Chapter 05 – Retail Market Strategy
unattractive for retailers not already in
that market.
• The final industry factor is the level of
competitive rivalry in the retail
market, which is the frequency and
intensity of reactions to actions
undertaken by competitors. Conditions
3. Environmental 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.
See PPT 5-30
Analyze some potential changes in the
environment such as people becoming more
health conscious about the food they eat, more
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?
Chapter 05 – Retail Market Strategy
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4. 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
See PPT 5-31
C. Step 3: Identify Strategic Opportunities
• After completing the situation audit, 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
• 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.
Go through the example in the text evaluating
the merchandise categories in a department
store.
Have students evaluate the market
attractiveness and competitive position of some
opportunities the local college bookstore is
E. Step 5: Establish Specific Objectives and
Allocate Resources
Ask students which opportunities the bookstore
should pursue. Relate these opportunities to
Chapter 05 – Retail Market Strategy
5-15
• 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.
• Typically, the performance levels are
financial criteria such as return on
investment, sales, or profits.
the competitive advantages the bookstore has.
F. 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.
audit.
G. Step 7: Evaluate Performance and
Make Adjustments
H. Strategic Planning in the Real World
Ask students to relate the strategic decision
Chapter 05 – Retail Market Strategy
5-16
• 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 situation audit is performed,
strategic opportunities are identified,
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?
VII. 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.
ANSWERS TO “GET OUT AND DO ITS”
Chapter 05 – Retail Market Strategy
5-17
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 Web sites for Walmart (www.walmartstores.com),
markets? 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
Chapter 05 – Retail Market Strategy
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ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS
1. For each of the four retailers discussed at the beginning of the chapter (Chipotle
Mexican Grill, Lululemon, Chico’s, and Save-A-Lot), describe its strategy and the basis
of its competitive advantage.
Chipotle Mexican Grill specializes in fresh, quick food. The quick-service chain offers only
five items, burritos, fajitas burritos, burrito bowls, tacos and salads. Chipotle only sells
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.
Chapter 05 – Retail Market Strategy
5-19
3. Give an example of a market penetration, a retail format development, a market
expansion, and a diversification growth strategy that Best Buy might use.
Market Penetration: Best Buy could offer coupons, frequent purchase promotions, etc. to
increase sales among existing customers using its present format.
Chapter 05 – Retail Market Strategy
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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 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.
6. What are Neiman Marcus’s and PetSmart’s bases for sustainable competitive
advantage? Are they really sustainable, or are they easily copied?
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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
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’s 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
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8. The Gap Inc. owns five apparel brands — Gap, Piperlime, Athleta, Old Navy and
Banana Republic and has Gap, Old Navy and Banana Republic stores located in the
United States, Canada, United Kingdom, France, Ireland and Japan. What type of
growth opportunity was Gap Inc. pursuing when it opened each of these retail concepts
in these various locations? 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.
Chapter 05 – Retail Market Strategy
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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
11. Amazon.com started as an Internet retailer selling books. Then it expanded to
groceries, DVDs, apparel, software, travel services; introducing the e-readers;
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 advantage
does Amazon.com bring to each of these businesses?
Groceries and Apparel: These categories represent somewhat risky growth propositions for
Chapter 05 – Retail Market Strategy
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.