Business Development Chapter 5 This Commonality Might Entail Purchasing From The

Chapter 05 – Retail Market Strategy

5-1

CHAPTER 5

RETAIL MARKET STRATEGY

ANNOTATED OUTLINE

INSTRUCTOR NOTES

• Retail strategy contains three important elements: (1) the

target market segment, (2) the retail format, and (3) the

retailer’s bases of sustainable competitive advantage.

I. What Is a Retail Strategy?

• The term strategy is frequently used in retailing. For

example, retailers talk about their merchandise strategy,

LO 5-1 Define retail strategy.

Ask students to list all the

decisions a retailer makes. Now

determine which are strategic and

A. Definition of Retail Market Strategy

• A retail strategy is a statement identifying (1) the retailer’s

target market, (2) the format and resources the retailer

plans to use to satisfy the target market’s needs, and (3)

the bases on which the retailer plans to build a sustainable

competitive advantage.

See PPT 5-4

II. Central Concepts in a Retail Market Strategy

• The retail market strategy involves (1) the selection of

LO 5-2 Illustrate how retailers

build a sustainable competitive

advantage.

Chapter 05 – Retail Market Strategy

5-2

A. Target Market and Retail Format

• A retail market segment is a group of consumers with

similar needs and a group of retailers that satisfy those

See PPT 5-4, 5-5, and 5-6

Ask students for local retailers

that compete directly against each

B. Building a Sustainable Competitive

Advantage

• The final element in a retail strategy is the retailer’s

approach to building sustainable competitive advantage.

See PPT 5-7, 5-8

What is the effect of cutting prices

in the long term? What will

competitors do? What happens if

C. Relationships with Customers—Customer Loyalty

• Customer loyalty means that customers are committed to

buying merchandise and services from a particular retailer.

Loyalty is more than simply liking one retailer over another.

Loyalty means that customers will be reluctant to switch

See PPT 5-9

Ask students if they are loyal to

any retail outlet. Why are they

Chapter 05 – Retail Market Strategy

5-3

1. Brand Image

• Retailers build customer loyalty by developing a well-

known, attractive image of their brands and of the name

over their doors.

See PPT 5-10

Which retail brands are students

familiar with? Which do they

2. 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.

PPT 5-12 shows a hypothetical

perceptual map of the women’s

apparel market.

Describe the positions of the

3. Unique Merchandise

• Private-label brands (also called store brands or own

brands) are marketed by and available only from that

retailer to keep customers loyal.

4. Customer Service

• Retailers also can develop customer loyalty by offering

excellent customer service. Consistently offering good

Chapter 05 – Retail Market Strategy

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5. Customer Relationship Management Programs

• Customer relationship management (CRM) programs, also

6. Building a Retail Community Using Social Media

• Some retailers use their websites and social media to

D. Relationships with Suppliers

• A second approach for gaining a competitive advantage is

to develop strong relationships with companies that

provide merchandise and services to the retailer, such as

See PPT 5-13

Discuss the example of Proctor

and Gamble’s relationship with

E. Efficiency of Internal Operations

• Efficient internal operations enable retailers to have a cost

1. Human Resource Management

• Retailing is a labor-intensive business in which employees

play a major role providing services to customers and

building customer loyalty.

See PPT 5-14

Discuss how employee

commitment to the retailer

appears to be varied at different

stores frequented by students, as

Chapter 05 – Retail Market Strategy

5-5

2. Distribution and Information 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

See PPT 5-15

Ask students to describe their

experience at a store where they

F. Location

• Location is the critical factor in consumer selection of a

store. It is also a competitive advantage that is not easily

duplicated.

See PPT 5-16

Ask the class to identify the

locations of the nearest

McDonald’s, Wendy’s, and Burger

G. Multiple Sources of Advantage

• To build an advantage that is sustainable for a long period

of time, multiple approaches are required by retailers to

build as high a wall around their position as possible.

III. Growth Strategies

LO 5-3 Classify the different

strategic growth opportunities

Chapter 05 – Retail Market Strategy

5-6

A. Growth Opportunities

retailers pursue.

See PPT 5-17

1. Market Penetration

• A market penetration growth opportunity involves

directing investments toward existing customers using the

present retailing format. Approaches for increasing market

penetration include attracting new customers by opening

Consider the Gap, Lands’ End, and

Target. What would be examples

of market penetration

opportunities they could pursue?

2. Market Expansion

• A market expansion growth opportunity employs the

existing retailing format in new market segments.

See PPT 5-20

Consider the Gap, Lands’ End, and

Target. What would be examples

of market expansion opportunities

they could pursue?

Chapter 05 – Retail Market Strategy

5-7

Kids.

3. Retail Format Development

• A retail format development growth opportunity involves

developing a new retail format—a format with a different

retail mix—for the same target market.

See PPT 5-21

Have the class discuss examples of

a retailer adding additional

merchandise categories or altering

4. Diversification

• A diversification growth opportunity involves a new retail

format directed toward a market segment that is not

currently served by the retailer.

See PPT 5-22

Consider the Gap, Lands’ End, and

Target. What would be examples

of diversification opportunities

they could pursue?

a. Related versus Unrelated diversification

• Diversification opportunities are either related or

unrelated.

Discuss the example of Home

Depot’s building supply business

called HD Supply. This is an

Chapter 05 – Retail Market Strategy

5-8

• Vertical integration is diversification by retailers into

wholesaling or manufacturing.

•

of related versus unrelated

diversification opportunities?

What about Sears buying a

IV. Global Growth Opportunities

• International expansion is one form of a market expansion

strategy. By expanding internationally, retailers can

increase their sales, leverage their knowledge and systems

LO 5-4 Identify issues that arise as

domestic retailers become global

retailers.

See PPT 5-23

A. Attractiveness of International Markets

• Three factors that are often used to determine the

attractiveness of international opportunities are (1) the

potential size of the retail market in the country, (2) the

degree to which the country does and can support the

Which U.S.-based retailers have

been successful going global?

Which non-U.S. based retailers

have been successful in the U.S.?

1. India

• The unorganized retailing sector includes small

Chapter 05 – Retail Market Strategy

5-9

2. China

• Government restrictions are much less onerous in China

than in India, and direct foreign investment is encouraged.

3. Brazil

• Brazil has the largest population and strongest economy in

Latin America.

4. Russia

• Impediments to market entry are less visible but more

problematic: corruption, logistical challenges, international

sanctions.

B. Keys to Success in Global Retailing

• Four characteristics of retailers that have successfully

See PPTs 5-24

1. Globally Sustainable Competitive Advantage

Chapter 05 – Retail Market Strategy

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2. Adaptability

3. Global Culture

4. Financial Resources

• Expansion into international markets requires a long-term

commitment and considerable up-front planning.

Ask students why expanding into a

new market might require more

financial resources than

expanding into an existing market.

C. Entry Strategies

• Four approaches that retailers take when entering non-

See PPT 5-25

Have the students choose a

justify an entry strategy.

1. Direct Investment

• Direct investment involves a retail firm investing in and

owning a division or subsidiary that builds and operates

Identify the

products/services/conditions for

which the retailer would prefer the

2. 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.

Would a retailer be more likely to

use a joint venture when entering

Canada or when entering China?

Chapter 05 – Retail Market Strategy

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repatriation of profits.

3. Strategic Alliance

• A strategic alliance is a collaborative relationship between

Strategic alliances are often used

4. Franchising

• Franchising offers the lowest risk and requires the least

V. The Strategic Retail Planning Process

• The strategic retail planning process is the set of steps that

a retailer goes through to develop a strategy and plan.

LO 5-5 Know the steps retailers go

through to develop a strategic

plan.

PPT 5-26 charts the steps in the

A. Step 1: Define the Business Mission

• 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.

Why does a retailer need to have a

formal mission statement? Define

a mission for Walmart.

Chapter 05 – Retail Market Strategy

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B. Step 2: Conduct a SWOT Analysis

• A SWOT Analysis involves an analysis of the retailer’s

.

See PPT 5-27

1. Internal Environment

• The internal analysis identifies the retailer’s strengths and

weaknesses—the retailer’s unique strategic capabilities

relative to its competition.

2. External Environment

• The external analysis identifies the retailer’s opportunities

and threats—the aspects of the environment that might

positively or negatively affect the retailer’s performance.

• 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 barriers to entry

are high.

See PPT 5-29

What are examples of retail

markets that have high entry

and evaluate how intense the

rivalry is.

Compare competitive issues for a

brick-and-mortar retailer versus a

multichannel and an Internet-only

Chapter 05 – Retail Market Strategy

• Scale economies are cost advantages due to a retailer’s

size. Markets dominated by large competitors with scale

economies are typically unattractive.

• Another competitive factor is the bargaining power of

vendors. Markets are less attractive when only a few

vendors control the merchandise sold in the market. In

these situations, the vendors have an opportunity to

dictate prices and other terms, such as delivery dates, and

thus reduce the retailer’s profits.

• Environmental dynamics that affect market attractiveness

are technological, economic, regulatory, and social

changes.

• Paying attention to economic, consumer, and social

dynamics in the external environment is also important

when determining the attractiveness of a retail market.

concerned about the environment,

more interested in having

experiences rather than buying

products. Review some of the

changes discussed in Chapter 4.

Ask students how these changes

will affect specific retailers.

C. Step 3: Identify Strategic Opportunities