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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
5-2
• 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
5-3
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
5-4
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
5-6
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
Chapter 05 - Retail Market Strategy
5-7
• 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
5-8
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
5-9
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
Chapter 05 - Retail Market Strategy
5-10
• 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.
Chapter 05 - Retail Market Strategy
5-11
• 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.
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
5-12
• 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
