Chapter 6

Retail Market Strategy

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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Retailing Strategy

Human Resource
Retail Locations Management
Chapters 8,9 Chapter 16

Retail Market Strategy

Chapter 6
Financial Strategy
Chapter 7

Information and Customer

Distribution Relationship
Systems Management
Chapter 10 Chapter 11
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Questions

■ What is a retailing strategy?

■ How can a retailer build a sustainable
competitive advantage?
■ What steps do retailers go through to develop a
strategy?
■ What different strategic growth opportunities can
retailers pursue?
■ What retailers are best positioned to become
global retailers?

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More attention to long-term strategic
planning than ever before

Due to the emergence of

■ New competitors
■ New formats
■ New technologies
■ Shifts in customer needs

Stopped during
the pandemic

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Elements in Retail Strategy

■ Target Market
 the market segment(s) toward which the retailer plans
to focus its resources and retail mix
■ Retail Format
 the nature of the retailer’s operations—its retail mix
■ Sustainable Competitive Advantage
 an advantage over the competition

© image100 Ltd
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Analyzing McDonalds’ Retail Strategy

Target market?

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

Retail offering (format)?

Bases for competitive

advantage?

What Threats Might McDonald’s Face in the Future?

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Target Market

Why Does a Retailer Need to Focus on

a Specific Target Market?

Why Not Sell to Everyone?

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Target market and retail format:
Retail Market Opportunities for Women’s Apparel

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The Avery Dennison Way
Criteria For Selecting A Target Market

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

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 Opportunities for retailers to develop sustainable
competitive advantages

■ Customer Loyalty
■ Location
■ Human Resource Management
■ Distribution and Information Systems
■ Unique Merchandise
■ Vendor Relations
■ Customer Service

PhotoLink/Getty Images

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Can A Retailer Develop a Sustainable
Competitive Advantage by:

■ Dropping the Price of Your

Merchandise?
■ Building a Store at the Best Location?
■ Deciding to Sell Some Hot
Merchandise?
■ Increasing Your Level of Advertising?
■ Attracting Better Sales Associates by
Paying Higher Wages?
■ Providing Better Customer Service?

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Sources of Competitive Advantage

More Sustainable Less Sustainable

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

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 Personal Experience - Competitive
Advantage

Strong Brand
Image Location

Knowledge Exclusive
Employees Merchandise

Good suppliers/
systems
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Internal and External Bases for
Competitive Advantage
Retail Firm
•Low Cost
•
Large Size
•
Efficient
Distribution,
Operations
Vendors,
• Unique Customers
Suppliers
Knowledge
• Loyal Employees

Sources of
Capital
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Loyalty

What does loyalty mean?

Is It the same as liking a store?
…Going to the store frequently?

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Customer Loyalty

■ More than simply liking one retailer over another

■ Customers will be reluctant to patronize
competitive retailers
■ Retailers build loyalty by:
 Developing a strong brand for the store or store
brands
 Developing clear and precise positioning strategies
 Creating an emotional attachment with customers
through loyalty programs

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Retail Branding

Stores use brand (store’s name and store brands –

private label brands) to build customer loyalty

Retail brand
■ Can create an emotional
tie with customers that
build their trust and loyalty
■ Facilitates store loyalty
because it stands for a
predictable level of quality

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Loyalty Programs

■ Part of an overall Customer Relationship Management

(CRM) program
■ Purchase behaviors of members of loyalty programs
 Are identified when they buy because they use some type of
loyalty card
 Saved in Data Warehouse
• What they buy
• When they buy
• How much they buy
• How often they buy
• How much they spend
• What channel they use
■ Develop personalized marketing effort to them

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Approaches for Building
Customer Loyalty

■ Unique Positioning
■ Location
■ Customer Service
■ Information About Customers (Database)
■ Unique Merchandise

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Example of Positioning

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Growth Strategies

■ Market Penetration
■ Market Expansion
■ Retail Format Development
■ Diversification
 Related vs. Unrelated

Ryan McVay/Getty Images

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Growth Opportunities – Ansoff Matrix

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Market Penetration

■ Attract customers from target market – Walgreens “on

every corner”

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

each visit

Cross Selling – sales associates in one department sell

complimentary merchandise from other departments

Example: Manicurist sells services plus hand lotion or nail polish

Example: Salesperson sells leaf blower directs customer to electrical

department to purchase a 100 foot extension cord.

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Market Expansion

■ Market expansion growth opportunity involves

using the existing retail format in new market
segments
 Dunkin’ Donuts – new stores (and at gas stations)
outside northeastern
 Abercrombie & Fitch (for college students) opens
lower-priced chain Hollister Co. for high school
students

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Retail Format Development

■ Develops a new retail format with a different

retail mix for the same target market
■ Multi-channel retailing
■ UK based TESCO:
 Tesco Express: small stores located close to where
customers live and work
 Tesco Metro: bring convenience to city center location
by specializing in ready-to-eat meals
 Tesco Superstores: traditional stores
 Tesco Extra: one-stop destination with the widest
range of food and non-food products

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Diversification

■ Introduces a new retail format toward a market

segment that is not currently served by the
retailer
■ Related diversification
■ Unrelated diversification
■ Vertical integration into wholesaling or
manufacturing

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Global Growth Opportunities

Who Is Successful and Who Isn’t?

■ Specialty store retailers with
strong brand and unique
merchandise?
 McDonald’s

 Starbucks

 Zara

 H & M

■ Discount and food retailers with

deep assortments and low
prices?
 Wal-Mart

 Carrefour

 Royal Ahold

 Metro AG
Steve Cole/Getty Images
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IKEA

■ Operates 254 stores in 35

countries
■ Unique, well-designed,
functional furniture at low
prices for consumers who
have sophisticated tastes,
but have no intention to
spend a lot
■ “You do our part. We do
our part. Together, we
save money.”

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Why Do Category Killers and Supercenters
Succeed Globally?

■ Developed operating expenses

■ Scale economies for buying
merchandise globally
■ Unique systems and standardization
formats which facilitate control over
multiple stores
■ Understand that consumers are willing
to forego service for lower prices
Ryan McVay/Getty Images

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Key to Success in Global Retailing

■ Globally sustainable competitive

advantage
 Low cost, efficient operations - Wal-
Mart, Carrefour
 Strong private label brands: Starbucks,
KFC
 Fashion Reputation - The Gap, Zara,
H&M
 Category dominance – Best Buy, IKEA,
Toys R Us
■ Adaptability
■ Global Culture
■ Financial Resources
■ On line capabilty
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 Evaluating Global Growth Opportunities

Consider challenges and how to overcome them

■ China
 Increasing operating costs
 Lack of managerial talent
 Developing supply chain
 E commerce Opportunities
■ India
 Prefers small family-owned
stores
 Different regulations (by state)
 Penetration, reach

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Evaluating Global Growth Opportunities

Rankings are based on

weighted score using
growth (55%),
risk (25%), and
market size (20%)

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Growth, Risk, and Market Size of
Top 30 Countries

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International Market
Entry Strategies

Direct Investment
Joint Ventures
Strategic Alliances Profit and Risk

Franchising
Lawrence Lawry/Getty Images

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Stages in the Strategic
Retail Planning Process

1. Define the business mission

2. Conduct a situation audit:
Market attractiveness analysis
Competitor analysis
Self-analysis

3. Identify strategic opportunities

4. Evaluate strategic alternatives

5. Establish specific objectives and allocate resources

6. Develop a retail mix to implement strategy

7. Evaluate performance and make adjustments

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Elements in a Situation Audit

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Market Factors

■ Market size – large markets attractive to large

retail firms
■ Growth – typically more attractive than mature or
declining
■ Seasonality – can be an issue as resources are
necessary during peak season only
■ Business cycles – retail markets can be affected
by economic conditions – military base towns

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Competitive Factors

■ Barriers to entry
 Scale economies of big box retailers
 Service and unique, high-end products of small retailers
■ Bargaining power of vendors
 Markets are less attractive when only a few vendors control the
merchandise sold within it
■ Competitive rivalry
 Defines the frequency and intensity of reactions to actions
undertaken by competitors
 Conditions leading to intense rivalry: a large number of same
size retailers, slow growth, high fixed costs, a lack of perceived
differences between competing retailers

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Questions for
Analyzing the Environment

• New developments or changes --

technologies, regulations, social
factors, economic conditions
• Likelihood changes will occur
• Key factors determining change
• Impact of change on retail market
firm, competitors
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Performing a Self-Analysis

■ At what is our company good?

■ In which of these areas is our company better
than our competitors?
■ In which of these areas does our company’s
unique capabilities provide a sustainable
advantage or a basis for developing one?

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Stockbyte/Punchstock Images
Strengths and Weaknesses Analysis
Management Capability:
Capabilities and experience of top management
Depth of Management--capabilities of middle management
Management’s commitment to firm

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

Merchandising Capabilities:
Knowledge and skills of buyers Customers
Relationships with vendors Loyalty of customers
Capabilities in developing private
capabilities
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Illustration of the
Strategic Retail Planning Process

Kelly Bradford – Owner of Gifts To Go

 Two Store Chain in Chicago

 Target Market – Upper Income Men and Women

Looking for Gifts between $50 and $500

 Strong Customer Loyalty Based on Knowing What

Customers Want, Providing Good Customer Service

 Low Turnover Among Associates

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Mission Statement for Gifts To Go

“The mission of Gifts-to-Go is to be the leading

retailers of higher-priced gifts in the Chicago and
provide a stable income of $100,000 per year for
the owner.”

■ Define growth opportunities will and won’t

consider
■ Indicates objective of company

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Situation Analysis of Gifts to Go

■ Market Factors
 Chicago is an attractive market. (+)

 Relatively expensive gifts are not affected much by

the economy. (+)

 Gifts are highly seasonal. (-)

■ Competitive Factors
 Many in area. Primary department stores, craft

galleries, catalogs, and Internet retailers (-)

 Lack of large suppliers, customer (+)

 Opportunities for differentiation (+)

 Limited competitive rivalry. (+)

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Situation Analysis of Gifts to Go

■ Environmental Factors
 Potential Threat - Development of electronic channel by
traditional bricks and mortar retailers (-)

■ Strengths and Weaknesses

 Management Capability – Limited
 Financial Resources – Good
 Operations – Poor
 Merchandise Capabilities – Good
 Store Management Capabilities – Excellent
 Locations – Excellent
 Customer Loyalty – Good
 Customer Database - Good

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Growth Opportunities for Gifts to Go

■ Market Penetration
 Increase size of present stores
 Open additional gifts stores in
Chicago area
■ Market Expansion
 Open gift stores outside Chicago
area
 Sell lower priced gifts in present
stores
Ryan McVay/Getty Images

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Growth Opportunities for Gifts to Go

■ Retail Format Development

 Sell non-gift merchandise to same customers in
present or new stores
 Sell similar gifts to same customers through an
electronic channel / ecommerce
■ Diversification
 Manufacture craft gifts
 Open an apparel store targeting teenagers
 Open a category killer store selling a broader
assortment of gifts

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Evaluating Growth Opportunities for
Gifts to Go

Market Attractiveness

■ Market Penetration
 Increase size of present stores (low)
 Open additional gifts stores in Chicago area (medium)

■ Market Expansion
 Open gift stores outside Chicago area – new geographic
segment (medium)
 Sell lower priced gifts in present stores – new benefit segment
(medium)

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Evaluating Growth Opportunities for
Gifts to Go (continued)

Market Attractiveness

■ Retail Format Development

 Sell non-gift merchandise to same customers in present or new
stores (High)
 Sell similar gifts to same customers through an electronic
channel (High)
■ Diversification
 Manufacture craft gifts (High)
 Open an apparel store targeting teenagers (High)
 Open a category killer store selling a broader assortment of gifts
(High)

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Evaluating Growth Opportunities for
Gifts to Go

Competitive Position

■ Market Penetration
 Increase size of present stores (High)
 Open additional gifts stores in Chicago area (Medium)
■ Market Expansion
 Open gift stores outside Chicago area (Low)
 Sell lower priced gifts in present stores (low)

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Evaluating Growth Opportunities for
Gifts to Go (continued)

Competitive Position

■ Retail Format Development

 Sell non-gift merchandise to same customers in present or new
stores (Low)
 Sell similar gifts to same customers through an electronic
channel (Medium)
■ Diversification
 Manufacture craft gifts (Low)
 Open an apparel store targeting teenagers (Low)
 Open a category killer store selling a broader assortment of gifts
(Low)

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Market Attractiveness/Competitive
Position Matrix

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Steps in Using Market Attractiveness -
Competitive Position Matrix

• Define strategic opportunities

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

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