CHAPTER 5

Retail
Market
Strategy
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

CHAPTER 05

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter objectives
1. To Define retailing strategy.
2. To Analyze how can a retailer build a sustainable
competitive advantage.
3. To differentiate between strategic growth opportunities
that retailers can pursue.
4. To classify types of investments in global Retailing.
5. To analyze stages in retail planning process. (x)

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 1. Retail Strategy
Elements in Retail Strategy
• Target Market
• the market segment(s) toward which the retailer plans to focus its
resources and retail mix. It should be attractive (large, growing,
profitable, little competition).
• Retail Format
• the nature of the retailer’s
operations—its retail mix
• Sustainable Competitive
Advantage
• an advantage over the competition that is
not easily duplicated and can be maintained
over a long time. © image100 Ltd

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1. Retail Strategy
Elements in Retail Strategy
Thus, retail strategy determines “Retail Market” in which a
retailer compete.

• Retail market:
A group of consumers with similar needs and a group of retailers
that satisfy those needs using a similar retail channel and format.

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2. Approaches for retailers to sustainable
competitive advantage

• Seven important opportunities for retailers to develop

sustainable competitive advantages are (1) customer

loyalty, (2) location, (3) human resource management, (4)

distribution and information systems, (5) unique

merchandise, (6) vendor relations, and (7) customer

service.

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Sources of sustainable and unsustainable
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
• Effective Information
• More promotions
systems
• Cleaner stores
• Buying power with
vendors
• Committed employees
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[Link] for sustainable competitive advantage
A) 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
Thus, creating an emotional attachment with customers through
loyalty programs

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 [Link] for sustainable competitive advantage
A) Customer Loyalty
(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
• A retail brand, can create an
emotional tie with customers
that builds their trust and
loyalty.
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[Link] for sustainable competitive advantage
A) Customer Loyalty
(Positioning)

• Positioning- is the design and implementation of a retail

mix to create an image of the retailer in the customer's
mind relative to its competitors.
• Unique Merchandise
• Customer Service
• Customer Relationship Management Programs

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2. Approaches for sustainable competitive advantage
A) Customer Loyalty (Positioning)

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2. Approaches for sustainable competitive advantage
B) Vendor Relationships
• By developing strong relations with vendors, retailers may
gain exclusive rights (1) to sell merchandise in a specific
region, (2) to buy merchandise with better terms than
competitors who lack such relations, or (3) to receive
merchandise in short supply.

• Relationships with vendors, like relationships with

customers, are developed over a long time and may not
be easily offset by a competitor.

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2. Approaches for sustainable competitive advantage
C) Distribution and Info Systems
• All retailers strive to reduce operating costs. They want to
get their customers the merchandise they want, when
they want it, in the quantities that are required, at a lower
delivered cost than their competitors. Retailers can
achieve these efficiencies by developing sophisticated
distribution and information systems.

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2. Approaches for sustainable competitive advantage
C) Distribution and Info Systems

By decreasing operating costs

Flow of Information
(no excess, no shortages) ,
Vendor
the is more money available to
Distribution Center invest in:

Store
-Better services
-Increase in breadth and depth
-Decrease in prices

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2. Approaches for sustainable competitive advantage
D) Human Resources Management
• Retailing is a labor-intensive business.
• “Employees are key to build a sustainable competitive
advantage”
• Effective strategies for Recruiting and Retaining Talented
Employees
• Employee Branding
• Develop positive organizational culture
• Knowledgeable and skilled employees committed to the
retailer's objectives are critical assets that support the
success of several companies.

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2. Approaches for sustainable competitive advantage
E) Location
• What are the three most important things in retailing?
• “location, location, location”.

• Location is the critical factor in consumer selection of a

store. It is also a sustained competitive advantage that is
not easily duplicated.
• Example:
A high density of Starbucks stores special locations
• Creates a top-of-mind awareness
• makes it very difficult for a competitor to enter a market and find a
good locations

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3. Growth Strategies
• Market Penetration

• Market Expansion

• Retail Format Development

• Diversification
• Related vs. Unrelated

Ryan McVay/Getty Images

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3. Growth Opportunities

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3. Growth Opportunities
A) Market Penetration
• A market penetration opportunity involves directing
investments toward existing customers using the present
retailing format. Approaches for increasing market
penetration include attracting customers by opening more
stores in the target market or opening the stores for
longer hours.
• Cross-selling means that sales associates in one
department attempt to sell complementary merchandise
related to original product directed toward their customers.
More cross-selling increases sales from existing
customers.
• Examples; Get current customer to visit store more often
or buy on each visit.
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3. Growth Opportunities
Market penetration

Cross Selling – sales associates in one department sell

complimentary merchandise from other departments

Example: when mobile shop engage in cross selling

through providing mobile accessories and mobile cases.

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3. Growth Opportunities
B) 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
• All franchising engagement are viewed as “Market expansion”.
• Any expansion in a recent geographic area represents “Market
expansion”.

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3. Growth Opportunities
C) Retail Format Development
• Develops a new retail format with a different retail mix
for the same target market.

• Adjusting the type of merchandise or services

offered typically involves a small investment,
while providing an entirely different format, such
as a store-based retailer going into electronic
retailing, require a much larger and riskier
investment.
• Ex:Carrefour Express

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3. Growth Opportunities
D) Diversification
• Introduces a new retail format toward a market segment
that is not currently served by the retailer
• Related diversification- In a related diversification
opportunity, the present target market and/or retail
format shares something in common with the new
opportunity. This commonality might entail purchasing
from the same vendors, using the same distribution and/or
management information system, or advertising in the
same newspapers to similar target markets.
• Designing private label merchandise is a related
diversification because it builds on the retailer’s
knowledge of its customers.

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3. Growth Opportunities
D) Diversification
• Unrelated diversification-an unrelated diversification
lacks any commonalty between the present business and
the new business. Example: Volvo engage in providing
apparel clothes.
• Vertical integration is diversification by retailers into
wholesaling or manufacturing-When retailers integrate by
manufacturing products, they are making risky
investments because the skills required to make products
are different from those associated with retailing them.

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4) Types of investments in global Retailing
(International Market Entry Strategies)

Direct Investment
Joint Ventures
Strategic Alliances
Franchising

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A) Direct investment
• Direct investment involves a retail firm investing in and
owning a division or subsidiary that builds and operates
stores in a foreign country.
• This entry strategy requires the highest level of
investment and exposes the retailer to significant risks,
but has the highest potential returns.
• Example: Apple investment in China

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B) Joint venture

• A joint venture is formed when the entering retailer pools

its resources with a local retailer to form a new company
in which ownership, control, and profits are shared.
• A joint venture reduces the entrant’s risks. The local
partner understands the market and access to resources
• Problems with this entry approach can arise if the partners
disagree or the government places restrictions on the
repatriation of profits.
• Example: Toyota and BMW

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C) Strategic Alliance
• A strategic alliance is a collaborative relationship
between independent firms. For example, a foreign
retailer might enter an international market through direct
investment but develop an alliance with a local firm to
perform logistical and warehousing activities.

D) Franchising
Offers the lowest risk and requires the least investment.
However, the franchisor has limited control over the retail
operations in the foreign country, profit potential is
reduced with respect to franchisee.

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5. Stages in the Strategic
Retail Planning Process

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 29

Step 1. Develop Mission statement

• The mission statement is a broad description of a
retailer's objectives and the scope of activities it plans to
undertake. It should define the general nature of the
target segments and retail formats that the firm will
consider.
• In developing the mission statement, managers must
answer five questions: (1) What business are we in? (2)
What should be our business in the future? (3) Who are
our customers? (4) What are our capabilities? (5) What
do we want to accomplish?

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Step 2: Conduct a Situation Audit

• A situation audit is an analysis of the opportunities and

threats in the retail environment and the strengths and
weaknesses of the retail business relative to its
competitors.
• A situation audit is composed of four elements: market
factors, competitive factors, environmental factors, and
strengths and weaknesses analysis.

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Elements in a Situation Audit

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Step 2: Conduct a Situation Audit
(A. Market Factors)
Some critical factors related to consumers and their
buying patterns are market size and growth, sales
cyclicality, and seasonality.
• 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. The high seasonality
the less attractiveness.
• Business cycles – retail markets can be affected by
economic conditions. The high business cycles the less
attractiveness.
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Step 2: Conduct a Situation Audit
(B. Competitive Factors)
• The nature of the competition in retail markets is affected by barriers to entry,
the bargaining power of vendors, and competitive rivalry. Retail markets are
more attractive when competitive entry is costly.

• Barriers to entry-are conditions in a retail market that make it difficult for

firms to enter the market. These conditions include scale economies,
customer loyalty, and availability of locations.

• Scale economies of big box retailers which reduce market attractiveness.

• Bargaining power of vendors

• Markets are less attractive when only a few vendors control the
merchandise sold within it.

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Competitive Factors
• Competitive rivalry

• Defines the frequency and intensity of reactions to actions

undertaken by competitors. The high competitive rivalry, the less
market attractiveness.

• Conditions leading to intense rivalry: a large number of same size

retailers, slow growth and a lack of perceived differences between
competing retailers

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Step 2: Conduct a Situation Audit
(C. Environment factors)
Environmental factors that affect market attractiveness
are technological, economic, regulatory, and social
changes.
• When a retail market is going through significant changes
in technology, present competitors are vulnerable to new
entrants that are skilled at using the new technology.
• Some retailers are more affected by economic conditions
than others.
• Government regulations can reduce the attractiveness of
a retail market.
• Finally, trends in demographics, lifestyles, attitudes, and
personal values affect retail markets' attractiveness.
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D. Performing a Self-Analysis (strengths and
weakness analysis)
The most critical aspect of the situation audit is for a
retailer to determine its unique capabilities in terms of its
strengths and weaknesses relative to the competition. A
strengths and weaknesses analysis indicates how well
the business can seize opportunities and avoid harm from
threats in the environment.
• 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?
Stockbyte/Punchstock Images

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Step 3: Identify Strategic Opportunities

• After completing the situation audit, the next step is to

identify opportunities for increasing retail sales. The
strategic alternatives (growth strategies) are defined in
terms of the squares in the retail market matrix. Review
slides from P.18 to P.26

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Step 4: Evaluate Strategic Opportunities

• The evaluation of strategic opportunities identified in the

situation audit determines the retailer's potential to
establish a sustainable competitive advantage and reap
long-term profits from the opportunities under evaluation.
• Thus, a retailer must focus on opportunities that utilize its
strengths and its area of competitive advantage.
• Both the market attractiveness and the strengths and
weaknesses of the retailer need to be considered in
evaluating strategic opportunities.
• The greatest investments should be made in market
opportunities where the retailer has a strong competitive
position.

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Step 5: Establish Specific Objectives and Allocate Resources

• The retailer's overall objective is included in the mission

statement. The specific objectives are goals against
which progress toward the overall objective can be
measured.
• Specific objectives have three components: (1) the
performance sought, including a numerical index against
which progress may be measured, (2) a time frame within
which the goal is to be achieved, and (3) the level of
investment needed to achieve the objective.
• Typically, the performance levels are financial criteria such
as return on investment, sales, or profits.

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Step 6: Develop a Retail Mix to Implement Strategy

The next step is to develop a retail mix for each opportunity

in which investment will be made and to control and
evaluate performance.

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Step 7: Evaluate Performance and Make Adjustments

• The final step in the planning process is evaluating the

results of the strategy and implementation program.
• If the retailer fails to meet its objectives, reanalysis is
needed. This reanalysis starts with reviewing the
implementation programs; but it may indicate that the
strategy (or even the mission statement) needs to be
reconsidered. This conclusion would result in starting a
new planning process, including a new situation audit.

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