Marketing Chapter 5 Homework The term strategy is frequently used in retailing. For example, retailers talk about their merchandise strategy, promotion strategy, location strategy, and private-brand strategy

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?

• Retail strategy isn’t just another synonym of retail

management.

LO 5-1 Define retail strategy.

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.

that it will use to satisfy the needs of its target market.

• A sustainable competitive advantage is an advantage the

retailer maintains over its competition that is not easily

copied by competitors and thus can last over a long period

of time.

See PPT 5-4

II. Central Concepts in a Retail Market Strategy

LO 5-2 Illustrate how retailers

target market segment(s), (2) the selection of a retail

format (the elements in the retailer’s retail mix), and (3)

the development of a sustainable competitive advantage

that enables the retailer to reduce the level of competition

it faces.

A. Target Market and Retail Format

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

Review different ways that

markets can be segmented —

target market segments can be

defined (see Chapter 4) as:

geographic, demographic,

psychographic, buying situation,

etc. Review Exhibit 5-1 for retail

formats and market segments.

B. 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.

• Three approaches for developing a sustainable competitive

advantage are (1) building strong relationships with

customers, (2) building strong relationships with suppliers,

and (3) achieving efficient internal operations.

See PPT 5-7, 5-8

What is the effect of cutting prices

in the long term? What will

to buy from them rather than their

competitors. Now, indicate which

methods are sustainable — difficult

for competitors to match easily.

Why?

C. Relationships with Customers—Customer Loyalty

and patronize competitive retailers.

loyal to that outlet? What can a

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.

• A perceptual map is frequently used to represent the

customer’s image and preference for retailers.

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 Marcus? Most

similar to Target?

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

service is difficult because retail employees will always be

less consistent than machines.

•

5. Customer Relationship Management Programs

6. Building a Retail Community Using Social Media

• Some retailers use their websites and social media to

develop retail communities. A retail community is a group

of consumers who have shared involvement with a

retailer.

D. Relationships with Suppliers

E. Efficiency of Internal Operations

• Efficient internal operations enable retailers to have a cost

advantage over competitors or offer customers more

benefits than competitors at the same cost, which gives

retailers a competitive advantage.

1. Human Resource Management

See PPT 5-14

paying jobs, at least at the lower

levels, what can management do

to maintain effective, committed

employees? How does effective

HR help develop a competitive

advantage?

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

these efficiencies by developing sophisticated distribution

and information systems.

See PPT 5-15

Ask students to describe their

experience at a store where they

could not find the product/brand

they wanted. If they contacted a

store employee, how did this

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

King. Who was in the location

first? Describe that specific locale

in terms of traffic patterns, etc.

Why can location provide a

sustainable advantage? Which

local retailers have a good

location? A poor location? Why?

Ask students if the importance of a

location differs based on the

product category or shopping

experience.

G. Multiple Sources of Advantage

III. Growth Strategies

LO 5-3 Classify the different

strategic growth opportunities

A. Growth Opportunities

retailers pursue.

opportunities McDonald‘s

pursued: breakfasts; locations in

office buildings; locations in

schools; adding salads to the

menu; adding pizza to the menu;

opening up seafood restaurants to

compete against Red Lobster?

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

more stores in the target market or opening the stores for

longer hours.

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?

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

Target. What would be examples

of format development

opportunities they could pursue?

Examples of format development

are Targett starting a discount

home improvement center and

Lands’ End opening retail stores.

4. Diversification

See PPT 5-22

a. Related versus Unrelated diversification

• Diversification opportunities are either related or

unrelated.

• In contrast, an unrelated diversification opportunity has

little commonalty between the retailer’s present business

and the new growth opportunity.

Discuss the example of Home

Depot’s building supply business

called HD Supply. This is an

For the Gap, Lands’ End, and

Target, what would be examples

• 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

across a greater sales base, and gain more bargaining

power with vendors. However, each country has unique

challenges for expansion.

LO 5-4 Identify issues that arise as

domestic retailers become global

retailers.

See PPT 5-23

Ask students to generate

international growth opportunities

for The Gap, Under Armour,

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

independent retailers. Less than 5 percent of India’s retail

sales are through organized retail channels.

2. China

• Doing business is still a challenge due to operating costs,

the difficulty of finding managerial talent, and an

undeveloped and inefficient supply chain.

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.

• However the market simply is too big for most retail firms

to ignore.

B. Keys to Success in Global Retailing

See PPTs 5-24

1. Globally Sustainable Competitive Advantage

• Entry into nondomestic markets is most successful when

the expansion opportunity builds on the retailer’s core

bases of competitive advantage.

2. Adaptability

• Successful global retailers recognize cultural differences

and adapt their core strategy to the needs of local markets.

3. Global Culture

4. Financial Resources

• Expansion into international markets requires a long-term

commitment and considerable up-front planning.

• Retailers find it very difficult to generate short-term profits

when they make the transition to global retailing.

Ask students why expanding into a

new market might require more

financial resources than

expanding into an existing market.

C. Entry Strategies

See PPT 5-25

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 the

direct control over global

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

repatriation of profits.

3. Strategic Alliance

Strategic alliances are often used

4. Franchising

• Franchising offers the lowest risk and requires the least

investment. However, the entrant has limited control over

the retail operations in the foreign country, profit potential

is reduced, and the risk of assisting in the creation of a local

domestic competitor is increased.

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.

B. Step 2: Conduct a SWOT Analysis

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

internal environment (strengths and weaknesses) and

external environment (opportunities and threats),

.

See PPT 5-27

Conduct SWOT analysis for any

department store most familiar to

students.

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.

• Market factors: The attractiveness of a target market in

which a retailer is involved or considering is affected by the

size of the market, market growth, cyclicality of sales, and

seasonality.

• Barriers to entry are conditions in a retail market that

make it difficult for firms to enter the market. These

conditions include scale economies, customer loyalty, and

the availability of great locations.

See PPT 5-29

What are examples of retail

markets that have high entry

store? A new discount store

specializing in toys?

Take a set of local competitors

retailer.

• 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