Marketing Chapter 5 Homework Home Depots Existing Retail Mix For The

Chapter 05 – Retail Market Strategy

5-1

CHAPTER 5

RETAIL MARKET STRATEGY

ANNOTATED OUTLINE

INSTRUCTOR NOTES

I. What Is A Retail Strategy?

• The term strategy is frequently used in

retailing. For example, retailers talk

about their merchandise strategy,

promotion strategy, location strategy,

Ask students to list all the decisions a retailer

makes. Now determine which are strategic and

which are tactical. Why?

A. Definition of Retail Market Strategy

• A retail strategy is a statement

identifying 1) the retailer’s target

market 2) the format the retailer plans

to use to satisfy the target market’s

needs, and 3) the bases upon which the

retailer plans to build a sustainable

competitive advantage.

• A sustainable competitive advantage

is an advantage over competition that is

not easily copied and thus can be

maintained over a long time.

See PPT 5-4

II. Target Market and Retail Format

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

Chapter 05 – Retail Market Strategy

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• The selection of a target market focuses

the retailer on a group of consumers

whose needs it will attempt to satisfy.

Ask students for local retailers that compete

directly against each other. What is the target

market of the retailers? What is the retail

III. Building a Sustainable Competitive

Advantage

• The final element in a retail strategy is

the retailer’s approach to building

sustainable competitive advantage.

• Over time, all advantages will be

eroded due to these competitive forces.

See PPT 5-7, 5-8

What is the effect of cutting prices in the long-

term? What will competitors do? What

happens if they also cut prices?

Chapter 05 – Retail Market Strategy

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A. Customer Loyalty

• Customer Loyalty means that

customers are committed to shopping at

retailer’s locations. Loyalty is more than

simply liking one retailer over another.

Loyalty means that customers will be

reluctant to patronize competitive

retailers.

See PPT 5-9

Ask students if they are loyal to any retail

outlet. Why are they loyal to that outlet? What

can a retailer do to build loyalty?

1. Retail Brands and Positioning

• A retail brand, whether it is the name

of the retailer or a private label, can

create an emotional tie with customers

that builds their trust and loyalty.

See PPT 5-10

Which retail brands are students familiar with?

Which do they prefer over manufacturers’

brands? Why?

2. Positioning.

• A retailer builds customer loyalty by

developing a clear and distinctive

image of its retail offering and

consistently reinforcing that image

through its merchandise and service.

PPT 5-12 shows a hypothetical perceptual map

of the women’s apparel market.

Describe the positions of the retailers and

segment ideal points. Ask students what

retailer customers in segment 5 prefer most.

What store is seen as most similar to Neiman

Chapter 05 – Retail Market Strategy

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B. Vendor Relations

• By developing strong relations with

vendors, retailers may gain exclusive

rights (1) to sell merchandise in a

specific region, (2) to buy merchandise

See PPT 5-13

Discuss the example of Proctor and Gamble’s

relationship with Walmart. How does this

relationship benefit both Walmart and P&G?

C. Human Resource Management

• Retailing is a labor-intensive business.

• Knowledgeable and skilled employees

committed to the retailer’s objectives

See PPT 5-14

Discuss how employee commitment to the

retailer appears to be varied at different stores

frequented by students, as evident by employee

turnover, interactions with employees, etc.

D. Distribution and Information Systems

• All retailers strive to reduce operating

costs. They want to get their customers

the merchandise they want, when they

See PPT 5-15

Ask students to describe their experience at a

store where they could not find the

E. 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

King. Who was in the location first? Describe

that specific locale in terms of traffic patterns,

Chapter 05 – Retail Market Strategy

5-5

IV. Growth Strategies

• Four types of growth opportunities that

retailers may pursue are: market

penetration, market expansion, retail

format development, and

diversification.

See PPT 5-17

McDonald’s original market was families with

young children and its format was selling

hamburgers and french fries in stand alone

A. Market Penetration

• A market penetration opportunity

involves directing investments toward

existing customers using the present

retailing format. Approaches for

increasing market penetration include

attracting new customers by opening

more stores in the target market or

opening the stores for longer hours.

Consider The Gap, Land’s End, and Kmart.

What would be examples of market penetration

opportunities they could pursue?

What would be examples of market expansion

Chapter 05 – Retail Market Strategy

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new market segments.

opportunities they could pursue?

Examples of market expansion are Wal-Mart

opening stores in large cities and the Gap

starting Gap Kids.

C. Retail Format Development

• A retail format development

opportunity involves offering

customers a new retail format—a format

involving a different retail mix—to the

same target market.

See PPT 5-21

Have the class discuss examples of a retailer

adding additional merchandise categories or

altering the breadth and depth of the

assortment in its stores. Then discuss the pros

D. Diversification

• A diversification opportunity involves

a new retail format directed toward a

market segment that is not presently

being served.

See PPT 5-22

Consider The Gap, Land’s End, and Kmart.

What would be examples of diversification

opportunities they could pursue?

1. 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

example of related diversification because the

targeted customers (contractors) would be

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• In contrast, an unrelated

diversification lacks any commonalty

between the present business and the

new business.

appliances?

2. Vertical integration

• Vertical integration is diversification

by retailers into wholesaling or

manufacturing.

V. Global Growth Opportunities

• International expansion is one form of a

market expansion strategy. Retailers

are increasingly looking to expand in

China and India because of the

countries’ buying power. Each country

has unique challenges for expansion.

See PPT 5-23

Ask students to generate international growth

opportunities for The Gap, Under Armour,

Wal-Mart, and a regional grocery store chain.

Discuss why different opportunities might be

attractive to each of these retail chains.

A. Who is Successful and Who Isn’t

• Retailers with an offering that has

universal appeal, such as distinctive

merchandise or low cost, are the most

successful at exploiting global markets.

Which U.S. based retailers have been

successful going global?

Which non-U.S. based retailers have been

Chapter 05 – Retail Market Strategy

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Some of the most successful global

retailers are specialty store retailers

with strong brand images and/or unique

merchandise.

successful in the U.S.?

Discuss the reasons why category killers and

hypermarkets may be more successful

B. Keys to Success

• Four characteristics of retailers that

have successfully exploited

international growth opportunities are:

See PPTs 5-24

C. Evaluating Global Growth Opportunities

• From the retailer’s perspective, some

countries represent better growth

opportunities than others.

• Operational restrictions on retailers

were lifted in China in 2004, leading to

Chapter 05 – Retail Market Strategy

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family-owned shops.

• Three opportunity dimensions –

growth, risk, and market size – are used

to portray the top 30 countries. The

U.S., U.K., Taiwan, and Malaysia fall

in the “Best Opportunity” quadrant of

the diagram, with Australia and Canada

just on the fringe of the quadrant.

D. Entry Strategies

• Four approaches that retailers take

when entering non-domestic markets

are direct investment, joint venture,

strategic alliance, and franchising.

See PPT 5-25

Have the students choose a retailer who has or

could go global. Ask them to choose and

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

stores in a foreign country.

Identify the products/services/conditions for

which the retailer would prefer direct control

over global operations offered by a direct

investment strategy.

2. Joint Venture

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• 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? Discuss.

3. Strategic Alliance

• A strategic alliance is a collaborative

relationship between independent firms.

For example, a foreign retailer might

enter an international market through

direct investment but develop an

alliance with a local firm to perform

logistical and warehousing activities.

Strategic alliances are often used for learning

about a country’s unique environment and

other business conditions.

4. Franchising

• Franchising offers the lowest risk and

VI. The Strategic Retail Planning Process

• The strategic retail planning process

is the set of steps that a retailer goes

through to develop a strategic retail

plan.

PPT 5-26 charts the steps in the strategic

planning process.

Go through the various stages of the planning

process for a local retailer or pick an idea for

a new retail business and develop a strategic

plan for the business.

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• The planning process can be used to

formulate strategic plans at different

levels within a retail corporation.

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

Why does a retailer need to have a formal

mission statement? Define a mission for

Sears, which includes its financial services,

insurance company, and real estate brokerage.

factors, environmental factors, and

strengths and weaknesses analysis.

B. Step 2: Conduct a Situation Audit

• A situation audit is an analysis of the

opportunities and threats in the retail

environment and the strengths and

weaknesses of the retail business

relative to its competitors.

.

See PPT 5-27

Conduct a situation audit for any department

store most familiar to students.

1. Market Factors

• Some critical factors related to

consumers and their buying patterns are

market size and growth, sales

What makes a market attractive? Ask for

examples of attractive and unattractive

markets. How attractive over the long-term is

the elderly market? The Tween market?

Chapter 05 – Retail Market Strategy

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• Large markets are attractive to large

retail firms, but they are also attractive

to small entrepreneurs because they

offer more opportunities to focus on a

2. 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 competitive entry

is costly.

• Retail markets dominated by a well-

established retailer that has developed a

loyal group of customers offer limited

profit potential.

• The availability of locations may

impede competitive entry.

See PPT 5-29

What are examples of retail markets that have

high entry barriers? Low entry barriers? Are

there entry barriers for a new fast food

franchise in the local community? A new

department store? A new discount store