Chapter 1

THE NATURE OF RETAILING

 The nature of marketing channels

 The nature of retail competition
 The competitive strategies of retailers
 Basic Retailing Terms
 Nature of Retail Market
1. Introduction
Retailing is a convenient, convincing and comfortable method of selling goods and
services. Retailing, though as old as business, trade and commerce has now taken new forms and
shapes. Retailing is buying and selling both goods and consumer services. In this unit, the
definition of and concepts related to retailing, functions of retailing and the operating
characteristics distinguishing retailers from wholesalers will be discussed.

 What is retailing?
 Most common form of doing business it consists of selling merchandise from a
permanent location (a retail store) in small quantities directly to the consumers.
 These consumers may be individual buyers or corporate.
 Retailer purchases goods or merchandise in bulk from manufacturers directly and then
sells in small quantities
 Shops may be located in residential areas, colony streets, community centers or in
modern shopping arcades/ malls

Meaning of Retailing:

According to Kotler: ´Retailing includes all the activities involved in selling goods or
services to the final consumers for personal, non-business uses

A process of promoting greater sales and customer satisfaction by gaining a better

understanding of the consumers of goods and services produced by a company
 Retail management:

The various processes which help the customers to procure the desired merchandise from
the retail stores for their end use refer to retail management. Retail management includes all the
steps required to bring the customers into the store and fulfil their buying needs. Retail
management makes shopping a pleasurable experience and ensures the customers leave the store
with a smile. In simpler words, retail management helps customers shop without any difficulty.

Characteristics of Retailing:
 Direct interaction with customers/end customers.
 Sale volume large in quantities but less in monetary value
 Customer service plays a vital role
 Sales promotions are offered at this point only
 Retail outlets are more than any other form of business
 Location and layout are critical factors in retail business.
 It offers employment opportunity to all age
Types of Retailers:
Store Retailing by Store based Strategy
1. Departmental stores.
2. Convenience Store.
3. Full Line Discount.
4. Conventional Supermarket.
5. Specialty Stores
6. Food Based Superstore
7. off Price Retailer.
8. Combination Store.
9. Variety Store.
Chapter 2 THE COMPETITIVE BEHAVIOR OF RETAIL INSTITUTIONS

2.1. The nature of Retail competition

2.2. The Competitive Strategies of retailers

 Retail strategy

Meaning of retail market strategy

Before going to the meaning of retail market strategy, the terms retailing concept and retail
market are
Retailing concept is a management orientation, through which the retailers try to focus on the
needs of their target market and satisfy those needs more effectively and efficiently than their
competitors. In order to be successful, retailers will firstly have to identify their target market or
prospective customers, focus on their specific needs and satisfy these needs better than their
competitors.
Retail market can be defined in terms of a group of consumers with similar needs, say a
particular market segment and a group of retailers using a similar retail format to satisfy those
Consumer needs. The consumer segments can be worked out in terms of the customers
geographic location (region wise) , demographics (age, income etc.), lifestyle, buying situation
(daily use grocery/ vegetables) , specific occasion (wedding/ special occasion) etc., benefits
sought and so on. Depending upon the specific retail market, retailers work out different retail
market strategy.
The retail market strategy is a statement worked out to identify - a) the retailers target market b)
the specific format planned to be used by the retailer to satisfy the target markets needs and c)
work out the bases upon which to build up sustainable competitive advantage. The target refers
to the specific market segments whose needs are to be focused upon, used their resources and
plan

2.1The Nature of Marketing Channels

According to William J Stanton
“A channel of distribution for a product is the route taken by the title to the goods as they
move from the producer to the ultimate consumers or industrial user‖.
Delivery’s the main aim of marketing channel. The availability and reachability of all public
and private goods and services to final consumers can be made only through marketing
channels.
 Successful value creation depends on successful value delivery. Holistic marketers are
increasingly taking a value network view of their business, examining the entire supply
chain that links raw materials, components, and manufactured goods and shows how they
move toward the final consumers.

 Importance of Marketing Channels

 Relive from Marketing Problems: They help the producer in his production function by
relieving him of marketing problems. Thus, the producer can pay his full attention
towards organizing the production function only smoothly to earn a high rate of return.

 Information to the Producer: The channels of distribution provide information to the

producer regarding the taste and needs of consumers, competition in the market, current
market trend and the product conditions for the increased volume of sales because they
have complete knowledge of the market.

 Storage of Finished Goods: The channels of distribution keep the producer free from the
problems of storage of finished goods.

 Finance the Producer: Channels of distribution finance the producer as well as the
consumer.

 Fixing the Price: Channels of distribution assist the producer in fixing the price of a
product
 The nature of retail competition
Michael Porter, a professor from Harvard Business School, designed a framework
named Five Forces Analysis for structured analysis of industries. This framework helps to
understand the degree of competition in the industry: here comes the five fundamental
forces of competition in the retail industry:

1. Threat of New Competitors

The easier it is for a new company to enter the industry, fiercer is the competition. Any new
entrant poses a threat to the existing players as it can decrease the profit share of existing players.
The factors that limit new entrants are:
 1. How loyal are end consumers in the industry?
2. How difficult it is for the consumer to switch to the new product?

3. How large is the amount of capital required to enter into the industry?

4. How difficult it is to access distribution channel?

5. How hard it is to acquire new skills for the staff?

Threat is high when… Threat is low when…

Products of the retail company are Products of the retail company are
not differentiated. differentiated.

Consumer perception is not good for Consumer perception is healthy for

existing product and switching cost is existing product and switching cost is
low. high.

Retail brand is not well-known. Retail brand is well-known.

Accessing distribution channels is Accessing distribution channels is

easy. remote.

Proprietary technology and material, Proprietary technology and material,

government policies, and location are government policies, and location are
not troublesome issues. troublesome issues.

The number of buyers of existing The number of buyers for existing

product is low. product is high.

2. Threat of Substitutes
Substitutes are the products or services that provide the same functionality. A successful
product leads to creating other similar products. While entering into retail, one should think of:
 How many near substitutes are available in the market?
  What is the price of the substitute?

 What is the consumer perception about those substitutes?

Substitute threat is high Substitute threat is low when…

when…
Products of the retail company Products of the retail company
are not differentiated. are differentiated.
Products are costly. Products are inexpensive.
Consumer‘s brand loyalty is low. Consumer‘s loyalty is high.
Cheaper parallel products of the No cheaper parallel products are
same category are available. available.

3. Bargaining Power of Buyers

It is the position of buyers and likelihood of their ability to gain benefit while buying. If
there are many suppliers and few buyers, the buyers are at advantageous position while pricing
and they generally have the last word. The retail managers need to think of the following:
How large market share the retail company has?

What size of consumers is the company depending upon for its sales?

Are buyers buying in large volumes?

How many other retail competitors are in the same product line?
4. Bargaining Power of Suppliers
It is the ability of the supplier to control the cost and supply of the products in the market. If the
suppliers are at a dominating position over the company while product pricing, threatening to
raise price or reduce supply, then that retail industry is said to be less attractive. The retail
managers need to find out answers for the following:
 What are the substitute products other than what the supplier provides?

 Is the supplier providing goods to multiple industries?

 Is the supplier-switching cost high?

  If the supplier and the company are capable of entering into one another‘s business?
5. Intensity of Rivalry among Existing Competitors
The rivalry is intense when there are more or less equal sized competitors in the market and
there is no unparalleled market leader.

Intensity of Rivalry is high when… Intensity of Rivalry is low when…

There is no or very less product or The product or service is in

service differentiation. differentiation

There are less competitors. There are more competitors.

Availability of product in a particular The product is widely available in a

area is less. particular area

 The competitive strategies of retailers

Retailers are required to follow a step-by-step procedure or planning process. The planning
process involves the present stage of business, the formulation, lists of available strategic
options, and the implementation of the selected strategies. Considering the importance of
strategic decisions for the future success of the business, a systematic approach is essential.
 Strategic retail planning process divided into the following four steps:

1. Deciding the Store‘s Mission and Objectives

The retail strategic planning process starts with the identification of a store‘s mission for its
existence, and hence the scope of the retail store. The mission of a store is identifying the
goods and services that will be offered to customers. It also deals with the issue of how the
resources and capabilities of a store will be used to provide satisfaction to customers and how
the store can compete in the target market vis-à-vis its competitors. The mission also involves
the way of the store‘s functioning. How a store will work and accomplish its day-to-day
operations. What is the emergency planning? All these questions are answered in the store‘s
mission statement
 2. Situational Analysis:
The objective of doing store‘s situation analysis is to determine Notes where the store
is at present and to forecast where it will be if the formulated strategies are implemented.
The difference between current and future position is known as planning and the
objective of conducting store‘s situation analysis, normally study in the context of external
environment and internal environment

 Formulation of Retail Strategy:

After analyzing the store‘s capabilities in terms of HR, finance, physical and intangible
resources, a store manager formulates a retail strategy with regards to marketing retail
positioning and retail mix. Retail positioning is a plan of the store‘s action for how the retailer
will enter the target market and will compete with its main competitors. Retail positioning from
a retail store‘s point of view, is a step-by-step plan to create and maintain a unique and
everlasting image of the store in the consumer‘s mind. This process reveals the fact that
understanding what the customer wants ‘is the success key to retail positioning in the market.

The alternatives available to a retailer are: Market Penetration, Market Development,

Retail Format Development and Diversification

 Market penetration strategy may focus either on: Increasing the number of customers;
increasing the quantity purchased by customers (basket size); increasing the frequency of
purchase; Increasing the number of customers can be achieved by adding new stores and
by modifying the product mix. Another approach is to encourage salespeople to cross
sell. Market penetration strategy is the least risky one, since it controls many of the firm‘s
resources and capabilities. However, market penetration has limits. Once the market
approaches saturation, a new strategy needs to be pursued if the firm is to continue
growth
  In Market expansion/development, when a retailer is said to reach out to new market
segments or completely changes his customer base. This strategy involves: Tapping new
geographical markets; Introducing new products to the existing range that appeal to a
wider audience; Expansion by adding new retail stores to existing network is an example
of geographical expansion

 Retail format development and diversification: When a retailer is said to introduce

new retail format to customers
 Retail positioning is made possible under these circumstances:
vi) By differentiation of the store‘s merchandise from that its competitors.

vii) By offering a high level of service after sales at nominal cost

viii) By adopting low pricing policies

 Determine Retail mix

The retail mix is the blend of various retail activities that in totally present the whole concept of
retailing. The retail marketing and retail positioning strategies are put into effect by this retail
mix, the set of controllable elements that a retailer can use to satisfy customer‘s needs and to
influence their buying behavior and compete effectively in the target market. Utmost care is
required on the part of retail manager to select the various elements for a perfect retail mix.
Caution the main elements of a retail store mix are:
3) The store‘s location

4) Merchandise assortment

5) Pricing policy

6) Customer service mechanism

7) Visual merchandising

8) Personal selling efforts

9) Advertising efforts
10) The store‘s internal and external environments.