rm chapter 3 final
TRANSCRIPT
CHAPTER 3Retail Institutions
Merchandise Offering
• Variety (breadth of merchandise)
- The number of merchandise categories
• Assortment (depth of merchandise)
-the number of items in a category (Stock Keeping Units SKUs)
The Retail Life Cycle
• 3
Retail Institutions in their VariousStages of the Retail Life Cycle
• Introduction • Growth • Maturity • Decline
Services vs. Merchandise Retailers
Intangibility -Problems in Evaluating Service Quality
-Performance of Service Provider
Simultaneous Production and Delivery -Importance of Service Provider
Perishability -No Inventory, Must Fill Capacity
Inconsistency of the Offering -Importance of HR Management
Type of Service Service Retail Firms
Airlines American, Delta, British Airways, Singapore Airways
Automobile maint/repair Jiffy Lube, Midas, AAMCO
Automobile rental Hertz, Avis, Budget, Alamo
Banks Citibank, NCNB, Bank of America
Child care centers Kindercare, Gymboree
Credit cards American Express, VISA, Mastercard
Education University of Florida, Babson College
Entertainment parks Disney, Universal Studios, Six Flags
Express package delivery Federal Express, UPS, US Postal Service
Financial services Merrill Lynch, Dean Witter
Fitness Jazzercise, Bally’s, Gold’s Gym
Health Care Humana, HCA
Home maintenance Chemlawn, MiniMaid, Roto-Rooter
Examples of Service Retailers
Examples of Service Retailers
Type of Service Service Retail Firms
Hotels and motels Hyatt, Sheraton, Marriott, Days Inn
Income tax preparation H & R Block
Insurance Allstate, State Farm
Internet access/Elec info. American On-Line, CompuServe
Long-distance telephone AT&T, MCI, Sprint
Movie theaters AMC, Loews/Sony, Universal
Real estate Century 21, Coldwell Banker
Restaurants TGI Friday’s, Wendy’s, Pizza Hut
Truck rentals U-Haul, Ryder
Weight loss Weight Watchers, Jenny Craig
Video rental Blockbuster
Vision centers Lenscrafter, Pearle
Merchandise/Service Continuum
• Selection of Store Format plays a crucial role in attracting and satisfying the target customers.
• Diversity & changing nature of the society has compelled the retailers to change their formats to provide a complete shopping experience to customers
• Thus, new retail formats are being built around different pricing & service strategies.
Theories of Retail Institution/Change
CYCLICAL THEORIES
Wheel of retailing (price/service)Accordion Theory (assortment)
EVOLUTIONARY THEORIES
Dialectic process (retailer)Natural selection (customer)
Wheel of Retailing
• Malcom P. McNair’s (Harvard University) ‘Wheel of Retailing’
• This theory states that in a retail institution changes take place in cyclical manner
• STAGES– Entry Phase: Low-status, low-profit-margin, low-price
formats
– Trading-up Phase: Move to up-market locations & stock premium goods to differentiate themselves
– Vulnerability Phase: Mature as high-cost, high-price retailers (vulnerable to new retailers who come up with some novel retailing format/concept.
Wheel of Retailing
In India “Wheel of Retailing” could be seen with the changes taking place in the Formats
• Example: Kirana Stores were replaced by chain stores like Apna Bazaar – which in turn faced competition from Hypermarkets like Big Bazaar.
The Retail Accordion Theory
• Retail Accordion:
Describes how retail institutions progress from outlets that offer wide variety of merchandise to stores offering specialized products and continue repeatedly through the pattern.
• LO 3
The Retail Accordion
• Wide Assortment
• Wide Assortment
• Narrow• Assortment
• Time
• LO 3
The Dialectic Process/Melting Pot Theory
Department store
High marginLow turnoverHigh priceFull serviceDowntown locationPlush facilities
THESIS
ANTITHESIS
SYNTHESIS
Discount store
Low marginHigh turnoverLow priceSelf-serviceLow rent locationSpartan facilities
Discount department store
Average marginsAverage turnoverModerate pricesLimited servicesSuburban locationsModest facilities
Natural Selection theory
• Based on Darwin’s Theory of Evolution.
• A retail institution should be flexible enough to adapt to the changing environment and should adapt its behaviour to survive.
• Price
• Product line
• Location
• Promotional strategies
According to the social, economical, legal and technological changes
Retailer Strategy Mix
• A strategy mix is the firm’s particular combination of:store location,
operating procedures,
goods/services offered,
pricing tactics,
store atmosphere,
customer services, and
promotional methods
• II.
• Store-Based
Retail Strategy
Mix
• III.
• Service vs.
Goods Retail
Strategy Mix• IV.
• Nonstore-Based
Retail Strategy Mix
and Nontraditional
Retailing
• I.
• Ownership
Retailer Classification
Retailer Classification
• STORE BASED
• Ownership
• Store-based retail strategy
mix
• Nonstore-based retail
strategy mix & nontraditional
retailing
• Independent
• Chain
• Franchise
• Leased department
• Vertical marketing system
• Consumer cooperative
• Convenience store
• Conventional supermarket
• Food-based supermarket
• Combination store
• Box (limited line) store
• Warehouse store
• Specialty store
• Variety store
• Traditional department store
• Full-line department store
• Off-price chain
• Factory outlet
• Membership club
• Flea (louse) market
• Direct marketing
• Direct selling
• Door to door
• Party plan
• Vending machine
• World wide web (WWW)
• Catalog ueMarketing
• Telemarketing
• TV Home shopping
• I.• Ownership
• Independent• Chain• Franchise• Lease Department• Vertical Marketing System• Consumer Cooperative
Retailer Classification
Ownership Based Retail Institutions
Independent Retailer
An independent retailer owns only one retail unit. The management has direct contact with the customers and can quickly respond to their needs.
• Advantages:
– Flexibility of choosing the retail format and retail location.
– Devising a strategy becomes easier.
– Investment costs are low.
– They are able to sustain consistency in their work.
– Better customer relationship management.
– Entry barriers are low
– Licensing procedures are simple
Contd..
• Disadvantages– In bargaining with distributors, they do not posses much power
because they buy in small quantities.
– Cannot gain economies of scale in buying and maintaining inventory because they have financial constraints.
– Operations are often handled manually with little computerization.
– Limited advertisements.
– Unequal distribution of work.
– Limited time given to planning because of over-involvement of owner into daily operations.
Chain Stores
A chain retailer operates multiple outlets under common ownership. It usually engages in some level of centralized purchasing and decision making.
• Advantages
– They have greater bargaining power due to their volume of purchase.
– Achieve cost efficiency due to performing the wholesale functions themselves.
– Efficiency in multiple stores is attained by shared warehousing facilities; large purchases, SOPs, centralized decision making etc.
– Work faster with the use of computers while ordering merchandise, forecasting etc.
– Can advertise.
– Defined management philosophies.
Contd..
• Disadvantages– May or may not be consistent in their strategy.
– Time and resources spent on long-run planning.
– Limited flexibility/customization.
– Initial investments high.
– Managerial control is difficult.
– Personnel may have limited independence.
Franchising
• It involves a contractual arrangement between a franchisor and a retail franchisee, which allows the franchisee to conduct a given business under established name and according to a given pattern of business.
• The franchisee pays an initial fee and a monthly share of gross sales in exchange for the exclusive rights to sell goods and services in a specified area.
• Franchising is a retail organizational form in which small businesses can
benefit being a part of a large retail institution.
Types of Franchising
• Product/Trademark franchising:– In this type franchisees operate independently of their franchisors.
– The franchisee adhere to certain rules and regulations but sets store operating hours, store location criteria, store facilities and display etc.
• Business format franchising:
– Involves more interactive relationship between the franchisee and franchisor.
– Franchisees receives assistance on site location, quality control, start-up practices, management training and responding to problems.
Business Qualifications Sought by McDonald’s for Potential Franchisees
• Financial resources
• Customer and • employee focus
• Strong credit
• Willingness to • complete training
• Ability to manage • finances
• Planning ability
• Growth capability
• Ideal• Franchisee
• Experience
• Full-time• commitment
Advantages to the franchisee: Franchisees can own retail enterprise with relatively lower
capital investment. Franchisees acquire well known name and good service lines. SOPs and management skills may be taught to the franchisees. Cooperative marketing used , that could not be afforded
otherwise. Franchisee purchases may be less costly per unit due to the
volume bought by the overall franchise.
Disadvantages to the franchisee: Over saturation can occur if there are too many franchisees
situated at one location. Franchisee may get locked into contract provisions whereby
the purchases must be made through franchisors or certain approved vendors.
Franchisee agreement can be of short duration. Under most of the contracts, royalties are percentage of gross
sales, regardless of franchisee profits.
Advantages to the franchisor:• Global presence • Less investment• After franchisee have paid for their franchised outlets, franchisor still
receive royalties• Franchisees are not owners, they have greater incentive to work hard.
Thus, benefiting the franchisor
Disadvantages to the franchisor:• Franchisee could harm the overall reputation, if they do not adhere to
the company standards.• Lack of uniformity among the outlets can adversely affect the
customer loyalty.• Intra-franchise competition is not desirable• Ineffective franchised units affect the profitability of the franchisor.
Leased Department• A department in a retail store that is rented to an outside party (floor
space within a store is leased and run as a separate business. e.g. leasing coffee shop to CCD or saree division to Meena Bazaar.
• Volume of sale is dependent on the existing store’s customer base and store’s reliability.
• Independence to furnish the department, plan the merchandise assortment, etc.
• Lessee pays a part of the sales turnover as rent.
Leased Department AdvantagesStore Perspective
• Fills Merchandise and Expertise Gaps
• Enlarged Market
• Reduces Store Costs
• Lessee Assumes Administration ROl
• Percent of Revenues
Leased Department DisadvantagesStore Perspective
• Conflicts in Operating Procedures
• Damaged Image
• Customer Blame
Leased Department AdvantagesLeasee Perspective
• Well Know Store
• Reduced Costs
Leased Department DisadvantagesLeasee Perspective
• Inflexibility in Hours
• Product Line Restrictions
• Raised Rent
• Sales Expectations Not Met
Vertical Marketing System
• A distribution system in which the producers, wholesalers and retailers act in a unified manner to facilitate the smooth flow of goods and services.
• One channel member owns the others or has contracts with them or has the power to control them.
• Independent VMS
• Partially Integrated VMS
• Fully Integrated VMS
Independent VMS
• Independent businesses like manufacturers, wholesalers, and retailers.
• Required when customers are scattered, manufacturer s and retailers are small players, product sales are high, and when the products require extensive distribution.
• Stationery stores, gift shops, hardware stores, food stores, drug stores
Partially Integrated VMS
• Only two independent business units in a distribution channel work together.
• A manufacturer and retailer alone manage the shipping, warehousing, and distribution functions without the help of wholesalers.
• Furniture stores, appliance stores, computer retailers, restaurants.
Fully Integrated VMS
• Only one players manages all the activities with the help of owned channel members.
• Full control over channel operations help in lower price.
• However initial costs are very high
• Wills Lifestyle, Raymond’s.
Consumer Cooperative
• Owned and managed by customer members who invest in the retail operations for stock certificates.
• They vote on store policies and select members to manage it.
• Food retailing, society cooperatives.
Store-based Food Oriented Retail Strategy Mix
Convenience Store
Located near residential areas and are open for long hours, seven days a week and carries a variety of products with limited assortment of merchandise.
Charge relatively high prices and operate in a 3000 to 8000 sq. ft. area.
• Tailors assortments to local market
• Makes more convenient to shop
• Offers fresh, healthy food
• Less crowd
• Faster billing than supermarkets
• 5-44
Convenience Store
Location:Neighborhood
Merchandise:Medium width and low depth of assortment; average quality
Prices:Average to
Above average
Atmosphere andServices:Average
Promotion:Moderate
44
Conventional Supermarket
Similar to department stores, but focus more on food and household maintenance products.
Main characteristic is the self service operation which help in reducing costs and also lead to impulse buying.
Variety of merchandise with deep assortments.
Some may follow EDLP.
Located near residential areas and are open for long hours, seven days a week and carries a variety of products with limited assortment of merchandise.
• 5-46
Conventional Supermarket
Location:Neighborhood
Merchandise:Extensive width
and depth of assortment;
average quality; manufacturer,
private, & generic brands
Prices:Competitive
Atmosphere andServices:Average
Promotion:Heavy use of
newspapers, flyers, and coupons
46
Food-Based Supermarket
Is larger and more diversified than a conventional supermarket but smaller and less diversified than combination store.
Operate in a 25,000 to 50,000 sq. ft. area.
Full range of grocery items under one roof.
Food-Based Supermarket
Location:Community shopping center or isolated site
Merchandise:Full assortment plus
health and beauty aidsand generalmerchandise
Prices:Competitive
Atmosphere andServices:Average
Promotion:Heavy use of
newspapers, flyers
Combination Store
Is a blend of a super market and a general merchandise store.
larger and more diversified than a conventional supermarket but smaller and less diversified than combination store.
Operate in a 30,000 to 1,00,000 sq. ft. area.
Provide one stop shopping experience.
• 5-50
Combination Store
Location:Community shopping center
or isolated site
Merchandise:Full assortment plus
health and beauty aidsand general merchandise
Prices:Competitive
Atmosphere andServices:Average
Promotion:Heavy use of
newspapers, flyers
50
Box/Limited Line Store
Is a food based discount store that concentrates on a small selection of merchandise.
Limited shopping hours, services, and stock.
Operate in a 30,000 to 1,00,000 sq. ft. area.
Mostly PLBs and less NBs.
• 5-52
Box/Limited Line Strategy Mix
Location:Neighbourhood
Merchandise:Low width and depth of
assortment; fewperishables; few national
brands
Prices:Very low
Atmosphere andServices:
Low
Promotion:Little or none
52
Warehouse Stores/Cash and Carry
Discount retailers with an average size of 1,00,000 sq. ft.
Cater to customers who look for low price deals.
Merchandise displayed in cut boxes or shipping pallets.
Service limited.
• Warehouse showrooms
• Catalog showrooms
• Hypermarket
• 5-54
Warehouse Store Strategy Mix
Location:Secondary site, often in
industrial area
Merchandise:Moderate width and
low depth of assortment; emphasis on
manufacturer brandsbought at discount
Prices:Very low
Atmosphere andServices:
Low
Promotion:Little or none
54
Warehouse Showrooms
Show the customers the price benefit when compared with conventional stores
The merchandise can be transported from the nearest warehouse.
Located in free standing sites adjacent to busy roads.
Catalogue Showrooms
Discount operations that offer merchandise through a catalogue or a showroom.
Minimal service, located in low rent area and display only a few merchandise.
Hypermarket
A giant retail store that offers a wide variety and deep assortments of merchandise at a low price.
Combination of a discount store and a food based supermarket.
Operate in a 3,00,000 to 5,00,000 sq. ft. area.
Hypermarket
A giant retail store that offers a wide variety and deep assortments of merchandise at a low price.
Combination of a discount store and a food based supermarket.
Operate in a 3,00,000 to 5,00,000 sq. ft. area.
General Merchandise Retailers
Characteristics of General Merchandise Retailers
Specialty Store Retailing
Sell single or limited line merchandise.
Deep assortment is offered ( a wide variety of brands, models, styles, sizes and colours).
Quality brands, designer labels and private labels.
Salespeople having thorough knowledge present.
Located in high traffic areas.
• 5-61
Specialty Store Strategy Mix
Location:Business district or
shopping center
Merchandise:Very narrow width and
extensive depth of assortment; average to
good quality
Prices:Competitive to Above average
Atmosphere andServices:
Average to excellent
Promotion:Heavy use of displaysExtensive sales force
61
Category Killers
A type of specialty store that offers an enormous selection in a product category at relatively low prices.
Nalli’s .(silk sarees), S. Kumars (shirts)
Variety/10 Cents Store
Offer a deep assortment of inexpensive and popular merchandise like gift items, women’s accessories, house wares, etc.
This format is dying.
• 5-64
Variety Store Strategy Mix
Location:Business district, shopping
center or isolated store
Merchandise:Good width and some depth of assortment;
below-average to average quality
Prices:Average
Atmosphere/Services:Below average
Promotion:Use of newspapers
64
Department Store
Offer a wide variety and a deep assortment of merchandise.
Arrangement is done in departments.
Clothing, shoes, cosmetics, gifts, luggage, etc.
Shopper’s Stop, Westside, Globus, Lifestyle.
• 5-66
Traditional Department Store Strategy Mix
Location:Business district, shopping
center or isolated store
Merchandise:Extensive width and
depth of assortment; average to
good quality
Prices:Average to
Above average
Atmosphere andServices:
Good to excellent
Promotion:Heavy ad and catalog
use; direct mail; personal selling
66
Discount Store Retailing
• Wal-Mart, Kmart, Target
• Differentiate Strategy
-Wal-Mart = Low Price and Good value
-Target = More Fashionable Apparel
• Competition from Category Specialists
-Toys-R-Us, Circuit City, Sports Authority
• 5-68
Full-Line Discount Store Strategy Mix
Location:Business district, shopping
center or isolated store
Merchandise:Extensive width and
depth of assortment; average to
good quality
Prices:Competitive
Atmosphere/Services:Slightly below
average to average
Promotion:Heavy on newspapers;price-oriented; selling
68
Off-Price RetailingInconsistent assortment of branded fashion
oriented soft goods at low prices.
Opportunistic buying from manufacturers who have surplus inventory.
Hurt by sales in department stores
• Factory outlet stores
• Close outlet stores (broad but inconsistent assortment)
• Single price store
• 5-70
Off-Price Chain Strategy Mix
Location:Business district, shopping
center or isolated store
Merchandise:Moderate width and
poor depth of assortment;
average to good quality;low continuity
Prices:Low
Atmosphere/Services:Below average
Promotion:Use of newspapers;
brands not advertised;limited selling
70
• 5-71
Factory Outlet Strategy Mix
Location:Out of the way site
or discount mall
Merchandise:Moderate width and
poor depth of assortment;
low continuity
Prices:Very Low
Atmosphere/Services:Very low
Promotion:Little
71
• 5-72
Flea Market Strategy Mix
Location:Isolated store
Merchandise:Extensive width and
poor depth of assortment;
low continuity; variable quality
Prices:Very Low
Atmosphere/Services:Very low
Promotion:Limited
72
Non Store-based Retail Strategy Mix
Direct Marketing
• It is a form of retailing in which a customer is first exposed to a good or service through a non-personnel medium (such as direct mail, broadcast or cable TV, radio, magazine, newspaper etc.) and then orders by mail, phone (usually a toll free number), fax or by computer.
• Direct marketing can be divided into two broad categories:
– General: General marketing firms offer a full line of products from clothing to house ware.
– Specialty: Specialty firms focus on narrow product lines.
Advantages of Direct Marketing
• Reduced costs: startup cost, inventory cost, location cost, sales force cost.
• Possibility of offering lower prices.
• Shopping convenience for the customers.
• Specific consumer segments can be pin pointed using mailers.
• A store based retailer can supplement its regular business and expand its geographic area.
Disadvantages
• Products cannot be examined prior to purchase.
• Prospective entrants may underestimate the costs. Catalog preparation, printing and mailing can be an expensive job.
• The most popular catalogues draw purchases from less than 10% of recipients.
• Clutter exists
• Some firms have given a bad name to the industry due to late deliveries and providing damaged goods.
Direct Selling
• It includes both personal contact with consumers in their homes (and other non-store locations such as offices) and phone solicitations initiated by a retailer.
• Examples: Carpet selling, vacuum cleaner, other household products, cosmetics, books, encyclopedia etc.
• It emphasizes convenience in shopping and a personal touch.
Vending Machine
• It is a retailing format involving the coin or card operated dispensing of hot and cold beverages and food or snacks items.
• It eliminates the use of sales personnel.
• It allows round the clock sales.
• Location of the machines can be done according customer’s convenience.
World Wide Web
• WWW in the field of retailing relates to online retailing.
• It enables retailer’s world wide presence.
• Enhances the retailer’s brand.
• Provides information to the consumers.
• Promotes new products.
• Furnish customer service.
• Cost efficient
• Can announce special offers and also employment opportunities.
THANK YOU