• After completing the SWOT analysis, the next step is to
identify opportunities for increasing retail sales. The
strategic alternatives are defined in terms of the squares in
the retail market matrix.
D. Step 4: Evaluate Strategic Opportunities
• 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.
a. college textbooks,
b. clothing with the college name
on it,
c. fashionable brand-name
clothing,
d. fast food,
e. renting DVDs.
Have students list the factors and
go through the ratings.
E. Step 5: Establish Specific Objectives and Allocate Resources
• Typically, the performance levels are financial criteria such
as return on investment, sales, or profits.
F. Step 6: Develop a Retail Mix to Implement the Strategy
G. Step 7: Evaluate Performance and Make Adjustments
• The final step in the planning process is evaluating the
results of the strategy and implementation program.
H. Strategic Planning in the Real World
• As described here, the strategic decisions in the planning
process seem to be made in a sequential manner. After
the business mission is defined, the SWOT analysis is
performed, strategic opportunities are identified,
alternatives are evaluated, objectives are set, resources are
allocated, the implementation plan is developed, and
finally, performance is evaluated and adjustments are
made.
Ask students to relate the
strategic decision-making process
to the strategy they will use for
seeking a job after graduation.
Will they go through all the steps?
Why or why not? Will their
strategy change as they look?
Why or why not?
VI. Summary
• A retailer’s long-term performance is largely determined by
its strategy. A strategy coordinates employees’ activities
and communicates the direction the retailer plans to take.
• Retail market strategy describes both the strategic
direction and the process by which the strategy is to be
developed.
• Four types of growth opportunities that retailers may
pursue are market penetration, market expansion, retail
format development, and diversification.
• By expanding internationally, retailers can increase their
sales, leverage their knowledge and systems across a
greater sales base, and gain more bargaining power with
vendors.
Chapter 05 – Retail Market Strategy
ANSWERS TO SELECT “GET OUT AND DO IT!” QUESTIONS
2. INTERNET EXERCISE Visit the websites for IKEA (www.ikea.com) and Starbucks
(www.starbucks.com). Are the look and feel of these Internet sites consistent with the in–
store experience of these retailers?
Ikea’s in-store experience is a little bit more utilitarian and less hedonic than other retailers.
3. INTERNET EXERCISE Go to the websites for Walmart (www.walmartstores.com), Carrefour
(http://www.carrefour.com) Royal Ahold (www.ahold.com) and Metro AG (www.metro.de)
Which chain has the most pervasive global strategy? Justify your answer.
International growth can be accomplished by means of new start-ups, expansion of existing
4. GO SHOPPING Visit two stores that sell similar merchandise categories and cater to the
same target segment(s). How are their retail formats (the elements in their retail mixes)
similar? Dissimilar? On what bases do they have a sustainable competitive advantage?
Explain which you believe has a stronger position?
Students’ answers will vary. Most retailers that target similar audiences and sell similar
merchandise categories will have comparable retail formats. Students should be able to
ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS
1. For each of the four retailers discussed at the beginning of the chapter (Sephora,
Lululemon, and Save-A-Lot)), describe its strategy and the basis of its competitive
advantage.
Sephora has a broad selection of products from around the world and specializes in the
beauty market. The company is a globally recognized brand and has trained staff in the
stores to help with product selection. One of the most significant competitive advantages is
the loyalty program that Sephora offers its customers. The program includes tiered levels,
rewards every transaction and allows customers to pick their rewards.
2. Choose a retailer and describe how it has developed a competitive strategic advantage.
Students should examine how their chosen retailer has developed a strategic competitive
advantage. This should include at least one of the following components.
Customer Loyalty: In order to keep customers committed to shopping at their store(s)
and/or websites, retailers can build customer loyalty by (1) emphasizing a unique
Human Resource Management: Since retailing is a labor-intensive business and also has
high levels of contact between employees and customers, retailers need to develop
programs to motivate and coordinate employee efforts. These are usually done by providing
appropriate incentives for employees, fostering a strong and positive organizational culture,
and managing diversity.
3. Give an example of a market penetration, a retail format development, a market
expansion, and a diversification growth strategy that a store called Performance Bicycle
might use.
Market Penetration: Performance Bicycle could offer a loyalty program to customers which
would increase sales among existing customers using its present format. They could also
open additional locations in the same format targeting the same market.
4. Choose your favorite retailer. Draw and explain a positioning map, like that shown in
Exhibit 5-3, that includes your retailer, retailers that sell the same types of merchandise,
and the target customer segments (ideal points).
Students’ answers will depend on the market in which they live and their preference of
5. Do a SWOT analysis for McDonald’s. What is its mission? What are its strengths and
weaknesses? What opportunities and environmental threats might it face over the next
10 years? How could it prepare for these threats?
Students should perform a SWOT analysis for McDonald’s.
The mission statement for McDonald’s is: “Our overall vision is for McDonald’s to become a
modern, progressive burger company delivering a contemporary customer experience.
McDonald’s strengths include its global brand equity, customer loyalty, vendor relationships
and buying power, a successful franchise model, and a wide distribution network.
McDonald’s weaknesses include high employee turnover, employee dissatisfaction, and a
population that opposes McDonalds.
6. What are Neiman Marcus’s and PetSmart’s bases for sustainable competitive advantage?
Are they really sustainable, or are they easily copied?
Neiman Marcus offers extensive service and stocks fashion merchandise that could be
called “fashion forward,” since these may be offered first and/or exclusively at these stores.
Their prices are higher than those charged by other retailers for similar product categories,
but they cater to a wealthier than average target market of customers for whom fashion
7. Assume you are interested in opening a restaurant in your town. Go through the steps in
the strategic planning process shown in Exhibit 5–7. Focus on conducting a SWOT analysis
of the local restaurant market, identifying and evaluating alternatives, and selecting a
target market and a retail mix for the restaurant.
(1) Define the Business Mission: Looking to be in the Italian restaurant business, my target
market would be those customers in my local town and surrounding towns interested in
paying money for an authentic Italian meal in a romantic setting. The mission of this
restaurant would be to have high quality food, in a romantic setting, while avoiding being
too expensive for those interested in a special meal.
• Market Penetration: Can I increase the variation on my menu, open another
restaurant in another neighborhood?
(4) Evaluate Strategic Opportunities: In evaluating the alternatives, we must look at both
the market attractiveness and the competitive position. Retailers can maximize their growth
opportunities by investing in areas that have high market attractiveness and a low
competitive position. In the restaurant business, this might include opening additional
restaurants, opening a to-go restaurant, and manufacturing their own food products, like
spaghetti sauce.
(6) Develop a Retail Mix to Implement Strategy (merchandise and services offered,
merchandise pricing, advertising and promotional programs, store design, and convenience
of the store’s location): The restaurant will offer a large variety of Italian dishes with a large
experienced wait staff, the pricing will be medium to high to attract the upscale customer
8. The Gap owns several chains, including Old Navy, Banana Republic, INTERMIX, and
Athleta. What type of growth opportunity was the Gap pursuing when it opened each of
these retail concepts? Which is most synergistic with the original Gap chain?
Developing retail concepts to target specific markets offers Gap a number of market
expansion strategies. Each of the concepts described here is very similar to the others.
9. Identify a store or service provider that you believe has an effective loyalty program.
Explain how the program works and why it is effective.
An example that would readily come to mind to most students would be frequent flyer
programs of various airlines. Many airlines not only award frequent flyer miles on airline
10. Choose a retailer that you believe could be, but is not yet, successful in other countries.
Explain why you think it could be successful.
A nonstore retailer such as Amazon.com is poised to be successful globally with the
increasing spread and prevalence of the Internet and World Wide Web. Since the costs
associated with entry and set up are less than in conventional retailing and most products
11. Amazon.com started as an Internet retailer selling books. Then it pursued a variety of
growth opportunities, including expanding to groceries, DVDs, apparel, software, and
travel services; introducing e-readers (Kindle); operating the Internet channel for other
retailers; and hosting virtual stores for small, independent retailers. Evaluate these
growth opportunities in terms of the probability that they will be profitable businesses for
Amazon.com. What competitive advantages does Amazon.com bring to each of these
businesses?
Groceries and Apparel: These categories represent somewhat risky growth propositions for
Amazon.com. The web grocery business has a few well positioned competitors
grocery purchases. In terms of apparel retailing online, there are many players in this
market and the prices may not be much lower on Amazon’s site as compared to those
offered by other players in these markets. Apparel shopping on Amazon.com is most likely
to succeed with those consumers who want a one stop shop for clothing, books,
entertainment, small appliances, etc.
Software: Since software is an information product, even the distribution of the product
could be over the Internet. Thus, instead of costly packaging and stocking at retail stores,
Amazon could simply offer the product for immediate download, thereby also providing the
immediate gratification that is typically lacking for most products purchased over the
Internet. The lower costs of distribution coupled with the already lower costs of operations,
could render this category quite profitable for Amazon. However, larger software
manufacturers, such as Microsoft, Adobe, Real Networks, Broderbund, etc. already have
their own retail and distribution site and may use Amazon only for expansion to market
segments that they are not currently serving.
e-Readers: Amazon has dominated the e-Reader market with its Kindle. Amazon typically
offers lower prices on books and e-books than other retailers, making it an affordable
option for many consumers. Amazon often takes a loss on books in order to attract more
customers and encourage them to buy other products from Amazon as well.
CONNECT ACTIVITIES FOR CHAPTER 5
Activity Title
Activity Type(s)
Topic
Brad’s Bike Shop-
Market Growth
Opportunities
Decision Generator
Strategic Growth
Opportunities for
Retailers
5-3 Classify the
different strategic
growth opportunities
retailers pursue.
iSeeit! Video Case:
Global Entry
Strategies
Video Case
Global Growth
Strategies
5-4 Identify issues
that arise as domestic
retailers become
global retailers.
Growth Strategies
Click and Drag;
Strategic Growth
5-3 Classify the