of routine tasks and related
emerging challenges, or alternatively constantly needing to catch-up and letting
ongoing responsibilities slide to tackle emerging tasks, is something that is
recognized and resonate throughout the team in retail ecosystem. Great people
managers actively look for ways to streamline processes, reduce clutter and
accomplish tasks before they pile up, while paying attention to employee
workloads and adjusting as per the needs. Employees should have access to
the resources, they need to stay organized from the moment they are
onboarded. Figure 15.3 gives a comprehensive list of skills necessary for
good people management.

15.5 PROCESS MANAGEMENT : ESSENTIAL

ELEMENT IN RETAIL MIX
Another element of the retail marketing-mix is the process defined as, “a series of
steps and decisions involved in the way a work is completed.” Processes are an
integral part of our daily life both professionally as well as personally. The way things
are done is called a process, as it is a series or set of activities that interact with each
other to produce the desired result. The process may occur once or can be recurrent
or periodic. When we talk about retail management, we are more concerned with the
regular, routine processes, involved in the business management.
Processes are important because they describe how things are done, and also provide
monitoring and evaluation benchmarks for making the functioning better. These also
provide inputs on degree of success, efficiency, and effectivity of the tasks. Hence, if
we focus on the right processes, in the right way, we can design and execute the way
towards success. Without well-defined processes, it is not possible to do the task with
equal efficiency twice or repetitively, whereas with properly defined processes the
service provided to the customer can remain consistent, not affected by the person
performing it. The success of retail is dependent on consistency of quality in products
and services, which is the output of existing processes at different stages of production,
inventory management and marketing.
Retail management is a combination of many internal and external processes such as
market research, inventory management, transportation and warehousing, offline and
online presentation of products and services, store operations, packaging, financial
and accounting etc. along with the human resource processes like training, compensation,
motivation, and relationship management with customers to name a few. All these
processes in the retail management processes feed each other through the inputs and
outputs of data and information and their symbiotic synergies work towards improving
the customer experience and ensure customer satisfaction.
242
As presented in figure 15.4, a typical retail manangment process in an organisaiton, Managing People and
Processes
regulates who carries out which activities, at what time, and with what resouces. Process
management looks at every business process individually and also looks at the complex
network of processes combined into bigger complex processes, and then the
organisation as a whole. The process must result in clearly defined roles, responsibilities
and accountabilities. It analyzes currently existing systems, issues and challenges, and
identified the bottlenecks, barriers and threats. Each stage in the retail process is
combinations of various small processes, which require different skills for successful
completion. Bigger the retail organisation, more complex the business process
management systems.

Figure 15.4 : A Typical Retail Management Process

This simplified model helps us to understand that the ‘retail process’ is a network of
smaller multiple processes at each stage of the retail management process. The basic
aim of the retail process is to take care of the 7Rs i.e., right product, in the right
quantity, of the right condition, at the right time and right place, to the right customer
and at the right price, so that the customer need is satisfactorily fulfilled. The chances of
satisfied and happy customer repeating a purchase are much higher and also acts as
the most cost-effective advertisements for the business. The planning of processes,
their execution, reframing and redesigning must be on the basis of the understanding of
the customers’ needs and wants, along with collaborations between the manufacturers
and wholesalers. This would also involve listing of the capabilities inherent in the
organisation, and analysing the organisation’s position with respect to the competitiors,
based on the business environment conditions. Processes at each stage of management
must converge towards attainment of the organisational goal and contribute towards
the success of the organisation.
Process management encompasses all aspects of the business, as seen in the above
figure. Large multinational organisations use process management software to automate
their systems, update the processes real time and efficiently handle businesses around
the globe; while smaller organisations with limited product lines and market coverage,
still use traditional methods of flowcharts and process manuals. Usually, good business
243
Retail Operations plans include some inputs on business process managements. Here we look at some
Management
examples of process management in retail ecosystem:
1. In Human Resource Department the process of Onboarding of New
Employees: After the recruitment and selection process (which at times can
be easily outsourced) the selected candidates need to be onboarded, and this
process can be very haphazard, chaotic and time consuming if not streamlined
and properly defined. When process management is in place the forms,
documents, and other needed information can be submitted electronically and
smoothly. Automation of the HR process can also include filtering the data,
matching the skills to the position, sending messages and scheduling interviews.
And later facilitating employee’s onboarding.
2. Customer Service in retail stores: When there is need for specialised
customer services, retail stores have systems in place which consists of many
processes. Verification of purchase information, updated terms and conditions
of sales, possible solutions in case of conflicts, and handling of refunds and
credit notes. Customer service is an integral part of the retail business and
hence seamless CRM, and customer service processes can play a key role in
its success.
3. Logistics and Warehousing Management:With the increased product line
the complexity in warehousing also increases. It is important to maintain the
right quantity of various products and their assortments, at the right places in
retail network. Inventory management, order processing both for buy and
sell, warehousing, transportation and delivery and logistics management, each
of these would have multiple processes in order to function smoothly. Also,
these processes would be interlinked, interconnected and interdependent on
each other to complete the business system.

15.6 IMPORTANCE OF PROCESS MANAGEMENT

IN RETAIL MANAGEMENT
Retail management, the process of running and managing retail store’s day-to-day
activities involved the selling of goods and services to customers. The overarching goal
is to ensure that the process results in customer satisfaction and built long term
relationships with the customers. A good retail process enables a company-wide
understanding of the organisational vision, mission, the internal process landscape. The
overall retail process looks at every stage in overall business process, and individually
as a whole, to create a more efficient organisation, and satisfied customers. Process
management, a systematic approach to ensure effective and efficient sales, a methodology
to align different departmental goals and objectives with the overall objectives. Process
management is not just useful for the organisation, but also for the customers, it must
result in easing the process of finding the right product, at right price conveniently.

15.6.1 Simplified Model of Process

Process management is an integral part of the overall organisational strategy called as
process management strategy. In long-term this strategy constantly monitors business
processes and try to maintain optimal efficiency for the organisation. The typical
simplified retail process consists of the following stages:
244
1. Plan:The first stage in any process is called the planning. In retail management we Managing People and
Processes
need to plan and decide many initiatives. Let’s take a small example: Imagine
Person A want to open a small retail shop in the neighbourhood. The first step
would be to identify the demand for various products and decide what product
assortment would be beneficial to begin with. The decisions related to what, when
and how much is taken in this stage.
2. Buy:The next step in the retail process is to buy the inventory and setup a shop.
The merchandise planning, the price negotiation, credit facility etc are decided
during this stage of the process.
3. Move:This stage consists of supply chain management and inventory management
systems. Move can be as simple as buying some products from the wholesaler
and selling at the shop, or it can be a complex software-based program with
multiple products, multiple categories, multiple locations etc. Depending on the
nature and size of the organisation, it can be simple as well as complex.
4. Market: This stage in the process is all about brand and product management.
Decisions related to qualityand quantity, along with the terms and conditions of
delivery, credit facility and other activities required for smooth conduct of the
business.

Figure 15.5: Stages in Retail Management Process

5. Sell:The last stage in the process is called the sales and tender management stage.
This stage involves both the after sales services and relationship management. The
process of installation, activation, maintenance and after sales services play a key
role in customer relationship management.
The key roles of process management in retailing are, to improve the business through
internal co-ordination, store operations, human resource optimum utilization, planning
of logistics and inventory and financial and administrative management.

15.6.2 Interlink between People and Process Management

There exist a strong relationship between people and processes. The success of people
and process mangagement is strongly related to the each other. Processes are designed
by people for the people and aim at efficient use of all resources including human
resource. The competency, skills and motivation level of the people involved in the
process of business process designing would decide the quality of processes and the
hence the quality of the system.
As with any managerial practice, consistency in implemetnation of the various
procedures and processes result in consistency in service delivery. The processes
designed by well trained and skilled people using the state- of- art technology and
automation softwares gives the organisation an edge over its competitors. Hence we
245
Retail Operations can say that the quality, designing and implementation of business processes is dependent
Management
on the people involved.
Similarly, existence of right systems and processes, can attract the best talent towards
the organisation. If an organisation have well defined processes and procedures for
employee onboadring, placements, training, performance measurement, compensation
and motivation, the people are likely to more engaged, dedicated and committed to
the organisation. Whereas in contrast existence of cumbersome, confusing and
subjective processes can lead to confusion and conflicts, which in turn leads to
disagreements, low motivation and high turnover. Processes helps in getting everyone
on the same plane, which leaves less room for disagreements in routine business
dealings. There are plenty of other areas in which retailers can implement processes
like cleaning schedules, cash handling policies, dress codes, inventory receiving, stocking,
and dealing with unhappy customers etc. Modern software has reduced the subjectivity
in the processes to a very large extent.

Figure 11. 5: Process Management in retail

Organisational culture is made of many elements, but people and processes are the
most important and critical elements, which must be handled with care to ensure the
success of an organisation. Some of the commonly found benefits to well management
people and processes are:

15.6.3 Benefits of WELL Managed People & Processes

1. Smooth and streamlined business decisions: With the right business processes
being handled by the right people, through systematic implementation, an
organisation can reduce the order processing time, streamline the processes
and achieve efficiency. People do not waste energy on repetitive tasks and
minimize errors due to human inefficiency, and there is inherent cost-
effectiveness in smooth and streamlined actions.
2. Enhanced productivity: Just like a well oiled machine, a retail organization too
functions efficiently when the system is properly defined through processes.
Automated processes also prevents loss of data, reduce time and fatigue, and
hence leads to optimum utilisation of resources. This results in enhanced
productivity and competitive advantage both for the customers as well as the
people associated with the organisation like employees, owners and other
246 stakeholders.
 3. Reduced costs and risks: People play a key role in the success of any Managing People and
Processes
organisation. Reduced turnover, high morale and motivation levels, good
organisational culture and visionary leadership, also conveys existence of good
quality processes. The synergy created by the combination of right people
and processes, reduces the cost, and also mitigates the risk involved at various
stages of business process management. This cost effectiveness is important
contributor towards the enhanced efficiency of the management systems and
improved profits for the organisation.

15.7 SUMMARY
In this unit we discussed the two very important elements of retail marketing mix i.e.,
people and processes. Effective management of people involves much more than just
leading and control. Right from acquiring the talented, high-quality people, to managing
them through right placement, compensation and motivation, people management is a
complex dynamic and ever evolving stream of management. People management skills
is dedicated towards genuine desire to promote employees’ career goals and interests
along with aiding development across the workplace. Successful managers must be
able to recognize their own strengths and weaknesses, communicate effectively, create
the right teams, motivate their team,conflict resolutions and create an conducive
environment for constructive feedback and communication.
Another important element of marketing mix covered in this unit is the process. Process,
defined as the way of doing a work is the building block of system. How people are
responsible for processes and how processes contribute towards attracting talented
people, keeping them motivated and dedicated in long run is also elaborated. The last
sections highlighted the benefits of process management in retail and also the relationship
between people and process management.

15.8 SELF-ASSESSMENT QUESTIONS

After reading the unit, its now time for checking the progress. Try to answer the following
questions. Some questions may require use of additional online resources.
1. What is retail marketing mix? Explain the elements of retail marketing mix? Justify
the existence of extended marketing mix elements for retail sector?
2. Retail marketing mix is called the mix of mixes. With the help of suitable example
from popular retail chain, explain the given statement?
3. People management is art as well as science. Do you agree with the statement?
Justify your answer with the help of suitable examples from retail industry?
4. What are the 5Cs in people management? What skills are essential for successful
people management in an organisation?
5. Automation through advancement of technology has improved the process
management in retail organisations. In light of this statement, explain the retail
ecosystem and the process management systems in India.
6. Write a note marketing-mix for e-retail (e-commerce) business. How is people
and process management different from the traditional retail stores?
247
Retail Operations 7. a) Try to prepare a process flowchart for ‘conflict management’ among team
Management
members in a retail store with no branch dealing in FMCG?
b) Can you modify the above flowchart , if the store moves to hybrid retail
business?

15.9 REFERENCES/FURTHER READINGS

Bhuvaneswari, V., & Krishnan, J. (2015). A review of literature on impulse buying
behaviour of consumers in brick & mortar and click only stores. International journal
of management research and social science, 2(3), 84-90.
Dahiya J., Malik, R., & Dhale, K. (2012) Branding and Its Impact on Retail Sales of
Motor Spirit, High Speed Diesel and Branded Fuels at BPCL Retail Outlets, Journal
of Management and Information Technology, Vol. 4(1), 59– 77.
Kusuma, B., Prasad, N. D., & Rao, M. S. (2013). A study on organized retailing and
its challenges and retail customer services. Innovative Journal of Business and
Management, 2(5), 97-102.
Malik, R. & Deshwal, P. (2012). An Empirical Study of Consumer Buying Behaviour
in Indian Markets, Researcher’s Voice, Vol:2(2), 26- 34.
Malik, R. (2013). A Study of Sectoral Analysis of Retail Industry in India, Intellectual
Resonance DCAC Journal of Interdisciplinary Studies, Vol. 1 (2), 132-140.
Prasad, C. J., & Reddy, D. R. (2007). A study on the role of demographic and
psychographic dynamics in food and grocery retailing. Vision, 11(4), 21-30.
Vaja, M. B. R. (2015). Retail management. International Journal of Research and
Analytics Reviews, 2(1), 22-28.
[Link]
[Link]
[Link]
sector-by-2030-study/[Link]

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 Managing People and
UNIT 16 CUSTOMER RELATIONSHIP Processes

MANAGEMENT (CRM)
Objectives
After going through this unit, you should be able to:
 explain the term customer relationship management CRM
 understand the evolution and need of customer relationship management
 analyze the key objectives of CRM and discuss the various types of CRM
efforts;
 appreciate the necessity and significance of CRM in an organization
 discuss the CRM components and their relevance
 explain the impact of CRM on retail store and its benefits
 have awareness of some famous CRM software being used by retailers.
Structure
16.1 Customer Relationship Management (CRM): An Introduction
16.2 Evolution of CRM
16.3 Need and Importance of CRM
16.4 The Primary Objectives of CRM are to
16.5 Growth and Scope of Retailing in India
16.6 Why is CRM necessary for an Organization?
16.7 Role of CRM Components
16.8 Impact of CRM on Retail Store
16.9 Personalization and CRM Software: The PROS and CONS
16.10 Benefits of Using CRM software in Retail Stores
16.11 Some Well –Known CRM software implemented by Retailers
16.12 Major issues and Problems in CRM
16.13 Role of CRM Affiliation in Retailing Sector
16.14 Summary / Conclusion
16.15 Self – Assessment Questions
16.16 Further Readings

16.1 CUSTOMER RELATIONSHIP MANAGEMENT

AN INTRODUCTION
The acronym CRM stands for Customer Relationship Management is the combination
of practices, strategies and technologies that companies use to manage and analyze
customer interactions and data throughout the customer lifecycle.

249
Retail Operations Thus CRM systems typically include a variety of tools and functionalities to manage
Management
different aspects of customer interactions, such as customer data management, sales
automation, marketing automation, and customer service management. These tools
allow businesses to streamline their customer interactions and provide a more consistent
and personalized experience across all touch points. The goal is to improve customer
service relationships and assist in customer retention and drive sales growth.
One can presume that Customer Relationship Management (CRM) is a strategy that
focuses on managing interactions with customers and improving the overall customer
experience. It involves using technology and data analysis to gain insights into customer
behavior, preferences, and needs, and using that information to build long-term
relationships with customers.

16.2 EVOLUTION OF CRM

Customer Relationship Management (CRM) has evolved over the years from being a
simple customer database management system to a strategic tool for businesses. In the
past, businesses used to store customer data in a simple spreadsheet, which was only
used for basic record keeping. However, as competition increased and customer
expectations rose, businesses needed a more sophisticated way of managing their
interactions with customers.
CRM systems began to emerge in the 1980s as a way of managing customer data
more efficiently. These early systems were mainly used by sales and marketing teams
to track customer interactions and sales leads. Over time, CRM systems became
more sophisticated, incorporating features such as marketing automation, customer
service management, and analytics.
Today, CRM systems are a critical component of most businesses’ technology stack.
They help companies to manage all aspects of their customer interactions, from marketing
and sales to customer support and retention. Modern CRM systems also leverage
technologies such as AI and machine learning to provide personalized customer
experiences and insights into customer behaviour.

16.3 NEED AND IMPORTANCE OF CRM

The need for CRM has grown as customer expectations have raised. Today’s customers
expect personalized experiences and fast, responsive service across all channels. To
meet these expectations, businesses need to have a complete view of their customers’
interactions and preferences.
CRM systems help businesses to achieve this by providing a single source of truth for
all customer interactions. This allows businesses to provide personalized service and
targeted marketing based on customer behaviour and preferences. Additionally, CRM
systems help businesses to identify and respond to customer issues quickly, improving
customer satisfaction and retention.
CRM systems also provide valuable insights into customer behaviour, allowing
businesses to identify trends and patterns that can inform business strategy. For example,
a CRM system may reveal that a particular product is popular among a certain
demographic, or that customers in a particular region are more likely to make repeat
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purchases. This information can help businesses to refine their marketing and sales Customer Relationship
Management (CRM)
strategies, leading to increased revenue and profitability.
To sum up, the evolution of CRM has been driven by the need for businesses to
manage their customer interactions more efficiently and effectively. Today’s CRM
systems are powerful tools that help businesses to provide personalized, responsive
service and gain valuable insights into customer behaviour.

16.3.1 The Indian Scenario

In India, since the last decade and a half CRM has gained immense importance and is
being adopted and implemented by businesses across sectors both domestically and
globally. The frequent volatility in the market place has lead to fluctuations in the
business environment. Thus the strategy of seller market previously has now become
the buyer market approach thereby the main focus in the current times is on the customer
needs and wants in the whole transaction process of buying and selling is gaining critical
importance It is at this juncture that in a complex and competitive market situation the
need for CRM becomes essential and central for firms to take notice of its role,
responsibilities and significance and to consider it as a strategic tool for growth and
sustenance.
CRM has a major role in all the sectors of an economy. However, the need and
importance may vary from sector to sector but it’s for certain that it is omnipresent in
every business. It is pertinent to mention that CRM is more prominent and visible in
the retail sector.
CRM systems compile customer data across different channels, or points of contact,
between the customer and the company, which could include the company’s website,
telephone, live chat, direct mail, marketing materials and social networks. CRM systems
can also give customer-facing staff member’s detailed information on customers’ personal
information, purchase history, buying preferences and concerns.

16.4 OBJECTIVES OF CRM

1. Improve Customer Experience: CRM systems are designed to help businesses
provide a better customer experience across all touch points. By collecting and
analyzing customer data, businesses can gain insights into customer behavior,
preferences, and needs. This information can be used to personalize
communications, offers, and services, thereby increasing customer satisfaction and
loyalty.
2. Increase Customer Retention: CRM systems allow businesses to build long-
term relationships with customers by providing personalized and consistent
interactions across all channels. This can help increase customer retention and
reduce customer churn.
3. Boost Sales: By tracking customer interactions and analyzing customer data,
businesses can identify opportunities to upsell or cross-sell products and services.
This can help increase sales and revenue.
4. Streamline Operations: CRM systems can help businesses streamline their
operations by automating tasks such as lead generation, sales tracking, and customer
service. This can help reduce costs and improve efficiency. 251
Retail Operations 5. Gain Insights: By collecting and analyzing customer data, businesses can gain
Management
insights into customer behavior, preferences, and needs. This information can be
used to improve product and service offerings, identify new market opportunities,
and optimize marketing and sales strategies.
The focus of this unit is specific to the role of CRM in retail business. Therefore
it becomes vital to have basic knowledge about retailing in Indian scenario

16.5 GROWTH AND SCOPE OF RETAILING IN

INDIA
The retailing in India is one of the pillars of the economy and accounts for about 10
percent of its GDP. It is also considered as one of the largest industry contributing to
the Indian economy which is capable of generating employment prospects to skilled
and unskilled workforce in more significant numbers.
Traditionally, the retail outlets in India were relatively small and managed by a single
owner or by a few members of the family. Even though retail stores in India are often
relatively small, they have more authority. The individual/family without any influence
primarily enjoys ownership of the establishment.
Even thou you are familiar with the term retailing and its activities yet it becomes essential
to first understand what is retailing is all about and its characteristics. Retailing, is a
business activity where the owner purchases the goods and commodities in bulk from
the manufactures/producer/ wholesaler and resells them to the customer/end user. Today,
retail sector has evolved in strength and stature by appealing to every section of the
society by establishing new innovative and contemporary formats which were never
heard before.
Retail businesses endure intense competition due to globalization, liberalization,
sophistication, and market saturation. Retail sectors include both organized and
unorganized businesses. While the unorganized sector is less regulated and has no
restrictions, the organized sector is more controlled with many rules and regulations
and more tax enforceability.
The consumer’s expanding demands and wants, and their enhanced disposable income
with the fast changing tastes and preferences and rapid shift in lifestyle are the key
drivers of the trend toward increased retail outlet demand. The Indian retail sector is
experiencing fierce rivalry from both established Indian firms and also due to the entry
of global retailers who are making a dent on the Indian soil.
The Indian retail titans have turned to new technological measures to retain customers
due to the intense competition in organized retail. Therefore its vital for every organization
should have an excellent customer relationship management tool/system in place.
Maintaining both business-to-business (B2B) and business-to-customer (B2C)
relationships assumes crucial for commercial enterprises. Maintaining relationships with
all the parties involved in the business, including customers, suppliers, and service
providers, and all other stakeholders etc is vital. Various customer relationship marketing
strategies are apt and appropriate for firms based on the nature of business its size and
scope, its customers and other market/environment factors. However, the optimal course
of action must be carefully analyzed.
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Retailers are using CRM tactics to increase the value of their current consumers and Customer Relationship
Management (CRM)
shift them from casual to committed patrons, strengthening the relationship between
the customer and the company.
Indian players use a range of loyalty programs to promote CRM activities. Some of
the top player’s loyalty programs include the following:
 Big Bazaar successfully used Everyday Low Pricing;
 Reliance Fresh’s program is dubbed “Reliance One”; with the name
 “Club West,” Westside offers two different club membership options.
 Pantaloons offer “green cards” in three different categories.
The company collects complete sales data. With only one click, a company can fully
compile all sales-related data and the data so gathered is handled accurately and
genuinely. The information so obtained is analyzed for the firm’s future advantage and
its communication with the customers. Thus all this information helps the company in its
future decision making. All stakeholders involved in the organization, both internal and
external, are adequately communicated with. Eventually, the information at hand is
shared and can be accessed enterprise wide by all the employees to accomplish the
objectives and goals of the business.

16.6 WHY IS CRM NECESSARY FOR AN

ORGANIZATION?
To manage and analyze customer interactions and data across the customer lifecycle,
businesses employ a combination of practices, strategies, and technologies known as
customer relationship management (CRM). The purpose is to strengthen interactions
with customers to promote client retention and increase sales. CRM systems gather
customer information from various contact points between them and the business,
such as the company’s website, phone line, live chat, direct mail, marketing materials,
and social media. CRM systems can also give staff workers who deal with consumer’s
in-depth knowledge of their data, purchasing history, shopping preferences, and issues.
CRM is necessary for all organizations, whether they operate brick-and-mortar stores
or online. No company can thrive long-term without preserving a positive relationship
with its customers.
Retail companies have always been one of the most significant pillars of the commercial
sector. Maintaining a positive relationship with customers is relatively easier for retail
establishments that stand alone. This is primarily because of their regular interactions
with customers, which makes it much simpler for organizations to build strong bonds
with them.
Marketing efforts once used to focus mainly on boosting consumer loyalty to a brand
or service. More committed customers were supposed to make more purchases, again
and again, grow more tolerant of price increases, and ultimately be more profitable for
the business. With new trends in the retailing sector, this traditional route does not
always work as it worked earlier. A retail consumer who is so committed may continually
search for the most outstanding deal on various products from a retailer through different
channels of the retailer, intending to take advantage of every discount and promotional
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Retail Operations offer, and may not end up purchasing anything. In the long run, this customer costs the
Management
retailer money compared to being a source of revenue. Establishing unique strategies
for interacting with each type of customer is a critical element of CRM.

16.7 ROLE OF CRM COMPONENTS

At its most basic level, CRM software compiles customer data and stores it in a single
CRM database for easier management and access by company users. CRM systems
have a lot of extra features added to them throughout time to increase their utility.
Some of these features include the ability for managers to monitor performance and
productivity based on data logged within the system, as well as the ability to automate
various workflow automation processes, such as tasks, calendars, and alerts, depending
on system capabilities. Other features include recording customer interactions via email,
phone, social media, or other channels.

16.7.1 Marketing Automation: At various stages of the lead generation lifecycle,

CRM platforms with marketing automation features can automate repetitive operations
to improve marketing efforts. For instance, the system might send email marketing
content automatically as sales prospects are added to convert a sales lead into a paying
customer.
16.7.2 Sales Automation: Tools for sales force automation keep track of customer
interactions and automate some important sales cycle tasks to pursue leads, acquire
new clients, and foster client loyalty. By organizing customer and prospect information
in a way that enables retailers to establish stronger relationships with them and expand
their base of customers more quickly, customer relationship management solutions
assist in customer acquisition, securing their business, and maintaining their satisfaction
levels. CRM systems begin by gathering information about a shopper from their website,
email, phone, social media, and other sources.
16.7.3 Contact Centre Automation: Contact center automation, intended to lessen
the monotonous portions of a contact center agent’s job, may include a pre-recorded
voice that helps with client problem-solving and information sharing. To shorten call
times and streamline customer service procedures, various software tools that interact
with the agent’s desktop tools can fulfil consumer demands. Chatbots and other
automated contact center solutions can enhance the user experience for customers.
16.7.4 Location-based Services or Geo-Location Technology: Some CRM
systems include the capability to develop geographic marketing campaigns based on
the physical locations of consumers, occasionally connecting with well-known GPS
(global positioning system)-based apps. Geo-location technology can also be utilized
as a networking or contact management tool to discover sales prospects based on a
site.
16.7.5 Process Automation: CRM solutions enable firms to streamline routine chores,
freeing staff to concentrate on innovative and higher-level work. CRM allows for tracking
sales leads, giving sales teams a central location to enter, monitor, and analyze lead
data.
16.7.6 Human Resource Administration (HRM): CRM systems support the
254 tracking of employee data within a business, including contact details, performance
evaluations, and benefits. This makes it possible for the HR division to manage the Customer Relationship
Management (CRM)
internal staff more skilfully.
16.7.7 Analytics: By evaluating user data and assisting in creating focused marketing
initiatives, CRM analytics helps increase customer satisfaction rates. CRM platforms
have integrated AI technologies, such as Sales force Einstein, to automate repetitive
tasks, identify buying patterns and forecast future customer behaviours.
Along with storing personal information like a client’s communication preferences, it
may automatically draw in additional data, including current company activity headlines.
CRM technology organizes this data to provide retailers with a complete record of
people and organizations, enabling the business to better comprehend their relationships
over time.
According to Peel (2002), CRM initiatives have gained attention from many organizations
as there has been a gradual shift away from just focusing on customer acquisition to
more customer retention initiatives, which leads to a reduction strategy that testifies to
the necessity of good CRM initiatives and procedures.
Most companies believe that customer retention is the value of customer relationship
management initiatives, even though most businesses employ these programs to bring
in new customers. In various corporate environments, Ang and Buttle (2006) empirically
demonstrated that “a 5% increase in customer retention can generate an increase in
customer net present value of between 25% and 95%.”

16.8 IMPACT OF CRM ON RETAIL STORE

1. Customers are prone to returning to the same retail outlet when they receive a
product or service that exceeds their expectations. The retailer will retain customers
if it provides features like free home delivery or a loyalty program with a membership
card that make the customer feel valued. CRM programs help to identify, keep,
and grow the customer base of valuable customers. Using pricing signals encourages
less profitable customers to stick around and become more profitable in the future.
Lower customer churn and more profits result from higher retention—long-term
customer relationships lower acquisition expenses for the firm. When the cost of
acquiring a new customer is high, this can be important.
2. Furthermore, long-term customer relationships can raise a company’s efficiency in
terms of profitability as purchase volume rises and relationship costs fall. While
retention-based CRM programs can offer many intangible advantages, companies
can profit from them. It is less expensive to keep your current customers than to
look for new ones. Retention and profitability are positively correlated, and the
correlation is unquestionably inversely correlated. High customer volume or repeat
business may suggest some amount of satisfaction. However, because it might
indicate factors other than customer satisfaction, purchasing behaviour is only one
aspect of customer loyalty.
3. CRM depends on the idea of customer value. “It alludes to the financial worth of
a client’s connection to a business, measured as a contribution margin or net profit.”
Beyond its capacity to assess marketing efficacy, customer value offers significant
decision assistance as marketing metric. By placing the value of the client at the
forefront of its decision-making process, a business can measure and optimize its
marketing efforts. 255
Retail Operations 4. Managing clients successfully over the long term is necessary, given the competitive
Management
environment and unstable economies characterizing the modern world. Now more
than ever, it is a critical issue. Today retailers face the massive challenge of earning
and retaining a customer for a lifetime. Customer value was previously primarily
based on how profitable they were in terms of sales. Customer value, however,
can also be dependent on how consumers behave in terms of referrals (their
participation in referral programs launched by the retailer), knowledge sharing
(information or comments they share about some other retailer’s best practices),
and influence over other customers through reviews and blogs.
5. Retailers are under immense pressure to find a compelling reason to keep customers
glued to their business for a long time and ensure they bring in revenue perpetually.
Analyzing the shopper behavioural data allows retail store analysts to connect the
dots to know precisely what customers prefer to buy. Which channel (be it a
website, mobile shopping app, or physical store) do they prefer to use for what
kind of purchases? This eventually helps the retailers target the customers based
on the insights they receive from the patterns of customer preferences.
6. Thus, it points out that, though data is readily available and the number doubles
every 18 months, businesses are overloaded. Maintaining such data under multiple
headings becomes onerous in an era like ours, where data has revolutionized
digitalization. But it is crucial to separate such data to dig deep and understand
shoppers’ purchase behaviour and purchasing patterns. This helps retailers identify
where their consumers fit in and their expectations, enabling them to develop
strategies to serve their customers best. In retail, when we maintain such a database,
it becomes possible for retailers to establish segments.

16.9 PERSONALIZATION AND CRM SOFTWARE:

THE PROS AND CONS
Personalization is the key to all these requirements, wholly based on the effective
utilization of behavioural data available to retailers about their customers. To entice
customers to return to a store regularly, retailers must provide personalized product
recommendations and give the impression that they have their customers’ best interests
at heart. It is essential in an industry like retail, where the operating margin is so small.
The emergence of new trends, such as social media and app development, presents
retailers with fresh CRM difficulties.
Therefore, a marketing-driven CRM installation is identified by CRM operational and
analytical activities and procedures. They could, for instance, comprise segmentation,
relationship economics, customer requirements analysis, satisfaction and loyalty
measurements, and customer satisfaction and loyalty metrics. In retailing, these include
value proposition management, campaign management, channel management, referral
management, and loyalty management.
Operational CRM entails various tasks and procedures, including value proposition
management, campaign management, channel management, referral management, and
loyalty management. Not just that, but also understanding how vital customers are to
the business and how to cater to their diverse needs. When retailers can acquire the
needed shopper data with the help of a CRM solution, monitoring operations becomes
technically simple. They can use this information to align their campaigns in a relatively
256 focused and systematic manner.
For instance, if the retailer is aware of a customer who used their website to browse a Customer Relationship
Management (CRM)
particular product category or choose a specific service and then wants to return it, the
appropriate action will be taken against that item depending on the “reason for return”
and whether it is allowed under their return policy.
But exactly how a CRM process works? What are the steps involved in that?
A CRM process can be described as simple: the first step is to collect the customer’s
basic information, such as name, address, gender, and age. However, transaction data
such as date, time, item, value, etc., are crucial at every point of contact with the
customer. Information is frequently required to complete these data and produce a
meaningful correlation to the applications. Marketers employ these data and information
to track customer interests and preferences, which needs to be skilfully analysed.
Additionally, they make an effort to relate purchasing trends using transaction records.
CRM initiatives enable businesses to gather helpful client information.
The focus then shifts to understanding how to please them and determining how and
why customers connect with the company. CRM initiatives increase the interaction
between businesses and consumers by creating technical and non-technical
communication networks. The use of sophisticated modelling and data mining techniques,
as well as behaviour prediction and use of historical customer data to forecast future
behaviour. Making marketing decisions heavily relies on the tendency that a specific
type of customer is likely to purchase a particular product, as determined by product
affinity analysis, and that a particular type of customer frequently purchases certain
products along with other specific products, as determined by product propensity-to-
buy analysis. CRM data mining activities give retailers insights and knowledge about
their most valued consumers, which increases sales to the highest level possible. The
retailer will be able to build a strong relationship with the customer and subsequently
influence their purchasing decisions if they are provided with up-to-date information
by the store about loyalty programs and promotional offers.
By finding smaller, more homogeneous groups of customers, also known as customer
segments or sub-segments, CRM initiatives allow the company to further this process.
The retailer can make personalized contacts with customized offers that more closely
meet the demands of each subgroup after identifying the customer sub-segments and
understanding their wants.
Retailers have had a great deal of success gathering data at the customer level. By
tracking customer purchases and responses to marketing initiatives, it is possible to
acquire a sense of consumer attitudes, preferences, and expectations. Once a retailer
develops an engagement strategy, the CRM they employ should be capable of
recognizing the consumers to determine who is eligible for the various rewards, levels,
and advantages of a loyalty program. Long-term customers may also be rewarded
with points and prizes, encouraging them to remain loyal to the company. Customer
commitment will improve due to loyalty, boosting sales and profitability. For instance,
Tesco bases its marketing approach on its Loyalty Card, a crucial planning tool.
Although it’s frequently a top priority, rewarding customer loyalty is also important. A
retail CRM might be of the most significant assistance once a store has attracted a
customer and is prepared to concentrate on cultivating loyalty. Serving a broader
audience now requires being accessible through a variety of channels. Additionally,
retailers must be present where their customers are in the retail industry.
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Retail Operations
Management 16.10 BENEFITS OF USING CRM SOFTWARE IN
RETAIL STORES
It is certain and true that CRM software provides retailers with a centralized repository
to ensure that the entire communication channel operates efficiently. One needs to use
the information to improve, identify which customers the retailer needs to stay in touch
with, and ensure that essential customers don’t slip through the cracks. When they
continuously develop such data to address customer needs, complaints, and challenges
that they often confront, the accuracy gets better with time. Managing a retail chain of
any size is challenging where so many departments and employees work simultaneously.
As a result, cooperation and teamwork are crucial, which can only be done with an
effective CRM.
For an effective CRM strategy implementation, frontline store staff and other backend
employees’ participation are essential. It allows each person to update their task boards
and the customers they are working with, enabling them to understand and not cancel
a scheduled action and giving them a certain level of clarity. It aids in time management
and completing tasks with a due date. The foundation of CRM implementation is the
customer’s perception of value, which may be modified favorably or unfavourably by
the behaviour of the retail staff. Particularly for companies in the service sector like
retail, employee satisfaction substantially impacts customer satisfaction.

16.11 SOME WELL-KNOWN CRM SOFTWARE

IMPLEMENTED BY RETAILERS
16.11.1 Nutshell:
It is a full-featured sales and marketing solution that virtually any organization can use
because of its extensive feature set. The retailer’s front-end lead collection system can
be fully connected with Nutshell’s CRM, which also effortlessly adds new contacts
and opportunities to its top reporting and sales automation tools. This makes it simple
to manage customers throughout the customer acquisition process and access detailed
analytics information for the retailer’s entire operation.
The platform’s filtering capabilities make it stand out. Using tags and custom fields, one
can categorize and separate existing contacts in Nutshell. The interactive map feature
makes it easy to find all potential customers in a specific region and export them into a
segmented list with just one click. Since this tool connects directly to the retailer’s
CRM data, it is possible to understand each customer’s historical relationship thoroughly
and link marketing initiatives to sales results more quickly. Customer data will no longer
diverge between CRM and email marketing software. Nutshell Marketing also has an
optional email marketing automation package, enabling customers to create, deliver,
and track marketing emails and automatic drip campaigns.
Features of Nutshell:
Briefly outlines for the salespeople what they must do to advance each lead (along with
some helpful direction from the boss). Automated reminders help speed up the on
boarding of new sales agents by ensuring that each assignment is completed by the due
date. From the shopper’s pipeline stage, Nutshell’s potent personal email sequences
can be automatically activated. The algorithm is programmed to stop as soon as the
prospect responds. Nutshell ensures a good follow-up with the customers from the
258 retailer’s first interaction to the final email after closing the sale.
Nutshell enables sales managers and company leaders to precisely assess the state of Customer Relationship
Management (CRM)
their sales funnel and make focused improvements by establishing consistency in how
and when leads travel from stage to stage.
The broad view, an interactive tool for managing the sales pipeline, is a remarkable
feature of Nutshell. This platform allows dragging and dropping leads to the following
sales stage and marking leads as won, lost, or cancelled. It enables speedy identication
of what must be done next and provides for monitoring the state of the company’s
sales funnel in general.
The most common method of managing pipelines is list view. In this CRM, pipeline
leads can be viewed as rows and sorted by columns based on the lead’s age, stage,
condence, value, and other factors. Numerous software connectors provided by
Nutshell enable businesses to access all their data and manage their operations using
only one tool. Intercom, Livechat, and Zendesk are just a few of the software integrations
that Nutshell has created and proven to aid in the more effective operation of sales and
marketing teams.

259
Retail Operations “Nutshell” enables search engine optimization (SEO) services to reach more high-
Management
value prospects and convert them into committed customers. With all the tools a business
needs to increase its traffic and online visibility, from keyword research to customized
content, it enables them to acquire a custom approach designed for a particular company.
Both consumers and businesses use search engines to discover goods, services, and
solutions to their problems. Retailers can reach their ideal customers with a search
engine optimization (SEO) strategy when actively looking for the retailer’s goods or
services. To rank higher than their rivals and increase their online visibility, expert SEO
services can help to optimize every section of the website for search engines. The title
tags, meta descriptions, URLs, internal links, and other on-page components of a
retailer’s website are all optimized with SEO management services.
By using SEO services to improve the website’s off-page details, businesses can draw
in reputable external links to help them develop their back link profile. The website’s
technical aspects might be improved with a faster page load time, making it simpler for
search engines to crawl, assisting with mobile device compatibility, and more. By
enhancing their internet rankings, retailers’ websites will appear more frequently in
search results, even if users don’t click on them. This implies that more individuals will
start identifying and linking the retailer company to the goods and services they’re
looking for online. The adaptable social media marketing services from Nutshell make
it possible to reach ideal customers where they spend their leisure time, helping to
keep the company at the front of their minds. The development, editing, and promotion
of unique, SEO-friendly material are handled by the Nutshell team of skilled copywriters
and editors using content marketing services. The support team may assist with all
retailers’ needs, including blog creation and video production for product or service
promotion. They help publish worthwhile, high-quality material that responds to the
audience’s inquiries and entices them to become committed customers.
16.11.2 Zoho CRM
This ia another software used by retailers to gather information from their websites,
automatically manage targeted email lists depending on user behaviour, and create
customized campaigns for customers and email lists. With the help of this potent mix,
firms may track and communicate with customers automatically based on how they
use the website, make purchases, and use other relevant services. With Zoho’s integrated
Google Ads interface, one can go one step further and monitor the effectiveness of
marketing campaigns right from the CRM.
In CRM, emails can be set to send at a specific time or at the ideal time to get in touch
with each contact. to reach an extensive consumer base, such as when mass-mailing
customized follow-up emails to customers of a retailer or business updates. Workflows
can include all these processes for a one-time setup. Even auto-responders can be
made to ensure that no client goes unanswered. Within the organization, the role of
CRM is very much vital. One may want their emails to be accessible to every user in
their CRM, or one may wish to keep them confidential and only make them visible to
a small number of key decision-makers, depending on the responsibilities of the CRM’s
users and the nature of their email exchanges.
To swiftly configure email-sharing rights for new employees or update them when
users change roles in the CRM system, Zoho CRM makes it simple to define the
email-sharing policy at the organizational level for each position and update the policy
for users in bulk. A typical store can integrate the email inbox with the CRM using the
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Zoho Sales Inbox. No matter what email a customer uses, SalesInbox arranges their Customer Relationship
Management (CRM)
communications following the CRM pipeline, allowing them to keep on top of the most
important deals. Drag and drop emails across the columns to add contacts or make
deals. Receive immediate notications when recipients open the emails and set reminders
to follow up once more if no response has been received.
It allows connecting the retailer’s social media accounts on platforms like Facebook,
Twitter, LinkedIn, and Instagram to be able to track brand-related interactions. The
business-relevant keywords may be searched using Zoho CRM, indicating whether
the accounts employing such terms are current customers, prospects, or brand-new
prospects. Then, to save these new contacts in the CRM database, one can set up
automatic lead creation, reply in real-time to posts, and reply in real-time. Each contact’s
social media interactions are kept, so it is possible to monitor how potential customers
feel about the company.
The company can use Zoho CRM software to ensure that problems like outdated
shipping addresses or past-due payments never come in the way of customer happiness.
The sales team at the retailer can access the data they require through a specic link
with Zoho Inventory. Eliminate the need to search through various apps or put the
customer on hold by getting immediate access to information such as order contents,
shipment status, and unpaid amounts. Retailers can continually provide their sales crew
with targets to inspire them.

16.11.3 Easy Territory Management by using Zoho CRM:

With the help of Zoho CRM’s sales performance tools, you can create dashboards
with unique perspectives of the pending, continuing, and achieved quotas. By making
forecasts based on territories or hierarchies, one may track how a region, product, or
team is performing. The sales representatives have access to forecast history once a
quota has been met to view previous aggregate quotas and transaction amounts. The
software enables to set of attainable objectives for the teams based on the aggregate
information from the predictions and gives the top achievers challenging goals. To
assist the sales staff in gaining knowledge that will guide their activities, Zoho CRM
enables retailers to categorize clients according to geographies, goods, or other pertinent
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Retail Operations factors. Create a territory that automatically populates when new contacts are added
Management
that satisfy the rules by setting up rules based on nation, state, district, or product lines
whenever a connection is registered with an account. If retailers come across several
billing addresses or remote areas, they can manually add any associated contacts or
accounts.

16.11.4 AI-Powered Sales Assistant

Predicting which leads and deals might be most valuable to the retailer might be
challenging. Using actual data from Zia, their very own AI-powered sales assistant,
Zoho enables targeting these efforts. To calculate a probability score for each lead and
contract, she examines each encounter a shop has with its prospects, considering their
response time and the stage of their sales cycle. This gives the store a list of the leads
and deals most likely to result in sales, ranked according to priority.

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 Customer Relationship
16.12 MAJOR ISSUES AND PROBLEMS IN CRM Management (CRM)

While CRM can be a powerful tool for businesses to improve customer relationships
and drive growth and revenue, there are also some common issues and problems that
can arise when implementing CRM. Some of the major issues and problems in CRM
include:
1 Data quality: One of the biggest challenges in CRM is ensuring the quality of the
data that is collected and used. Poor data quality can lead to inaccurate insights,
ineffective marketing campaigns, and missed sales opportunities. It is important
for businesses to have processes in place to ensure data accuracy, completeness,
and consistency.
2 Integration: CRM systems often need to integrate with other business systems,
such as marketing automation, sales enablement, and customer support. Integrating
these systems can be challenging, particularly if they use different data structures
and formats. It is important for businesses to carefully plan and test integrations to
ensure that data is flowing correctly between systems.
3 User adoption: CRM systems can be complex and require significant training to
use effectively. Low user adoption can lead to poor data quality and limited insights,
as well as wasted investment in the CRM system. It is important for businesses to
provide training and support to users, and to design the CRM system with user
experience in mind.
4 Privacy and security: CRM systems often contain sensitive customer data, such as
personal information and purchase history. It is important for businesses to have
robust privacy and security policies in place to protect this data from unauthorized
access and misuse.
5 Cost: Implementing and maintaining a CRM system can be costly, particularly for
small and medium-sized businesses. It is important for businesses to carefully
evaluate the costs and benefits of implementing a CRM system, and to choose a
system that is appropriate for their needs and budget.
Overall, CRM can be a powerful tool for businesses to improve customer relationships
and drive growth and revenue. However, businesses must be aware of the common
issues and problems in CRM, and take steps to mitigate these risks in order to realize
the full potential of their CRM system

16.13 ROLE OF CRM AFFILIATION IN RETAILING

SECTOR
CRM (Customer Relationship Management) Affiliation plays a crucial role in the retailing
sector by helping businesses build strong relationships with customers and increase
customer loyalty. CRM Affiliation involves partnering with other businesses or
organizations to offer additional products or services to customers.
In the retailing sector, CRM Affiliation can take several forms, such as loyalty programs,
co-branding, and cross-selling. For example, a clothing retailer may partner with a
shoe retailer to offer discounts or special promotions to customers who purchase from
both stores. This encourages customers to return to both stores and increases their
overall spend.
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Retail Operations The role of CRM Affiliation in retailing includes the following:
Management
1 Increasing customer loyalty: By offering additional products or services through
CRM Affiliation, businesses can increase customer loyalty and encourage repeat
purchases.
2 Driving sales: CRM Affiliation can help businesses drive sales by offering customers
incentives to purchase from multiple retailers or to purchase additional products
or services.
3 Improving customer experience: CRM Affiliation can improve the customer
experience by offering a wider range of products or services, making it more
convenient for customers to shop.
4 Building partnerships: CRM Affiliation can help businesses build partnerships with
other businesses or organizations, which can lead to new opportunities for growth
and expansion.
5 Differentiating from competitors: By offering unique CRM Affiliation programs,
businesses can differentiate themselves from competitors and attract new customers.
Overall, CRM Affiliation plays a significant role in the retailing sector by helping
businesses increase customer loyalty, drive sales, and improve the overall customer
experience. By building partnerships and offering additional products or services,
businesses can gain a competitive advantage in the marketplace and achieve long-term
success.

16.14 SUMMARY/CONCLUSION
However, implementing this CRM software need not necessarily lead to instantaneous
success. According to a new McKinsey report, retailers cannot recover their investments
in loyalty programs. This is primarily because less than 50% of customers increase
their spending after signing up for a loyalty program. Multiple conversations with the
academic community about the effectiveness of loyalty programs in retail have included
the practitioners’ conundrum. The main hurdles were the following elements: the calibre
of consumer data, coordinating people and procedures, the scarcity of qualified
professionals, and determining the timeliness of client requests. It might be challenging
to use the available data in the best way possible by employing the appropriate
technology, connecting customer information to consumer preferences, and obtaining
accurate real-time data. Through customer relationship management, it is possible to
understand the customers’ goals in a manner comparable to how the product or service
was initially presented to them. Another indicator of customer satisfaction is work ethic
pride, which typically inspires personnel to meet customer wants and expectations.
However, employee mishaps, delays in delivering goods or services, or other flaws
could harm a customer’s future interactions with the company. By identifying and fixing
these problems, CRM can improve customer efficiency ratios. This is because satisfied
consumers typically make more purchases than unsatisfied customers. There is a
consequent decrease in the relative cost per customer, which again results in positive
economics and profitability. Customer relationship management techniques that
encourage client retention can benefit a company. According to empirical data, it can
support an organization’s prosperity by promoting its financial health. CRM initiatives
must incorporate a customer-centric management strategy that recognizes and
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categorizes profitable clients while promoting client satisfaction and loyalty. Both the Customer Relationship
Management (CRM)
company and the customers win from this. Due to its effectiveness, it enables the
effective use of labour and technological resources to meet even more consumer wants
and may thus serve a more extensive and better market.

16.15 SELF ASSESSMENT QUESTIONS

1. Do you feel that effective deployment and utilization of CRM software increase
customer retention? Explain in detail with any of the known CRM software.
2. Do you feel the CRM software used by organized retailers to target customers
could be deployed in mom-and-pop stores?
3. What is your opinion on the role of CRM software in omnichannel retail stores?
Do you think a retail revolution is possible with this customer data management
software?
4. What are a retailer’s basic expectations when investing in CRM software? Do
you think all retailers could reap the utmost benefit from it?
5. Explain the different components of typical CRM software. Quote examples
wherever required.

16.16 FURTHER READINGS

Behúnová, A., Behún, M., Knapčíková, L., & Zemanová, L. (2022, June). Relationship
Marketing: A Modern Marketing Strategy as a Tool to Increase the Competitiveness
of the Company in the Market. In 6th EAI International Conference on Management
of Manufacturing Systems (pp. 241-255). Cham: Springer International Publishing.
Chaturvedi, A., & Chaturvedi, M. (2022). Transforming CRM Through Artificial
Intelligence. In Adoption and Implementation of AI in Customer Relationship
Management (pp. 54-69). IGI Global.
Dibb, S., & Meadows, M. (2004). Relationship marketing and CRM: a financial services
case study. Journal of strategic marketing, 12(2), 111-125.
Luck, D., & Lancaster, G. (2003). E CRM: customer relationship marketing in the
hotel industry. Managerial Auditing Journal.
Maggon, M. (2022). A bibliometric analysis of Journal of Relationship Marketing (2002–
2019). Journal of Relationship Marketing, 21(4), 324-351.
Mitussis, D., O’Malley, L., & Patterson, M. (2006). Mapping the re engagement of
CRM with relationship marketing. European journal of Marketing, 40(5/6), 572-589.
Pearce, M. (2022). Customer Relationship Management.
Sheth, J. N. (2002). The future of relationship marketing. Journal of services
marketing, 16(7), 590-592.
Thaichon, P., & Ratten, V. (Eds.). (2020). Transforming relationship marketing: Strategies
and business models in the digital age. Routledge.

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