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Page 1: Retail Marketing - Jaipur National Universityjnujprdistance.com/assets/lms/LMS JNU/MBA/MBA... · Sales of the tangible goods Sales of services Retailing Fig. 1.1 Basic structure of

Retail Marketing

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This book is a part of the course by Jaipur National University, Jaipur.This book contains the course content for Retail Marketing.

JNU, JaipurFirst Edition 2013

The content in the book is copyright of JNU. All rights reserved.No part of the content may in any form or by any electronic, mechanical, photocopying, recording, or any other means be reproduced, stored in a retrieval system or be broadcast or transmitted without the prior permission of the publisher.

JNU makes reasonable endeavours to ensure content is current and accurate. JNU reserves the right to alter the content whenever the need arises, and to vary it at any time without prior notice.

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Index

ContentI. ...................................................................... II

List of FiguresII. ........................................................... V

List of TablesIII. ...........................................................VI

AbbreviationsIV. ....................................................... VII

Case StudyV. ................................................................ 82

BibliographyVI. ........................................................... 91

Self Assessment AnswersVII. ..................................... 94

Book at a Glance

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Contents

Chapter I ....................................................................................................................................................... 1An Introduction to Retail as an Activity .................................................................................................... 1Aim ................................................................................................................................................................ 1Objectives ...................................................................................................................................................... 1Learning outcome .......................................................................................................................................... 11.1 Introduction to Retailing .......................................................................................................................... 21.2 Basic Structure of Retailing .................................................................................................................... 21.3 Retail in Business ..................................................................................................................................... 21.4 Importance of Retailing ........................................................................................................................... 31.5 Basic Concepts of Retail ......................................................................................................................... 3 1.5.1 Consumer Satisfaction ............................................................................................................ 4 1.5.2 Coordination ............................................................................................................................ 4 1.5.3 Value Addition ......................................................................................................................... 4 1.5.4 Product Presentation ................................................................................................................ 5 1.5.5 Result orientation ..................................................................................................................... 51.6 Classification of Retail ............................................................................................................................. 5 1.6.1 Physical Location ..................................................................................................................... 6 1.6.2 Shop ......................................................................................................................................... 6 1.6.3 Virtual Retail ............................................................................................................................ 61.7 General Services Provided by Retailer .................................................................................................... 61.8 Types of Retail Store ................................................................................................................................ 61.9 Activity of Retail in Value Chain ............................................................................................................. 81.10 Some Important Definitions ................................................................................................................... 9Summary ......................................................................................................................................................11References ....................................................................................................................................................11Recommended Reading ...........................................................................................................................11Self Assessment .......................................................................................................................................... 12

Chapter II ................................................................................................................................................... 14Consumer Behaviour and Retail Operation ............................................................................................ 14Aim .............................................................................................................................................................. 14Objectives .................................................................................................................................................... 14Learning outcome ........................................................................................................................................ 142.1 Introduction ............................................................................................................................................ 152.2 Concept Behind Consumer Behaviour .................................................................................................. 152.3 Relationship between Consumer Decision Process and Customer Satisfaction ................................... 162.4 Economic Development in Relation to Consumer Behaviour .............................................................. 162.5 Retail Store Operation ............................................................................................................................ 172.6 Dimension of Retail Operation ............................................................................................................. 182.7 Operation of Retail Business ................................................................................................................ 19Summary .................................................................................................................................................... 22References ................................................................................................................................................... 22Recommended Reading ............................................................................................................................. 22Self Assessment ........................................................................................................................................... 23

Chapter III .................................................................................................................................................. 25Retail Marketing Mix ................................................................................................................................ 25Aim .............................................................................................................................................................. 25Objectives .................................................................................................................................................... 25Learning outcome ........................................................................................................................................ 253.1 Introduction ............................................................................................................................................ 263.2 Store Location ....................................................................................................................................... 26 3.2.1 Types of Decision of Store Location ..................................................................................... 26

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3.3 Types of Retail Location ....................................................................................................................... 27 3.3.1 Solitary Sites ......................................................................................................................... 27 3.3.2 Unplanned Shopping Areas .................................................................................................. 27 3.3.3 Planned Shopping Center ....................................................................................................... 273.4 Decision Process of Retail Location ..................................................................................................... 293.5 Location Factors .................................................................................................................................... 293.6 Merchandise Management .................................................................................................................... 29 3.6.1 Types of Merchandise ............................................................................................................ 30 3.6.2 Breadth and Depth of Assortment .......................................................................................... 30Summary .................................................................................................................................................... 32References .................................................................................................................................................. 32Recommended Reading ............................................................................................................................ 32Self Assessment ........................................................................................................................................... 33

Chapter IV .................................................................................................................................................. 35Retail Pricing and Promotion ................................................................................................................... 35Aim .............................................................................................................................................................. 35Objectives .................................................................................................................................................... 35Learning outcome ........................................................................................................................................ 354.1 Introduction ............................................................................................................................................ 364.2 Methods of Price Setting ....................................................................................................................... 36 4.2.1 Cost Oriented Price ................................................................................................................ 36 4.2.2 Competition Oriented Pricing ................................................................................................ 37 4.2.3 Demand Oriented Pricing ...................................................................................................... 37 4.2.4 Technology and Retail Pricing ............................................................................................... 374.3 Price Position ........................................................................................................................................ 384.4 Price Differentiation ............................................................................................................................. 394.5 Policy in Pricing .................................................................................................................................... 39 4.5.1 HiLo Policy (High Low Policy) ............................................................................................ 39 4.5.2 EDLP (Every-Day- Low Policy) ........................................................................................... 404.6 Price Reduction Option ......................................................................................................................... 40Summary ..................................................................................................................................................... 42References ................................................................................................................................................... 42Recommended Reading ............................................................................................................................. 42Self Assessment ........................................................................................................................................... 43

Chapter V .................................................................................................................................................... 45Retail Logistics and Distribution ............................................................................................................. 45Aim .............................................................................................................................................................. 45Objectives .................................................................................................................................................... 45Learning outcome ........................................................................................................................................ 455.1 Introduction ............................................................................................................................................ 465.2 Reasons of Choosing Intermediary in Distribution Channel ................................................................. 465.3 Functions of Marketing Channels .......................................................................................................... 475.4 Factors of Channel Distribution ............................................................................................................. 475.5 Levels of Channel .................................................................................................................................. 485.6 Definition of Logistics ........................................................................................................................... 485.7 Relation with Distribution Channel and Marketing Mix ....................................................................... 485.8 Objectives of Physical Distribution ....................................................................................................... 49Summary .................................................................................................................................................... 51References .................................................................................................................................................. 51Recommended Reading ............................................................................................................................ 51Self Assessment ........................................................................................................................................... 52

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Chapter VI .................................................................................................................................................. 54Retail Location Strategy ............................................................................................................................ 54Aim .............................................................................................................................................................. 54Objectives .................................................................................................................................................... 54Learning outcome ........................................................................................................................................ 546.1 Introduction ........................................................................................................................................... 556.2 Space Planning ...................................................................................................................................... 55 6.2.1 Numeric Planning System ..................................................................................................... 55 6.2.2 Visual System......................................................................................................................... 566.3 Factors for Space Management ............................................................................................................. 566.4 Criteria to Measure the Space Performance .......................................................................................... 576.5 Importance of Space Management ........................................................................................................ 576.6 Store Location ....................................................................................................................................... 57Summary .................................................................................................................................................... 59References .................................................................................................................................................. 59Recommended Reading ............................................................................................................................. 59Self Assessment ........................................................................................................................................... 60

Chapter VII ................................................................................................................................................ 62Retail Human Resource Management ..................................................................................................... 62Aim .............................................................................................................................................................. 62Objectives .................................................................................................................................................... 62Learning outcome ........................................................................................................................................ 627.1 Introduction (Page -220 & 221) ............................................................................................................. 637.2 Factors in Retail Human Resource Management ................................................................................... 64 7.2.1 Balancing the Human Resource Triad ................................................................................... 64 7.2.2 Expenses in Controlling Manpower ...................................................................................... 64 7.2.3 Part Time Employees ............................................................................................................. 64 7.2.4 Optimum Utilisation of Employees ....................................................................................... 647.3 Retail Design Issues ............................................................................................................................... 65 7.3.1 Coordination in Merchandise and Store Management .......................................................... 65 7.3.2 Centralisation (Describe its disadvantages also) ................................................................ 667.4 Employee Talent War ............................................................................................................................. 66 7.4.1 Attracting Talent ..................................................................................................................... 66 7.4.2 Developing Talent .................................................................................................................. 67 7.4.3 Motivating Talent ................................................................................................................... 67Summary ..................................................................................................................................................... 70References .................................................................................................................................................. 70Recommended Reading ............................................................................................................................ 70Self Assessment ........................................................................................................................................... 71

Chapter VIII ............................................................................................................................................... 73Ethical Issues in Retail .............................................................................................................................. 73Aim .............................................................................................................................................................. 73Objectives .................................................................................................................................................... 73Learning outcome ........................................................................................................................................ 738.1 Introduction ............................................................................................................................................ 748.2 Major Finding in Ethical Issues ............................................................................................................ 748.3 Legal and Ethical Consideration ........................................................................................................... 77Summary .................................................................................................................................................... 79References .................................................................................................................................................. 79Recommended Reading ............................................................................................................................. 79Self Assessment ........................................................................................................................................... 80

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List of Figures

Fig. 1.1 Basic structure of retailing ................................................................................................................ 2Fig. 1.2 Pillars of retailing ............................................................................................................................. 4Fig. 1.3 Key change drivers in the retail value change .................................................................................. 8Fig. 2.1 Consumer behaviour ....................................................................................................................... 15Fig. 2.2 Creating satisfied customers ........................................................................................................... 16Fig. 3.1 Types of retail location ................................................................................................................... 27Fig. 3.2 Factors affecting customer’s decision ............................................................................................ 29Fig. 3.3 Types of merchandise ..................................................................................................................... 30Fig. 3.4 Depth and breadth assortment ........................................................................................................ 31Fig. 4.1 Methods of setting product prices .................................................................................................. 36Fig. 4.2 Price segments related to average market price .............................................................................. 38Fig. 4.3 Types of policies ............................................................................................................................. 39Fig. 5.1 Ways to reach the customers ........................................................................................................... 46Fig. 7.1 Performance spiral .......................................................................................................................... 63

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List of Tables

Table 1.1 In-store retailing ............................................................................................................................. 7Table 1.2 Non-store retailing ......................................................................................................................... 7Table 2.1 The operation division .................................................................................................................. 18Table 3.1 Planned shopping area types ........................................................................................................ 28Table 8.1 Various situations for the formulation of policies ........................................................................ 76

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Abbreviations

ATM - Automatic Teller MachineDpp - DirectProductProfitabilityEdlp - Every- Day- Low PolicyFmcg - First Moving Consumer GoodsGdp - Gross Domestic ProductHilo Policy - High Low PolicyMrp - Max Price RetailRfid - RadioFrequencyIdentificationSku - Stock Keeping UnitUpc - Universal Product Code

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Chapter I

An Introduction to Retail as an Activity

Aim

The aim of this chapter is to:

explain the concept of retailing•

elucidate basic structure of retailing•

discuss retailing in business•

Objectives

The objectives of this chapter are to:

explain economic growth•

describe consumer satisfaction•

enlist importance of retailing•

Learning outcome

At the end of this chapter, you will be able to:

recognise value addition in retailing•

understand product presentation•

classify retail management•

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1.1 Introduction to RetailingThe exchange of food and weapon was practised in the earlier centuries, which lead to the emergence of trade and peddlers. The day bartering was replaced by the exchange of money for trade of any commodity lead to the evolution of retailing. With the growth of division of labour and trade, business expanded. By 14th century, retail assumed great importance. Small shops, stores and selling special lines of goods became very popular during the 18th century.

Retailing is one of the oldest businesses and is being practised since prehistoric time. It comes from an old French word tailer, which means “to cut off, clip, pare or divide”. As a single category of modern real estate, retail includes businesses that serve everyday needs, such as groceries, drug store and cloth house and so on.

Retailingcanbedefinedasthebuyingandsellingofgoodsandservices.Itisthetimelydeliveryofgoodsandservices demanded by consumers at prices that are competitive and affordable. Retailing involves a direct interface with the customer and the coordination of business activities from end to end right from the concept or design stage of a product or offering, to its delivery and post-delivery service to the customer.

This industry has contributed to the economic growth of many developed and developing countries and is undoubtedly one of the fastest changing and dynamic industries in the world today.

1.2 Basic Structure of Retailing Retaildoesnothavetoinvolveastore.Manufacturers,importers,non-profitfirmsactasretailers.Thesecandirectlyreach to the consumers, avoiding wholesalers. But most of the organised retails involve wholesaler. This further signifiesthatretailinginvolvesboththesaleofservicesandthatoftangiblegoodsasgiveninfig.1.1below:

Sales of the tangible goods

Sales of services

Retailing

Fig. 1.1 Basic structure of retailing

Sales of tangible goods: For example, FMCG (First Moving Consumer Goods), electronic good and edible products and so on.

Sales of services: Forexample,teleservices,Distanceeducationservicesandfinancialservicesandsoon.

1.3 Retail in BusinessAsstatedearlier,retailincludesdifferenttypesofbusinesses,withverydifferentrequirementsandvariedusers.Fromdailyusagestospecialshopsandstorestowiderangeofnarrowmarketsasofspecialequipments,itcoversallthecommodities.Clearlythesemarketshavedifferentspatialandlocationrequirements,butservethesamepurpose of selling and serving of goods.

Despitethesevarieties,theyallfollowaconsistentpatternoftherequirementofalltrades.Ifthereisnodemandof the product or service, the retail industry is bound to fail. Thus, the location of the business plays a crucial role.

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Locating on high level travelling routes provides a considerable high market value of the product.

Indian economy has witnessed a remarkable change due to the ever changing retail industry:Indian economic growth has been bounced from 8% to 9.4% during 2006-07.•The change in the pattern elucidates that India is more likely to emerge as a big economic power in the coming •future.By 2025 it is likely to emerge as the third largest economy of the world. Trade is constantly increasing which •has helped in reforming the economy.The agricultural economy of the country has now predominantly become service sector oriented.•The share of service sector in the Gross National Product has now exceeded to 55% (2007-08) and the trends •continue.

A number of foreign companies are entering into the Indian Market, exploiting the potential of the market. With these multinational co-operations, various new strategies and marketing policies have been also introduced in the industry.

With this, the rising incomes, increased advertising, and an evident increase in the number of women working in the country’s urban areas have made goods more attainable and available to a larger portion of the population. Therefore, retail has emerged as a big industry.

With dominant retail sectors, the farmers and suppliers can sell their products directly to the major retail companies andcanensurestableprofit.

1.4 Importance of RetailingA retailer is the link between a consumer and a manufacturer. The manufacturer can directly sell the product to the user but that will be time consuming, expensive and inconvenient as compared to the job performed by the specialist in the line. Therefore, the manufacturer depends on the retailer to sell his product to the ultimate consumer.

Economical growthIndian economy is increasing at a fast rate of 8% since last three years. As expanding economies lead to increase in income, thus, increasing the consumer needs and opportunity to producer/supplier.

Increase in consumptionThe growing economy has resulted into greater disposable income for the booming Indian middle class, which comprises22%ofthetotalpopulation.Thisfigureisexpectedtoincreaseto32%by2010.Disposableincomesareexpected to rise at an average of 8.5% p.a. till 2015.

1.5 Basic Concepts of Retail Retailingisaneconomicconceptwhichinvolvesallthestepsinwhichtheproductreachesthefinalconsumerafterits production. It is a distribution channel. It is necessary that the consumer gets a satisfaction and the manufacturer getsareasonableprofitbysellingtheproduct.Theretailingsectorhasfivepillarsasshowninfig1.2:

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Consumer satisfaction

Product presentation

Value addition

Pillars of Retailing

CoordinationResult orientation

Fig. 1.2 Pillars of retailing

1.5.1 Consumer Satisfaction Retailingissolelydependentonthecustomer.Unlessanduntiltheproductdoesnotsatisfythecustomer,theprofitisimpossible. Thus, the ultimate goal of all the economical activity is to provide satisfaction to the customer. Retailer has to identify the needs, choices, preferences and liking of the customer. Not only this, the retailer has to satisfy other individual needs of the customer. As seen in a mall, a customer is attracted by giving various membership cards, wherein he can gain points at every purchase and thus, can get a discount on further shopping. Moreover, the customer care section in every mall, aims at solving the customer complaints and providing them with every help. This not only attracts a customer and cherish his moments, but also helps the retailer to make a better relationship with the customer.

1.5.2 CoordinationBefore reaching the customer, product goes through a process in which the product is manufactured. In between there is a chain of distributers, wholesalers and a number of persons engaged in promotional activities. Only then theretailercomesintothescene.Retailingisthelaststageofaprocess.Thus,coordinatedeffortsarerequiredsoastobringtherightproductintomarketattherighttime.Thishelpstofulfiltheobjectiveofcustomersatisfaction.Any failure to this link will frustrate the customer satisfaction.

For example, if the manufacturer sells an outdated product in the market, the retailer will sell the same, the customer will thus,won’tbesatisfiedwith theproduct.Thiswillultimatelyaffect thebrandvalueandprofit. Inanotherexample, if the price of the product increases, due to the increase in the rate of the raw material, the customer will goforcheaperproductorwillthinktwicebeforetakingit.Inanycasethecustomerwillnotbesatisfiedandthemotive won’t be achieved.

1.5.3 Value AdditionOnlyproductiondoesnotaddtothevalueofaproduct.Theremustbeauniquesellingpoint(USP)oftheproductwhich helps the manufacturer to make his product a brand. This results in the value addition of the product. The customer will be more attracted towards the product.

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Also,iftheretailerkeepsdifferentbrands,ithelpsthecustomerinmakingchoices,comparingprices,qualityandother features of the product, ensuring greater satisfaction to the customer. Sometimes with the product, the retailers also provide services which are exclusive to the customer such as, home delivery, selling on personal credit.

For example, Apple introduced next generation from 3GS to 4GS and ipods. Samsung also brought a revolution in the industry after using the android operating system in the cell phones. This raised the standards as well created a niche for the product in the market. Sometimes the retailer provides a free home delivery for the purchase of the product from his shop or store, this adds to the goodwill and works as an additional USP for them. This is the value driven approach which provides an increased satisfaction to the customer.

1.5.4 Product PresentationPresenting a product is one of the most important pillars of retail. The product should be merchandised in such a way that it creates interest among the customers. Be it be packaging, advertising, price discount, free offers or the ambiance, all helps the product and the brand to stabilise in the market.

Packaging: Themainfocusshouldbegiventotheartofpackingtheproduct.Thefirstthingnoticedaboutaproductis its packing. Attractive packaging serves as an eye candy for the customer. Many manufacturers pay keen interest in presenting their product in an alluring way. As it is well said that what servers the eye, serves the heart! For example, packaging of sweets and chocolates during festive seasons.

Advertising: Advertising the product is also a crucial part. Advertising serves as an introduction of the product, being offered. It makes the customer familiar with the product and the additional services the product is offering.

Discounts and free offers: Sometimes the manufacturers put discounts on the current rates so as to increase the demand of the product in the market. They also do this so as to attract the customers. Sometimes to introduce a new product, they keep a free offer. By doing so they succeed in making customers use the product and notice the effect. For example, buy one get one free offer, less price in comparison to MRP (max price retail).

Ambiance: Ambiance of the store or the shop also plays a role in presenting the product. The lights used, the furniture and the presentation of the product in the store too attracts the customer. Light plays an important role in giving an extra touch and shine to the product mainly the texture of a cloth in the cloth store.

1.5.5 Result orientationRetailershelpthemanufacturerinachievingitsgoalofincreasedsales,increasedprofits,enhancingsharesandbuilding of the brand and so on. Thus, retailers help the customers, manufacturers as well as the society as a whole in achieving their goals.

A suitable strategy is needed by the retailers in accordance with the goal. The goals should be result driven. A keen interestoftheretailersinthecustomersandtheproducts,hesells,isrequired.

1.6 Classification of RetailBuildingsforretailhavechangedconsiderablyovertime.Thefirstshopinthemodernsenseusedtodealwithjust one type of article, and usually adjoined the producer (baker, tailor and cobbler). In the nineteenth century, in France, arcades were invented which were a street of several different shops roofed over counters, each dealing with a different kind of article which was invented and was called a department store. One of the novelties of the departmentstorewastheintroductionoffixedprices,makinghagglingunnecessaryandbrowsingmoreenjoyable.This is commonly considered the birth of consumerism. Since then, much advancement took place. Now, there are mainly three types of retail:

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1.6.1 Physical LocationThisincludesthemarket,wherebuyersandthesellersconverge.Usuallythisisdoneintownsquares,sidewalksordesignated streets and may involve the construction of temporary structures (market stalls).

1.6.2 ShopItisalsocalledstoretrading.Inthe1920sthefirstsupermarketopenedintheUnitedStates,heraldinginaneweraofretail:self-service.Aroundthesametimethefirstshoppingmallwasconstructedwhichincorporatedelementsfrom both the arcade and the department store. A mall consists of several department stores linked by arcades (many ofwhoseshopsareownedbythesamefirmunderdifferentnames).ThedesignwasperfectedbytheAustrianarchitecht Victor Gruf. All the stores rent their space from the mall owner.

By mid-century, most of these were being developed as single enclosed, climate-controlled, projects in suburban areas. Now, some shops use counter-service, where goods are out of reach of buyers, and must be obtained from the seller. This type of retail is common for small expensive items like ornaments and controlled items like medicine andliquor.Selfservice,wheregoodsmaybehandledandexaminedpriortopurchase,hasbecomemorecommonsince the twentieth century.

1.6.3 Virtual RetailA third form of retail is virtual retail, where products are ordered via mail, telephone or online without having been examined physically but instead in a catalogue, on television or on a website. Sometimes this kind of retailing replicates existing retail types such as online shops or virtual marketplaces such as Amazon.

1.7 General Services Provided by RetailerAs retailer is the intermediate link between the producer and the customer, therefore, a retailer provides them with the following general services:

The retailer provides goods to the consumers, as per the needs and at reasonable prices. His job is to make the •consumer buying as easy and conveniently as possible. Retaileralsoactsasabulkbreakerwhichmeansdividinglargequantitiesintosmallunitssuchasindividual•cans, bottles, boxes, wrappers, packages and so on, appropriate for consumer use. He creates time and space utility by storing the product during off season and transporting these goods to places •where they can be readily available when needed by the customer. He also offers large collection of the goods ranging from the special utilities, utensils, in season products etc. •Thus, providing wide range as and when expected by the customer.He also assumes the risk by guaranteeing the goods he sells to the customers.•He also offers free delivery of goods, alteration, liberal exchange facilities, instructions for the use of goods, •revolving credit plans and long term instalment programsIt provides convenience by providing convenient shopping locations, market information and other services •such as free parking privileges. He also helps the producers in distributing their products by using advertisement display and personal selling.•

1.8 Types of Retail StoreThere are number of drastic changes that have occurred in the past few years. Some institutions have disappeared whereasthenewonesareadded.Theinstitutionswhichcarryontheretailbusinesscanbeclassifiedasunder:

In-store retailing•Non-store retailing•Franchising•

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In-store retailing Description

Department stores1.

These are large scale retail stores selling goods under one roof. The goods are divided into different compartments for the purpose of sales promotion, accounting control and store operation.

Super markets2. These are large, self service stores that carry a complete line of food and non-food products.

Discount houses3.

They carry a wide assortment of well known brands, appliances, house wares, automotive services, home furnishing, cloth, toys and so on. They compete on low price basis.

Chain stores or multiple shops4.

It consists of four or more stores which have the same kind of merchandise. They are centrally owned and managed. The goods are moved from the central ware house.

Table 1.1 In-store retailing

Non-store retailing Description

Direct selling1. Direct selling is done by a sales person and consumer which are away from any retail store. This is also known as home selling.

Telemarketing2.

This kind of selling is done over the phone. They include the products which can be bought without being seen, on the telephone, for example, credit cards, club membership and so on.

Online retailing3.

When a website is used to offer products of sale and then an individual or organisation uses its computer to make a purchase, it is called online or internet marketing.

Automatic vending4.

The sale of products through a machine without any personal contact between the seller and the buyer is called Automatic vending. These are usually well known brands as cold-drinks, cigarettes, coffee and so on

Direct marketing5.

It includes all types of non-store retailing other than direct selling, telemarketing, automatic vending and online marketing. This marketing is done through broadcast or print media. The consumer thus, buys products without visiting the store.

Table 1.2 Non-store retailing

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FranchisingIt is a legal contractual relationship between the company, offering the franchise, and the individual, who will own the business (that is between the franchiser and the franchisee).

1.9 Activity of Retail in Value ChainRetailing is the business mostly based on large volumes. As companies merge, the volume increases. Thus, retailers have better position in negotiating with the suppliers. This further translates into better purchasing terms, leading in better competition in the market. For suppliers, a large size enables economies of scale in production and economies of scope.

With net sales of US $345 billion in 2007, Wal-Mart is the biggest retailing company in the world. It is the statue of economies of scale that facilitates consolidation. The giant size of Wal-Mart can be illustrated with the help of following comparisons:

The net size of Wal-Mart is about the size of GDP of Austria or Saudi Arabia•It has more employees globally than many small countries such as Iceland inhabitants.•Wal-Mart accounts for over 20% of brand’s sales volume, for many product brands.•Wal-Mart plays a remarkable role as a distribution channel to the suppliers. This in turn gives it a good negotiation •position and enables even lower purchase prices.

Other big retail companies include Carrefour, Metro Group, Tesco, Seven & i and Ahold.

Collaboration

Retail consolidation•

Mergesandacquisitions•

and structural changes

Purchasing •

collaboration

New featured growth

Convergence with other •

industry

New entrants and retail •

expansions

Online sales of services•

Sustainability

Corporate responsibility•

Environmental trends•

Employee policies•

Local community •

relations

Innovation in retailing

Growth of value and •

premium retailing

Growth of food services•

Vertical integration and •

proprietary channels

Product attributes

Rise of own •

labels

Product safety•

Development •

of packaging

International •

purchasing

collaboration

Continuous •

innovation

Consumer entity

Time rushed •

consumers

Easiness and •

Quickness

Experience •

economy

Ageing population•

Growth of •

purchasing powers

Home meal •

replacement

Health and •

wellness

Globalisation

Growth of large •

emerging markets

Saturation of home •

market

IT trends

Loyalty programs •

and event based

personalised dialogue

Store operations •

automation and retail

task management

Outsourcing and shared •

services

New technologies •

(RFID, NFC, WLAN,

ETC)

Multi-channel retailing•

Retail Policy

Store hours•

Sale of alcoholic •

beverages

Over the counter •

medicines

Competition legislation•

Subcontractor Manufacturer Retailer StoresShopper/

Consumers

Fig. 1.3 Key change drivers in the retail value change

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1.10 Some Important DefinitionsRetailing:• Retailing is selling of goods and services to consumers for their personal, family or household use. Retailing is the last stage in the distribution process. Wholesaling: • It is an intermediate stage in the distribution process during which goods and services are not soldtofinalconsumersbuttobusinesscustomers.Functions: • Retailing has brought in phenomenal changes in the entire process of production, distribution and consumption of consumer goods all over the world. Retail industry is acting as a vital instrument for both the developed as well as developing economies.Producer: • Retailer serves the producer/manufacturer in facilitating distribution. The product may not reach to the needy customer in absence of proper retailing activities. The producer may develop a huge inventory which increasesthecostandtellsupontheprofitabilityoftheorganisation.Retailerconveysthemessageofproducerand promotes products by passing information to the consumer particularly in those cases where brand image andloyaltyisnotsignificant.Consumer: • Retailer plays a key role in the availability and accessibility of products to consumer. He provides choices to the customer since he stores variety of products at a place. This helps customer to select products of their choices and compare the value of various products. The location of the retail is very important to the customer. He may provide many other services to the customer, such as, free home delivery and so on. The satisfaction and happiness of the consumer depends largely upon the existence and service of the retailer.Economy: • Retailing helps in generating Gross Domestic Product in an economy. The role of service sector is important in every economy including India. Retailer helps in providing link between producer and consumer thereby facilitates exchange. It also helps the economy by providing jobs to a large number of persons having high to low skills. Service orientation: • Sinceretailerhasnocontroloverthequalityandnatureofproducts,hisinterfacewithcustomer is predominantly service oriented. A retailer attracts and attaches customers through his service and behaviour.Breaking bulk:• The producers transport products in bulk to various locations to reduce cost whereas retailer putstheminsmallerquantityasperrequirementsofthecustomer.Thus,themainfunctionoftheretaileristobreak the bulk and make it more feasible for the customer.Assortment: • Retailer offers opportunity and facility to select product of choice conveniently by assortment of merchandise.Itrequireslargespace,appropriatedesigning,layoutandmanagementofpersonnel.Thisfunctionisuniquetoretailing.Variety: • The manufacturer or producer prefers to sell to a small number of buyers to avoid high distribution costsandotherproblemsinvolvedwithselling.Whereas,consumersbuyasmallquantityofvarietyofproductsandwantavailabilityofthesevarietiesofproductsindesiredquantityneartothem.Theretailerservestheinterestsofbothmanufacturerandthecustomerbyprocuringproductsfromproducersinalargequantityandmaking it available to consumers in nearby located stores. These variety of products are available to customer in one store.Inventory management:• Sinceretailerhastosatisfylargenumberofcustomer,whobuysmallquantityofproducts.Moreover,stockofvariousproductsistobemaintainedinareasonablequantity.Thus,inventorymanagement is critical since it increases the cost. By holding a stock of variety of products at a time by the retailer helps the producer to produce cost of inventory in a big way.Channel of communication: • Products are produced as per the needs of customer; however, producer and customer hardly meet ever. The retailer provides a channel of communication between the producer and customer. The feedback is communicated to the producer who changes the product as per needs of customer. Retailer is the only person who can provide feedback to the producer since he is the person who comes in contact to the customer and knows the mind of the customer more accurately. The marketing strategy is formulated on the basisofthisfeedback.Similarly,thedesiredmodificationsandalterationaremadeatproductionstage.

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Value addition: • Retailplaysavitalroleinbringingbalancebetweendemandandsupplyintermsofquantityaswellasquality,nature,size,etc.toprovidegreatersatisfactiontotheconsumer.Therebyretailplaysanimportantfunctionofvalueaddition,bothingoodsandservices.PhilipKotler,whiledefiningmarketing,observesthatthrough creating, offering, and freely exchanging products and services values with others. Accurate forecasting: • Rather than relying on the gut feel of a few individuals, retailers normally update forecasts based on early sales data, track and estimate forecast accuracy, test products and implement a blend of bottom-up and top-down forecasting. Example: SAGE Books retailer tracks sales by product category at each store, and periodically uses its merchandise planning system to automatically adjust each store’s assortment. Supply chain speed: • One of the functions of retailers is to improve supply chain responsiveness and also to reduce markdowns because less merchandise needs to be ordered initially. Retailing ensures convenient availability, selection,ambience,quality,breakbulkandcertainservices,e.g.,alterationandcredit.Somepeoplefindretailingatherapysinceitmakesthecustomerhappyandsatisfied.Thetreatmentgiventocustomerisprincely.

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SummaryRetailing involves both the sale of services and that of tangible goods.•Retail comes from an old French word• tailer, which means “to cut off, clip, pare or divide”.Fromdailyusagestospecialshopsandstorestowiderangeofnarrowmarketsasofspecialequipments,retail•covers all the commodities.Retailingisaneconomicconcept.Itinvolvesallthestepsinwhichtheproductreachesthefinalconsumerafter•its production.Onlyproductiondoesnotaddtothevalueoftheproduct.Theremustbeauniquesellingpointoftheproduct,•which helps the manufacturer to make his product a brand.The product should be merchandised in such a way that it creates interest among customers.•The main focus should be given to the art of packing the product.•Retailing is the last stage in distribution process.•Retailing helps in generating Gross Domestic Product in an economy.•One of the functions of retailers is to improve supply chain responsiveness and also to reduce markdowns •because less merchandise needs to be ordered initially.

ReferencesdonmNUL• ., 2009. Retail Store Management Lessons - Insights on Mind Set [Vedio Online] Available at: <http://www.youtube.com/watch?v=yW0CmRqRI9o>[Accessedon29November2011]. Introduction to Retailing• Available at: <http://www.entrepreneur.com/downloads/guides/1821_Retail_Store_ch1.pdf>.[Accessed29thNovember2011].Retail Industry In India• Availableat:<http://www.cci.in/pdf/surveys_reports/indias_retail_sector.pdf>.[Accessed29 November 2011].Dr. Tiwari, R. S., 2009. • Introduction to Retailing, 1st ed., Himalaya Publishing House.Sharma, B. M., 2008. • Strategic Retail Management, Book Enclave.

Recommended Reading DrRafiq.M.,2003.• Principles of Retail Management, Rosemary : Varley Palgrave Macmillan. Roger Cox, Paul Brittain., 2004. • Retailing: An Introduction, 5th ed., Financial Times/ Prentice Hall.P. Mcgoldrick., 2002. • Retail Marketing, INTSTDT ed., McGraw-Hill Higher Education.

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Self Assessment Which of the following statement is true?1.

Retailingisthefirststepoftheproduction.a. Retailing involves the sale of the tangible goods only.b. Retail includes a business involving production of special market needs only.c. If there is no demand of the product or the service, the retail industry is bound to fail.d.

Retailing is solely dependent on the __________.2. manufacturera. retailerb. producerc. customerd.

Which of the following is not one of the pillars of retailing?3. Value additiona. Product Presentationb. Result orientationc. Retailerd.

What is the ultimate goal of all the economical activity of retailing?4. To distribute the product or servicea. To provide satisfaction to the customerb. To promote the brand on a big scalec. To increase the price after regular intervald.

Which of the following are large, self service stores that carry a complete line of food and non-food 5. products?

Super marketsa. Discount housesb. Department storesc. Chain storesd.

Match the following:6.

Direct selling1. Also known as home selling.a.

Online retailing2. The sale of products through a machine with no personal b. contact between the seller and the buyer

Automatic vending3. Also known as internet marketing.c.

Direct marketing4. This marketing is done through broadcast or print media.d.

1-c, 2-a, 3-d, 4-ba. 1-b, 2-a, 3-d, 4-bb. 1-a, 2-c, 3-b, 4-dc. 1-d, 2-b, 3-a, 4-cd.

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Inwhichstageofretailingaregoodsandservicesnotsoldtofinalconsumersbuttobusinesscustomers?7. Productiona. Wholesaleb. Distributionc. Retailingd.

_________ conveys the message of producer and promotes products by passing information to the consumer.8. Retailera. Distributerb. Producerc. Subcontractord.

Retailer acts as a channel of communication between the producer and __________.9. distributera. service providerb. storec. consumerd.

_________ is the process by which individuals and groups obtain what they need and want.10. Value additiona. Accurate forecastingb. Supply chain speedc. Inventory managementd.

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Chapter II

Consumer Behaviour and Retail Operation

Aim

The aim of this chapter is to:

explain the concept behind human behaviour•

describe the relationship between consumer decision behaviour and satisfaction•

discuss economic development in relation to consumer behaviour•

Objectives

The objectives of this chapter are to:

explain retail store operation•

illustrate the functions of the operation division•

enlist the dimensions of retail management•

Learning outcome

At the end of this chapter, you will be able to:

recognise the operations involved in retail management•

state different factors involved in retail management•

understand the factors affecting consumer needs and attitudes•

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2.1 IntroductionConsumer behaviour in marketing is a very young discipline. Marketing begins with the needs of consumer and ends with his satisfaction. Therefore, study of consumer behaviour becomes important. Consumer behaviour can bedefinedasthedecisionmakingprocessandthephysicalactivityinvolvedinexamining,acquiring,evaluating,using and disposing of goods and services.

Aprocessofbuyingstartsinthemindofaconsumer,whichleadstofindingofalternativesbetweenproductsthatcanbeacquiredwiththeirrelativeadvantagesanddisadvantages.Thisleadstointernalandexternalresearch.Then,it follows a process of decision-making for purchase and using the goods, and then the post purchase behaviour which is also very important, because it gives a clue to the marketers whether his product has been a success or not. Consumer behaviour is complex in nature.

2.2 Concept Behind Consumer Behaviour Marketingstrategyisthegameplanwhichafirmmustadheresoastoachievethedesiredgoalsandobjectives.Informulatingthemarketstrategy,itisimportanttoanalysethecost-benefit.Costistheamountofmoneypaidforthe product. For example, if a bike is bought, one looks for the comfort, ease for transportation, status, pleasure and feeling of ownership. The total cost of the bike includes its price of maintenance, gasoline, parking, risk of injury in caseofaccident.Thedifferencebetweenthetotalbenefitandtotalcostconstitutesthecustomervalue.Theideatoprovidethesuperiorcustomervalueformulatesthemarketingstrategy.Followingfig.2.1givesindetailtheshapingof consumer behaviour, which leads to buying of product.

In form a tio n

C o n sum erlife s ty le

P ro c e s s in g

Marketingactivities

Learning(memory)

Motives Values

Emotions

Personality

Perception

Households

Culture

Subculture

Demographics

Socialstatus

Referencegroups

Attitudes/Needs

Situations

Problemrecognition

Informationsearch

Evaluation andselection

Outlet selectionand purchase

Post purchase process

Situations

Experiences

Fig. 2.1 Consumer behaviour

Theabovefigureshowsthelifestyleofaconsumerinthecentreofcircle,whichisinfluencedbymanyfactorsshownall around in the circle. All these factors affect the consumer attitudes and needs.

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2.3 Relationship between Consumer Decision Process and Customer Satisfaction Decision making is done so as to solve any problem. The decision is made after going through a series of steps. For example, if the problem of consumer is travelling. He decides to buy a new bike or a car. He will evaluate the alternativewhichcantakecareofhisneeds.Oncedecidedonthat,hewillchoosehisbudget,calledascostbenefitanalysis. Then he will decide on the brand and the type of product he wants. Thereafter, the purchase is made. The constantuseoftheproductsatisfiesordissatisfiestheconsumer.Thisfurtherdecidestotherepeatpurchaseortherejection of the brand.

Themarketingstrategyissuccessfulonlyiftheproductsatisfiestheconsumer’sneedandoffersthebestsolutionto the problem. For a successful strategy, the marketer should lay emphasis on the brand’s image in the customer’s mind. Position the product according to the likes/needs of the customer. The brand which matches the customer needs will sell well. Sales will be done if the initial consumer analysis was correct. The satisfaction of customer decidesthefurtherrepeatedsaleoftheproduct.Itismoreprofitabletoretainthecurrentcustomersratherthanmaking new ones.

Problem Recognition

Information searchexternal and internal

Evaluation and selection

Store choice and purchases

Post-purchase Behaviour

Competitorstotal product

Company’stotal product

Consumerdecision process

Sales

Customersatisfaction

Perceivedvalue delivered

Superior valueexpected

Fig. 2.2 Creating satisfied customers

2.4 Economic Development in Relation to Consumer Behaviour Business and marketing scientist such as Kaynak (1979) have built general models which study the consumer behaviour, under conditions of the rising standard of living which might be encountered during the transitional phases of economic growth.

These models characterise the traditional consumer market in terms of its socio-economic attributes, for example, lowlevelsofincome,highilliteracyrates,lowlevelsofrefrigeratorownership,frequentlocalshoppingtripsforthepurchaseofsmallquantitiesofgoods,andsoon.Buteconomicgrowthhasleadtorisingincomesandultimatelytowards a modern consumer environment in which literacy rates are high. Thus, the need of people has increased. Asaresultofthepurchasemoreconsumerdurables,suchasfridges,lessfrequentandlongerdistanceshoppingtripsaremadetopurchaselargerquantities.

Inprinciple,consumerdecision-makingisassumedtobethesameacrosstheglobebeinginfluencedbybuyer,seller,product, and situational characteristics. As a result it is implied that as economic growth proceeds in parallel with advances in transnational production and distribution, so cultural differences in consumer behaviour will diminish andmayceasetobeasignificantbarriertomultinationalretailers(Martenson1985).

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2.5 Retail Store OperationThe main activities of retailing organisations are to sell or buy a product. These activities are done by operation division.Thishelpstopromotespecialisationandefficiencyinmerchandisingandstoreoperations.

TheoperationsdivisionisheadedbyadivisionalmanagerwhoreportstothePresidentorthechiefexecutiveofficer.Inordertoachievetheultimategoalofprofitandconsumersatisfaction,heperformsthefollowingduties:

Heestablishessalesandprofitobjectivesinallthestores.Heformulatesplanstoachievethosetargets,coordinates•and controls all sales operations in the department stores and supermarkets. He usually handles six departmental stores and 4 supermarkets, however the number may vary.Hismainfocusisonthemaximisationofsalesandprofit,byincreasingsalesturnover,attractivevisualdisplay•and merchandising, excellent customer service, impeccable house keeping, minimum pilferages and reacting to the changing customer’s tastes and life styles in an effective and productive manner. He coordinates and controls the store operations particularly sales in all the stores. •He encourages the store managers to make suggestions and offer ideas to improve sales turnover, store image, •customer service, reducing shortages and pilferages. He establishes control systems and receives and analyses store reports and tackles problems of operations. •Hecoordinateseffectivelywithmerchandisingdivisiontohavetherightproductsinrightquantitiesandstylesat•right prices in order to increase turnover of merchandise with shorter shelf-life, have attractive visual presentations, special promotions and advertising and listening to the customers and improving customer service, training of all personal in salesmanship, product knowledge, handling customer complaints. He conducts regular meetings with store managers to understand their problems and help solve them. Supports •themandmotivatestoincreaseproductivityandprofits,“bygivingtheladywhatshewants”,asMarshallFieldwould have it.

The divisional manager is assisted by a deputy divisional manager. The responsibilities of a deputy manager are as follows:

He is responsible for store design and layout, organising fashion shows, exhibitions and special events and •broadcastingresponsibleforstorepromotions,announcements,saleseventsonthefloor,storeentertainmentand music and store information announcements and customer announcements. The store design team organise changes in design and layout for special events like Christmas and other events or festivals, plan special sales events many times in the year. Heisinchargeofsupermarketsandhismajorroleistomanagethestore,soastoachievesalestargetsandprofit•targets and improve customer relations, information and service and image of the stores. He is in charge of exports of coffee and arts and crafts, mainly to increase exports. •

The Board of Directors make the policies. The Advisory Committees assist the Board in making these policies. The Divisions are responsible for implementing the policies, with expert assistance and advice from relevant Divisions. For example, human resource division helps in initiating the policies and implementing them, after Board’s decision. The division can be further understood with the help of following table:

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Operation Division

Deputy Store Designing Visual Merchandising

Department

Designing Visual Merchandising

Department

Dept. Fashion Shows,

Exhibition And Events

Store Manager’s

Store Manager

Store Manager

Store Manager

Store Market

Store Manager

Store Manager

Store Manager

Broadcasting Section

Store Manager

Deputy Dept.Stores

Supermarkets

Deputy Supermarkets

Department Administration (Purchasing)

Company Regulation

Section Administration

Deputy Exports

Dept, Head Cashier

Cashiers

Dept. Security

ORGANISATION CHART

Table 2.1 The operation division

2.6 Dimension of Retail Operation Operations management is an area of business that is concerned with the production of goods and services, and involvestheresponsibilityofensuringthatbusinessoperationsareefficientandeffective.Itisalsothemanagementofresources,thedistributionofgoodsandservicestocustomers,andtheanalysisofqueuesystems.Operationsmanagementisasystematicdirectionandcontroloftheprocessesthattransformsinputsintofinishedgoodsandservices.Theoperationsfunctioncomprisesasignificantpercentageoftheemployeesandphysicalassetsinmostorganisations.

Operations managers are concerned with each step in providing a service or product. They determine what should gointoanoperatingsystemsuchasequipment,labour,tools,facilities,materials,energy,andinformationandhowtheseinputscanbeusedtosatisfytherequirementsofthemarketplace.Managersarealsoresponsibleforqualitymanagement and control, capacity planning, materials management, purchasing, and scheduling. The importance of operationsmanagementhasincreaseddrasticallyinrecentyears.Significantforeigncompetition,shorterproductandservicelife-cycles,better-educatedandquality-consciousconsumers,andthecapabilitiesofnewtechnologyhaveplaced increasing pressures on the operations function to improve productivity while providing a broader array of high-qualityproductsandservices.Withtheglobalisationofmarkets,firmsarerecognisingthatoperationsfunctioncan be used as a competitive weapon to strengthen their position in the market place.

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Managers, in operation management, play strategic as well as a tactical role in satisfying customer needs and making theirfirmsstronginternationalcompetitors.Operationsmanagementfocusesoncarefullymanagingtheprocessestoproduce and distribute products and services. Usually, small businesses don’t talk about ‘operations management’, but they carry out the activities that management schools typically associate with the phrase ‘operations management’. The major activities often include product creation, development, production and distribution.

Relatedactivitiesincludemanagingpurchases,inventorycontrol,qualitycontrol,storage,logisticsandevaluations.Agreatdealoffocusisonefficiencyandeffectivenessofprocesses.Therefore,operationsmanagementoftenincludesubstantial measurement and analysis of internal processes. Ultimately, the nature of how operations management is carried out in an organisation, depends very much on the nature of products or services in the organisation, for example, retail, manufacturing, wholesale, and so on. Operations management is the function of managing the operating core of an organisation: the activities associated with creation, production, distribution and delivery oftheorganisation’sgoodsandservices.Specifically,thegroupworksonidentifying,developing,documenting,interpreting for practice, and disseminating innovative approaches in manufacturing and supply chain management. These approaches are based on model-based research and synthesis of best practices from around the world.

2.7 Operation of Retail Business A retail business performs many operating functions, right from the time the business opens to the time it closes for the day. If the store is to be opened at 10.30 in the morning, then from opening the store to shutting it down, all tasks cannot be left to chance. An operational blueprint is prepared where all the functions which must be performed are listed. A large retailer has many blueprints, for example, blueprint for maintenance, inventories, credit and displays. A retailer can modify his business plan; say there is more reliance on self-service, this must be incorporated into the operational blueprint.

Format, size and space allocationRetailer takes decisions about location, the construction plan and store design and layout. These decisions are examined with respect to productivity and retail strategy. A retailer may decide to use prototype stores. The multiple storesthenhaveuniformconstruction,layoutandoperations.Thishasmanybenefitsas:

civil construction is easier•costs are reduced•operating methods are standardised•

Therecanbetransferofemployees,merchandise,fixturesfromoutlettooutlet.Butstrictcompliancetoprototypeintroducesinflexibility-thestorecannotexploitlocalconditions.Rationalisedretailingisusedwithprototypingwhich means centralised control with strict operating procedures. Operating procedures are kept the same amongst all the outlets which helps in duplicating the model anywhere in a short period of time.

Store size approach is used to take advantage of the location. A destination store can be a supermarket or departmental store. But the same management can set up a convenience store of smaller size in a middle-class low-rent locality. Retailers have to take several decisions regarding allocation of space. They have to use space most productively. At times, the entire merchandise line gets dropped due to space constraints.

There are two approaches to space management:Top-down approach• : starting at macro level, the space is divided into categories.Products and bottom-up approach• : where space planning starts from product-level to category-level to store-level to the company-level.

Customer trafficwithin the store is allowed toproceedwherever itwishes and themovement is such that theentire store’s offering is exposed to them. There are two factors involved – the placement of merchandise and the movement of people. In the store layout, there is what is known as circulation planning. It facilitates the customer from one section to another through the aisles provided in the midst of the merchandise. Accent light and displays are so arranged that a customer is drawn from section to section. The main aisle is called the highway which allows

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access to both the sides. There are side aisles or roads. The highway is six feet, and side roads are three feet. Vertical displays occupy less space as compared to horizontal displays. There are hanging down displays from the ceilings and walls to save space. Free space is utilised for PoS (Point of sale) displays. A store can be made to look larger by proper interiors, say open doorways and mirrored walls. The ratio between selling and non-selling space is carefully worked out, say 75 per cent to selling and 25 per cent to non-selling such as storage, rest room, toilets and so on. Merchandise is scrambled and it occupies more space. Long working hours also mean better space utilisation.

Maintenance of storeMaintenance mainly pertains to the physical facilities - both exteriors and interiors. Exterior facilities are entry points, exit points, parking lot, signage, window displays and common areas. Interior facilities include walls, windows, flooring,climatecontrol,electricity,lighting,displays,fixtures,ceilingsandsoon.Allthesefactorsaffectthequalityof service the store renders, the image it projects and the operational costs it incurs.

Some stores replace all the bulbs at the same time to ensure consistency in lighting. Good maintenance extends the life of the facilities. Electricity utilisation is a major factor. It is a substantial item of cost. To store perishables, it is critical,e.g.,poultry.Therearewaystoknockoffcosthere.Thefirmsmustusebetteraccessoriesandinsulation.Electricity can be saved during non-selling hours and off-peak hours. Computer controlled lighting and climate controlcouldbeintroduced.Bulbsusedshouldbeenergyefficient.

Manpower Morethan40percentoperationalcostiscontributedbywagesandbenefits.Employeeturnovermeansrecruitingagain, training them and supervising them which costs a lot. Poor staff affects the sale and image adversely. Stores shouldbetechnology-intensive,thussavingonlabourcosts.Staffingpatternremainsprettyunpredictableassalesshow a surge and decline according to market forces.

Unionised staff put a constraint on the management. The working conditions are more or less decided by collective bargaining. There should be proper manpower planning and jobs should be standardised. The tasks of persons with similar positions in different departments are kept uniform, e.g., cashiers and storekeepers. There should be cross-training, so that people learn different tasks. Employees must be subjected to performance appraisal. They should be compensated as per the earning capacity, paying capacity, market conditions and competitor’s payments. They should begivenincentives.Self-servicereducespersonnelcosts.Employeesmuststaywiththefirmforlongertime.

InventoryRetailing success is attributed to proper merchandise management. Inventories go a long way in ensuring this. Some operational factors to be considered are: co-ordination in the handling of merchandise from different vendors, ratio betweenstorehousemerchandiseandshop-floormerchandise,movementofmerchandisebetweensellingandnon-selling area, inventory functions between business hours and non-business hours, trade-off between faster delivery and large shipping costs, vendor support to store and display merchandise, breakages policy, home-delivery policy.

SecurityStore security has two dimensions i.e., personal security and merchandise security. Shopping is not considered safe by many customers, especially at night, day-time shopping is preferred. Malls have their own safety hazards. People prefer shopping where they feel comfortable. Parking areas have several security concerns. Some of these issues are addressed by the retailers:

provision of security guards•plain clothes security personnel•brighter lighting in parking lots•electronic surveillance •noaccess tocertainareas, forexample, thestorage,cashdepositsareput in thebankfrequentlybyarmed•security guards

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Insurance Insurancecovermustbepurchasedagainstrisksoffire,burglary,on-premiseaccidentsofcustomers.Thereishealthcover for full-time employees; the premium being paid fully or partly by the employers. Insurance costs have risen up to 1 per cent of revenues. Insurance must therefore, be properly planned. Facilities must be maintained properly to prevent accidents. Safety issues must be made a part of overall training.

Computerisation Computerisation has two aspects - hardware and software. Stores have started adopting computerisation in a big way.ManystoresinIndiawillusevideoconferencingtobeintouchwithchainstores,headquartersandvendors.In-store communication has become easier by networking. Computerised inventory control is being used. In the check-out process, computerisation is a great help.

Check-out involves transaction processing and inventory management. Items are passed against optical scanners, registers, record and display sales and then receipts are generated. This inventory data goes to the memory bank. Of late, wireless scanners have appeared on the scene. RFID is also in use. UPC labels must be attached to all supplies or elsepeakefficiencyisnotachieved,UPCsymbolscannotbedecipheredmanually.Electronicpointofsalesystemisan advanced version of computerisation at the check-out level. It checks transactions, charges transactions, generates salesreports,monitorsprices,changesprices,generatesmessages,analysesprofitsandstoresdata.EPOScanbecombined with the information system. In many stores, consumers are given the option of self-scanning.

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Summary Marketing begins with the needs of the consumer and ends with his satisfaction.•Consumer behaviour canbe defined as the decisionmakingprocess and the physical activity involved in•examining,acquiring,evaluating,usinganddisposingofgoodsandservices.Marketing strategy is the game planwhich a firmmust adhere so as to achieve the desired goals and•objectives.Themarketingstrategyissuccessfulonlyiftheproductsatisfiestheconsumer’sneedandoffersthebestsolution•to the problem.Consumerdecision-makingisassumedtobethesameacrosstheglobebeinginfluencedbybuyer,seller,product,•and situational characteristics.Operations management is the systematic direction and control of the processes that transforms inputs into •finishedgoodsandservices.Related activities includemanaging purchases, inventory control, quality control, storage, logistics and•evaluations.Customertrafficwithinthestoreisallowedtoproceedwhereveritwishesandthemovementissuchthatthe•entire store’s offering is exposed to it.Store security has two dimensions -personal security and merchandise security.•Check-out involves transaction processing and inventory management.•

References60 secondmarket.com• , 2010. 5 Consumer Behaviour Secrets to Increase Sales and Revenue [Video Online] Available at: <http://www.youtube.com/watch?v=n38e_Vp3hLQ>[Accessed29November2011].Naimahveiled., 2011. • Marketing by Grewal/Levy., 2nd ed., [Video Online] Available at: <http://www.youtube.com/watch?v=dBmveXPfW1I>[Accessed29November2011].Consumer Behavior• Availableat:<http://www.newagepublishers.com/samplechapter/000160.pdf.>[Accessed29 November 2011].P., Shail. & S., Antoine.,• Models of Consumer Behaviour Available at : http://www.maths-in-industry.org/miis/38/1/Consumers.pdf. [Accessed 29 November 2011].Findlay, Allan M. Paddison, Ronan Dawson, John A., 2005. Retailing Environments in Developing Countries., •Routledge.drabasavaraj, M.N., 2010. • Dynamic Global Retailing Management : 1st Edition., Himalaya Publishing House.

Recommended ReadingMargaret Bruce, Christopher Moore, Grete Birtwistle International Retail.,2004, • Marketing: A Case Study Approach. ,A Butterworth-Heinemann Title .Peter Fleming ., 2007. • Retail Management: Mercury Business Books, 2nd edition .Mr David Gilbert., 2002. • Retail Marketing Management : Financial Times/; 2 edition., Prentice Hall.

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Self Assessment Which of the following is false?1.

Marketing begins with the needs of the consumer and ends with his satisfaction.a. In formulating the market strategy, it is important to analyse the production cost.b. Themarketingstrategyissuccessfulonlyiftheproductsatisfiestheconsumer’sneedandoffersthebestc. solution to the problem.Marketing strategy is the gameplanwhich afirmmust adhere so as to achieve the desiredgoals andd. objectives.

Which of the following gives a clue to the marketers if the product is successful or not?2. Post purchase behaviour of the customera. Attractive display of the productb. Cost of the productc. Sale of the productd.

The difference between the total ________and total cost constitutes the customer value.3. valuea. amountb. benefitc. purchased.

Which of the following statement is false?4. The marketer should lay emphasis on the cost of the brand in the customer’s mind.a. The brand which matches the customer needs will sell well.b. The satisfaction of customer decides the further repeated sale of the product.c. The retailer should position the product according to the likes/need of the customer.d.

The operations division is headed by __________.5. CEOa. Managing directorb. Divisional managerc. Deputy divisional managerd.

Who among the following is responsible of store design and layout, organising fashion shows, and exhibitions 6. on special occasions?

CEOa. Managing directorb. Divisional managerc. Deputy divisional managerd.

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Which of the following statement is true?7. Retail management is an area of business that is concerned with the production of goods and services.a. Operations management is the systematic direction and control of the processes that transform outputs into b. unfinishedgoodsandservices.Operation Management is the management of resources, the distribution of goods and services to customers, c. andtheanalysisofqueuesystems.Manufacturers, in operation management, play strategic as well as a tactical role in satisfying customer d. needsandmakingtheirfirmsasstronginternationalcompetitors.

__________ facilitates the customer from one section to another through the aisles provided in the midst of 8. the merchandise.

Spacea. Locationb. Circulation planningc. Highway d.

Which of the following includes substantial measurement and analysis of internal processes?9. Market strategya. Operation management b. Retail marketingc. Marketingd.

Which of the following is used to take advantage of the location?10. Store size approacha. Maintenance of storeb. Manpowerc. Securityd.

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Chapter III

Retail Marketing Mix

Aim

The aim of this chapter is to:

explain the concept of retail marketing mix•

elucidate the importance of store location•

discuss the types of decision of store location•

Objectives

The objectives of this chapter are to:

explain the decision process of retail location•

illustrate the planned, un-planned and solitary shopping centres•

enlist the types of retail location•

Learning outcome

At the end of this chapter, you will be able to:

recognise the breadth and depth assortment•

classify the location factors•

describe the types of merchandise•

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3.1 IntroductionRetailmarketingmixexplainsvariouscomponentsandmethodsrequiredtoexperimentandexecuteretailmarketingstrategy. Retail managers must understand the retailing activities and co-ordinate with the elements of the mix, so astoformulateasuccessfulrun.Theaimofsuchcoordinationforeachstoreistohaveasuccessfulanduniqueretail image in consumers’ mind. The mix may vary greatly with the type of market the retailer is in, and the type of product/services. The essential elements which may be included in the retail marketing mix are:

store location•merchandise assortments•store ambience•customer service•price•communication with customers•

3.2 Store Location Good locations are key elements for attracting customers to the outlets. Thus, the selection of the store location is the main step and decision in retail marketing. This can sometimes even compensate for a mediocre retail strategy mix.Agoodlocationleadstostrongcompetitiveboon,asthiselementisuniqueandcanalwaysbeimitatedbycompetitors.

Location decision is an expensive affair. It is very complex due to large number of factors associated with it, such as the cost of land or store. Site selection is, therefore, a long term decision that implies long term capital commitment. Oncearetailsitehasbeenchosen,thereisonlylittleflexibility,becausethisdecisionusuallycannotbechangedeasily without high losses.

3.2.1 Types of Decision of Store LocationLocation decision is related to the entire physical structure of retail outlets, though, it usually focus on the opening of the new stores. The main types of decisions are:

the opening of new stores •the extension• offloorspaceofexistingstoresthe relocation or movement of a store from one place to another within a particular town or area where a better •site is available rationalisation• decisions: for example, the closure of individual stores repositioning• of locations: for example, altering of store image by changing the name or appearance refurbishment• such as improving or updating the physical environment of an existing outlet altering the product range and assortment (remerchandising) to tailor the offer more closely to local •customers.

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3.3 Types of Retail Location There are three basic types of locations available for retail stores:

Solitary sitesPlanned shopping districts

Unplanned shopping

areas

Types of Retail Location

Fig. 3.1 Types of retail location

3.3.1 Solitary Sites This type of location relates to single, free standing outlets that are isolated from other retailers. They can, for example, be positioned on roads or near other retailers or shopping centres. Such sites are used, for instance, by large store formats in food and non-food retailing or for convenience shops (Road site Stalls or shop).

3.3.2 Unplanned Shopping Areas Unplanned shopping areas are retail locations with several outlets in close proximity to each other that have evolved over time. The retail mix is not the result of long range planning and for such locations, there is no centralised management. The main kinds of unplanned shopping areas are:

central business districts (traditional “downtown” areas in cities/towns) •secondary business districts in larger cities and main street or high street locations in smaller cities•neighbourhood districts •strip or string locations (locations along a street or motorway)•

3.3.3 Planned Shopping CenterPlannedshoppingareasareretaillocationsthathavebeenarchitecturallyplannedtoprovideaunifiedorsystematictheme for a number of outlets. These sites are developed deliberately. They usually have some large, key retail brand stores (anchor stores) and a number of smaller retailers. This adds to the diversity and consumer shows special interest.

The basic types of shopping centres are retail parks. They consist of a cluster of free standing retail outlets. They havelargeparkingfacilitiesandshoppingcentresthatconsistofsinglebuildingwhichismarketedasaunifiedshopping destination, usually with one name and logo.

The retail mix is different from retail parks, as the range of stores is wider and often includes luxury and leisure itemssuchasclothing,footwearandothertypicalcentrallocationmerchandise.Severalspecifictypesofretailparksand shopping centres have been developed:

neighbourhood or strip/community centres that are typically anchored by a supermarket•power centres that consist primarily of large format retailers•

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shopping malls that are enclosed, climate controlled and lighted shopping centres•lifestyle centres that encompass an open air configuration of upscale specialty stores, entertainment and•restaurantsfashion/specialtycentresthatcomprisemainlyupmarketclothingshopsandboutiquescarryinghighquality•and price fashion merchandiseoutlet centres that contain manufacturers’ and retailers’ outlet stores or off price retailers•themeorfestivalparksthattypicallyemployaunifiedthemecarriedbytheretailoutlets,theirarchitectural•design and their merchandise and can be anchored by restaurants or entertainment facilities.

Eachofthebasiclocationtypesisassociatedwithspecificadvantagesanddisadvantages,asshownintable3.1.

Types Examples

Intermediate centers(10,000-20,000 m2 +)(at least one anchor integrated)

Location variantsnon central suburban community•greenfieldside,transportnode•

Auchan, ItalyUK, Cameron Toll

Compositional variantsHypermarket-anchored•Specialty non-food anchored•

EuromarcheBHV, France

Regional Shopping Centers (30,0000 m2 +)(two or more anchor)

Location variants

Central area in traditional core (or •adjacent)Non-central suburban growth zone•Greenfieldsite,transportnode•

EldonSquare,UK,La-Part Dieu, France

CentrO, GermanyCumo, Italy

Compositional variants

Hyper market dominated•Department and variety store •dominatedFood, non-food and leisure anchors•

A6, SwedenLakeside, UK

Parquesor,Spain

Retail Parks (5000-20,000 m2 +)(not anchored, not wholly integrated centers)

Location variantsNon-central suburban community•Greenfieldsite,transportnode•

Various stores

Lakeside retail Park, UK

Compositional variantsLarge retail format tenant mix•Factory outlet tenant mix•Hybrid tenant mix•

Fairacres Retail Park, UK

Troyes, FranceFosse Park, UK

Specialty centers (1,000 m2+ )(fashion oriented, specialty stores)

Location variantscentral area in traditional core•adjacent to traditional core•

Hamburg, GermanyLiverpool, UK

Compositional variantsNon-specialty stores•Department store conversion•

Dublin, Eire•Karstadt Arkaden, Germany•

Table 3.1 Planned shopping area types

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3.4 Decision Process of Retail Location Retail location decisions typically follow a systematic process that starts with a general assessment of geographic areasandleadstoadetailedassessmentofspecificsitecharacteristics.Thisprocesscanbroadlybedescribedasathree step selection process.

Market selection:• Thefirststepistheconsiderationoftheareathathaspotentialforanewretailoutlet. Area analysis:• Within the desired areas for the store, the most suitable area for the store is selected. Site evaluation:• In the chosen geographical area, the best available site(s) are examined. This examination is done in terms of all features that are relevant to potential store performance.

Thisstepconcludeswithafinaldecisionastothespecificsite.

3.5 Location Factors Checklists consist of a number of chosen variables or elements (e.g. location factors) to be considered when evaluating retaillocations.OneofthefirstdetailedchecklistevaluationformatswasdevelopedbyNelson(1958).Companiesselectfactorsthattheybelievetoinfluencestoreperformance.Althoughsomeelementsofchecklistsarecommontoalltypesofretailers,buteachcompanyislikelytohaveitsownlistwithfactorsthatreflectitsparticularstrategyand situation, according to the type of retailing to be pursued.

RetailPark

HighStreet

Solus

Parade

Portable Purchase

Bulky Purchase

ConvenienceComparisonLeisure Time

Price

Variety

Convenience

Proximity

Primary

Drive time population

Number of competitors

Distance to other parks

Number of multiples

Secondary

Geodemographics

Conforming values

Primary

Drive time population

Traffic flows

Visibility

Distance to competitors

Secondary

Competitor floor space

Geodemographics

Primary

Number of multiples

Mix of multiples

Population of trade area

Pedestrian flow

Secondary

Geodemographics

Neighbour outlets

Access from transport links

Primary

Walking distance population

Geodemographics

Secondary

Competitor floor space

Geodemographics

Fig. 3.2 Factors affecting customer’s decision

3.6 Merchandise Management Product assortment is the core of retailing service. A retailer’s total product offering is called a merchandise mix or product range. At a strategic level, merchandise management includes the process of selecting the right items for a store and, at an operational level, ensuring that they are available when customers want to purchase them. Items in the assortment are organised into groups, the so called categories.

Merchandise planning encompasses selecting the right categories and the items within them. The selection of the appropriateitemsforastorereferstothebreadthanddepthoftheassortment,qualitylevelsandthebrandportfolio.The lowest level of detail, identifying a product in the retailer’s assortment is the stock keeping unit (SKU), which identifiesaparticularitem.Forexample,apairofpantsofacertainbrand,inaparticularstyle,colour,andsize,isone SKU. The number of SKUs at various retailers varies tremendously. While hard discounters often carry less than 1,000 SKUs, a typical hypermarket assortment accumulates to around 100,000 SKUs.

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3.6.1 Types of MerchandiseThere are following types of merchandise:

Fashion merchandise

Seasonal merchandise

Types of Merchandise

Fad merchandise

Staple merchandise

Fig. 3.3 Types of merchandise

Staple merchandise: It consists of those products that are carried permanently by the retailer and have relatively •stable sales over time. A hammer or a paintbrush at a DIY retailer or jeans and white T-shirts at a department store would be examples of staple goods. Fashion merchandise: It refers to products that have cyclical sales due to changing tastes and lifestyles. Colours •and cuts of clothing change and merchandise offered this year is usually out of date next year. Seasonalmerchandise: It consists of products that donot sell equallywell over consecutive timeperiods.•Barbecuegrills,skiingequipment,shortpantsandsimilarproductshaveveryhighsalesduringoneseasonofthe year, but are not sold at all in other seasons.Fad merchandise: It generates very high sales for a short time period. Often, toys and games, certain clothing •accessories, or certain music CDs are fads. Tamagochis and Pokémons, for instance, were classic fads. Movie merchandise (e.g. Batman accessories) also constitutes typical fads. Price sensitivity is often very low and ensuring supply, while demand is high, is crucial for success.

3.6.2 Breadth and Depth of AssortmentThe number of product lines (or categories) a retailer offers is referred to as the breadth (width) of the assortment. Breadth is generally depicted on a scale between narrow and wide; and retailers as specialists or generalists. A wide assortment usually has the advantage of appealing to many customers, and it makes one stop shopping possible, for example,customerfindsmostofthemerchandisehewantsunderoneroof.Adrawbackisthatverywideassortmentsoftenresultinadiffuse,unspecificstoreimage.ThenumberofSKUs(stockkeepingunit)inaparticularcategory(e.g. brands, colours, tastes, sizes) is called the depth of the assortment. Depth is mostly measured on a scale ranging between shallow and deep. Deep assortments have the advantage of giving the consumer a good choice within the categories but often, a shallow assortment can focus better on the fast selling items in a category. Deep assortments often lead to many items with low inventory turns. When a category assortment is deep, it usually covers different qualityandpricelevels,whileshallowassortmentsusuallyfocusonspecificqualitylevels.

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Usingthesetwodimensions,moststorescanbeclassifiedintooneoffourgroups:

e.g. Specialty Stores e.g. Department Stores

e.g. Convenience Stores e.g. Discounters

narrow wideBreadth ofAssortment

Depth ofAssortment

deep

shallow

Advantages:specialist imagevery good choice in categories

Disadvantages:no one-stop-shoppingmore dependent on trends

Advantages:high inventory turnsaimed at specific target group

Disadvantages:no one-stop-shoppingoften low customer loyalty

Advantages:one-stop-shoppingbroad target group

Disadvantages:diffuse imagelow inventory turns

Advantages:high inventory turnsbroad target group

Disadvantages:weak merchandise imagesome disappointed customers

Fig. 3.4 Depth and breadth assortment

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Summary Retailmarketingmixexplainsvarious components andmethods required to experiment andexecute retail•marketing strategy.The selection of the store location is the main step and decision in retail marketing.•Location decision is related to the entire physical structure of retail outlets, though, it usually focus on the •opening of new stores.Product assortment is the core of retailing service. A retailer’s total product offering is called a merchandise •mix or product range.The lowest level of detail, identifying a product in the retailer’s assortment is the stock keeping unit• (SKU), whichidentifiesaparticularitem.Deep assortments have the advantage of giving the consumer a good choice within the categories but often, a •shallow assortment can focus better on the fast selling items in a category.

References Marketing Mix• [Online]Availableat:<http://www.nos.org/srsec319/319-22.pdf.>[Accessed29thNovember2011].Ben Delaney., 2007. • The Marketing Mix [Online] Available at: <http://www.bendelaney.com/advisor_marketing-mix.pdf.>[Accessed29thNovember2011].marketingmansite., 2011. Retailers.mp4 [Video Online] Available at: <http://www.youtube.com/watch?v=gbV7-•usNTXw.>[Accessed29November2011].Learnmarketing., 2009. • Marketing Mix: Place Strategies [Video Online] Available at: http://www.youtube.com/watch?v=r2JJYyeKOkk&list=PL733ECB06B0103992&index=10&feature=plpp_video [Accessed 29 November 2011].Joachim Zentes, Drik Morschett, Hanna Schramm Klein., 2007. • Strategic Retail Management : 1st ed.DrMohammedRafiq.,2003.• Principles of Retail Management Rosemary : Varley Palgrave Macmillan.

Recommended Reading Barry Berman., • Retail Management: A Strategic Approach, 11th ed., Pearson Education India. Robin Lewis., 2010. • The New Rules of Retail: Competing in the World’s Toughest Marketplace, Palgrave Macmillan.James E. Dion., 2008. • The Complete Idiot’s Guide to Starting and Running a Retail Store, Alpha.

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Self AssessmentWhich of the following is not an essential element of retail marketing mix?1.

Store locationa. Store ambienceb. Customer servicec. Retailerd.

The selection of the __________ is the main step and decision in retail marketing.2. store locationa. consumerb. retailerc. ambienced.

Which of the following is not a type of location available for store location?3. Solitary sitesa. Unplanned shopping areas b. Country sitesc. Planned shopping districtsd.

________ areas are retail locations with several outlets in close proximity to each other that have evolved over 4. time.

Unplanned shoppinga. Solitary sitesb. Country sitesc. Planned shopping districtsd.

_________ consist of a number of chosen variables or elements (e.g. location factors) to be considered when 5. evaluating retail locations.

Checklistsa. Areab. Marketing strategyc. Store planningd.

What is total retail’s total product offering called?6. store locationa. store ambienceb. marketing strategyc. product ranged.

Which of the following is not the type of merchandise?7. Staple merchandisea. Fashion merchandiseb. Seasonal merchandisec. Service merchandised.

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_____________consistsofproductsthatdonotsellequallywelloverconsecutivetimeperiods.8. Staple merchandisea. Fashion merchandiseb. Seasonal merchandisec. Fad merchandised.

__________ refers to products that have cyclical sales due to changing tastes and lifestyles.9. Staple merchandisea. Fashion merchandiseb. Seasonal merchandisec. Fad merchandised.

Which of the following types of location relates to single, free standing outlets that are isolated from other 10. retailers?

Unplanned shoppinga. Solitary sitesb. Country sitesc. Planned shopping districtsd.

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Chapter IV

Retail Pricing and Promotion

Aim

The aim of this chapter is to:

explain pricing and price promotion•

elucidate the price distribution among different customers•

discuss the policies in pricing•

Objectives

The objectives of this chapter are to:

explain the methods of price setting•

enlist methods of price reduction•

illustrate price positioning of products•

Learning outcome

At the end of this chapter, you will be able to:

recognise various technologies used in determining the price of a product•

classify prices set on cost-oriented approach•

describe the high low and everyday low policy•

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4.1 IntroductionPricing in general and price promotion, in particular, has always been an important marketing instrument in retailing and, up to the present, price has played a very important role in retail marketing. However, this focus on price reductions is often based more on belief and intuition on the part of the retailer, than on facts and knowledge about itseffectsthatmakespricingafieldofconsiderablestrategicimportancetoday.Inmanycountries,retailerprofitmargins are very low. In food retailing, it is about 1 % of sales, so that a product that is sold for 1.00 EUR, leaves theretailerwithanaverageprofitof1cent.Thismeansthatbyincreasingthispricebyonly1%,profitscoulddoubleifconsumerscontinuetopurchaseroughlythesameamountofthisproduct.Consequently,theprofitabilitypotential of pricing is considered to be substantial.

4.2 Methods of Price Setting There are three major methods for setting product prices in retailing:

Cost Oriented Price

Competition Oriented Pricing

Demand Oriented Pricing

Fig. 4.1 Methods of setting product prices

4.2.1 Cost Oriented PriceThe most commonly used method for determining retail prices is the cost oriented method, also called cost plus pricing.Here, afixedpercentage (themarkup) is added to thecostofproducts inorder todetermine thefinal retail price: Retail price - merchandise costMarkup in % (at cost) = Merchandise cost

The percentage markup is similar to the percentage gross margin of the retailer. Generally, the costs used in the formula arethevariablecostsperunit(purchasingpricefortheretailer),whilefixedcostsareestimatedinordertocalculatethemarkuppercentagenecessarytocoverthem.Themarkuppercentagealsoincludesplannedprofitperunit.Sincedifferent product categories lead to different expenses, the markup is usually different between categories.

Directproductprofitability(DPP)isasophisticatedmethodforplanningvariablemarkups.Thistechniqueenablesaretailertofindtheprofitabilityofeachproductbycomputingadjustedperunitgrossmarginsandassigningdirectproduct costs for expense categories such as warehousing, transportation, handling, and selling. Based on exact costs per product, appropriate markups can be set. The major problem, however, is the complexity of assigning coststospecificproducts,sinceitisverydifficultforretailerstoallocateoverheadexpenseswithahighdegreeofaccuracy.

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While cost oriented pricing usually does not determine the optimal price, it is the most simplistic method of calculating a price. A retailer has the task of setting prices for merchandise assortments of 10,000 products in a supermarket or more than 100,000 products in a department store. For some items in a supermarket, prices are changed weekly. Obviously, this makes it almost impossible to calculate optimal prices, based on estimated price sensitivity, for allproducts.Therefore,thecostorientedmethodforsettingpricesisaverycostefficientmethodconcerningtheretailer’s planning costs.

4.2.2 Competition Oriented PricingIncompetitionorientedpricing,theretaileridentifieshismaincompetitorsandsetshispricesaccordingly.Manyretailers systematically monitor prices in their competitors’ outlets. Depending on the pricing strategy, prices for certain products are then established at or below the competitors’ price. Competition must be considered in many retailing industries, because retailing is often characterised by oligopolistic competition.

In many countries, a few large retailers combine a very high market share. In this situation, a company has to anticipate the potential reaction of a competitor to its own moves, before setting or changing prices. Game theory has developed a framework for this kind of analysis, which retailers have applied implicitly for a long time.

4.2.3 Demand Oriented PricingWith demand oriented pricing, the retailer bases his prices on consumer demand. The sensitivity of consumers to pricechangesisanimportantcoefficientforsettingademandorientedprice.Thepriceelasticity(ownpriceelasticity)ofdemandisameasureofconsumersensitivitytoprice.Itmeasurestheresponsivenessofquantitydemandedtoa change in price:

relativechangeinquantitydemandedpriceelasticityϵ= relative change in price ∆q/q = ∆p/p

Withapriceelasticityof|ϵ|>1,iftheretailerraisesprices,totalrevenuedecreases.Thisislikely,whentherearemanysubstituteproductsavailable.Ifpriceelasticity|ϵ|<1,thatis,demandisrelativelypriceinelastic,apriceincrease results in a smaller relative reduction in purchasing volume and total revenue increases. For example, at 11 p.m., a convenience store usually experiences a relatively price inelastic consumer demand.

4.2.4 Technology and Retail PricingDuetoitscomplexity,whileretailpricinghasoftenbeenbasedonintuitionandsimplerules(suchasfixedmarkups),new technology is being developed constantly. Price optimisation software can predict demand for individual products at a certain price level, based on historical price and sales data, competitors’ prices, local demographics, inventory and other data.

Thecomplexityofdecisionandtheintenseinterdependenceofinfluencefactors,aswellasthefactthatthepricesofmanyotherproductsinfluencethesaleofonespecificproduct,makesnewtechnologynecessary.Priceoptimisationsoftware can be used by retail managers to test and forecast the expected reactions of consumers to changing pricing and promotion tactics in “what if” scenarios.

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4.3 Price Position The price image of a retailer is the result of a generalisation process, in which separate price value impressions created by different products, departments, and stores of a retailer are aggregated into a total impression of the price level of that retailer in the mind of the consumer. Price images are the result of the fact that consumers are unable and often unwilling to carry out a full and current price comparison for all products offered by a particular retailer.

The price positioning of a retailer, that is his price image in relation to his competitors, is determined largely by the general positioning of the company. This, in turn, is closely connected to the retail format selected by the company.

Theretailformatinfluencesthegeneralpriceimageoftheretailoutlet,sincecustomersexpectcertainpricelevelsat certain retail formats. From the perspective of the retailer, the retail format plays an important role in determining the cost structure of a retailer and thereby limits the potential pricing strategies.

With respect to the price structure of a retailer, a differentiation is often made between: a value (or budget) price segment•a medium (or standard) price segment•a premium price segment•

In the premium price segment, retailers attract customers who are less concerned with price than with service, merchandisequality,prestige,andotherstoreattributes.Itdoesnotusuallymaximisesales,butdoesachievehighprofitsperunit.Withanaggressivepricingstrategyinthebudgetpricesegment,aretailerseekstoearnhighrevenuesbysettinglowpricesandsellingmanyunits.Profitperunitislow,buttotalprofitmaystillbehigh.Manysuccessfulretailers focus on the budget price segment.

However, offering different price levels (within a merchandise category) allows a retailer to target consumers with a differing willingness to pay for a product. In economic terms, with different price levels, the retailer is able to obtain a larger share of total consumer rent. Rather than offering merchandise in a category evenly distributed over a continuous price range, many retailers employ price lining. This means that they sell merchandise at a limited number of price points. Price lining helps consumers avoid confusion about product differences.

>134 %(premium)

116-134 %85-115 %(regular)

65-84 %<65 %(budget)

ASDA (UK)

Tesco (UK)

Edeka (Germany)

Kaiser’s (Germany)

40191319 9

22302219 7

12281240 8

233829288

Fig. 4.2 Price segments related to average market price

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4.4 Price Differentiation Price differentiation means, charging different customers different prices for the same product. The extreme case is negotiating the price with each customer individually. In some retailing industries, such as automobiles, such flexiblepricingbasedonnegotiationsisstandardandthepricesactuallypaidvarygreatly.

While in the service industry (for example, movie theatres), prices for students or senior citizens are often lower, this is not usually implemented by retailers. Here, geographic price differentiation is the most commonly applied approach.

The price sensitivity of a store’s customers is – among other factors – a function of the spending power of the clientele and the density and aggressiveness of the competition in the store’s catchment area. A store in a poor region next door to a hard discounter might therefore use lower prices than another store of the same chain that is located in a rich city with no nearby competitors.

Retailers often use price zones as areas (or groups of stores) in which consumers pay uniform prices, while the prices between the zones differ. Such price zones help retailers to adapt pricing more effectively to the distinctiveness and competitive environment of a local market area. In large cities, sometimes retailers even have different pricing zones within the same city.

Whilegeographicpricedifferentiationusuallyenhancesprofits,someretailersfollowaone price policy, charging all customers the same price for a certain item, irrespective of the store location. This policy, implemented, for example, by Coop in Switzerland, is directed towards consumer trust in the retailer and is often based on a company mission with a strong corporate social responsibility element.

4.5 Policy in Pricing There are two types of policies namely:

Types of Policies

HiLo Policy (High Low Policy)

EDLP (Every-Day- Low Policy)

Fig. 4.3 Types of policies

4.5.1 HiLo Policy (High Low Policy) With a HiLo pricing strategy, retailers have relatively high regular prices, but use substantial temporary price reductions to advertise their products and draw customers into the stores. Many supermarkets use this strategy. Price promotions can be regarded as a method of price differentiation through customer self selection. The promotion is offered to all customers, who then decide whether or not to use it. Less price sensitive customers buy at regular prices,whilemorepricesensitivecustomerswaitforasaleandbuythen.Pricepromotionscaninfluencetheretailer’sprice image. Proponents of a HiLo strategy also argue that price promotions create excitement in the store.

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However, price reductions pose the danger that they change the customers’ reference price. While a short, one timereductionisconsideredabargain,frequentorlongertimereductionsofaproductpricereducethereferenceprice,makingitdifficulttoselltheproductatnormalpriceinthefuture.Heavypricepromotionactivitycanerodeconsumerconfidenceinregularprices.Overtime,thecustomercanbuylargerquantitiesofaproductatreducedprices and stock them, thus reducing the amount purchased at normal prices. HiLo pricing is often criticised for encouraging customer disloyalty and appeal to smart shoppers who only buy items on special prices. Especially for intensiveHiLostrategies,thiscanleadtoreducedprofitsoftheretailer.

4.5.2 EDLP (Every-Day- Low Policy)The alternative is an EDLP strategy, for which prices remain stable over a long period of time. It involves offering consistently low prices. Wal-Mart is an important example of such a strategy. EDLP makes the shopping process easier for customer, and the price continuity enhances his trust in the retailer. Disappointment that consumers of a HiLo store can experience if they see certain products being sold this week at a much lower price than they paid last week can be avoided. Simple and consistent pricing is expected to lead to price credibility.

TherealadvantagesofEDLPfortheretailer,however,oftenlieinimprovingtheefficiencyofinternalprocesses,in operating costs. While price promotions result in short time volume volatility, which leads to increased logistics costs, EDLP results in stable sales. Therefore, sales forecasting becomes more reliable. Out of stocks can be avoided and warehousing and transport costs reduced. On the other hand, EDLP has high price transparency, and thus can only be implemented successfully if the retailer has a very low cost structure. EDLP makes price comparisons much easier for consumers (and competitors) than a HiLo policy. An EDLP retailer must, therefore, have a very low retail priceformostofhisproductsandonlythemostefficientretailerswillbeabletosustainthisinthelongrun.

4.6 Price Reduction Option Adjustments of product prices are very common in retailing, usually in the form of price reductions. Markdowns are a permanent reduction of the initial retail price. There is a common pricing tool, for example, in clothing and textiles, in order to sell off merchandise.

Markdowns are planned ahead and calculated into the initial markup in order to be able to reduce prices as part of a temporal price differentiation strategy. Those customers with a higher willingness to pay for new fashion early in the season pay higher prices than customers who buy later in the season. However, markdowns are expensive and oftenafterthefirst,plannedmarkdown,othershavetofollowtoclearoffthemerchandise.Substantialmarkdownsare often a signal of poor demand planning or pricing during normal selling phases.

Promotion pack•Promotion pack have some extra content and the price per volume is lower (e.g. “10 % extra for the same �price”). With � BOGOFs (buy one, get one free), a customer receives one unit of a product free of charge, if he buys another one for full price.

Multipacks•In multipacks, several units of the same products are tied together (to a simple price bundle), usually at a �lower price than the sum of the individual units.

Coupons•With coupons, consumers have to show the coupons at the store checkout in order to get a discount. �Coupons can be distributed together with the retailer’s advertising or through direct mailings. They can �also be distributed by manufacturers’ advertising (and be accepted by the retailer, but refunded by the manufacturer), or they can be distributed at the shelf.

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Store reduction•Store wide reductions are another option which applies to the whole assortment. The German DIY chain �Praktiker regularly offers “20 % on everything in the store” for few days. As these events show, customer trafficinthestoresincreasesdramaticallyduringthepricepromotion.The short term effects of price promotions are often very strong. Such promotions can lift sales by several �hundred per cent for a short time, depending on the category and promotion instrument used. On the other hand, a certain share of such increased sales derives only from purchase acceleration. This can lead to a below normal sales volume of the same product for some time after the price promotion.

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SummaryPricing in general and price promotion, in particular, has always been an important marketing instrument in •retailing.The most commonly used method for determining retail prices is the cost oriented method, also called cost •plus pricing.Directproductprofitability(DPP)isasophisticatedmethodforplanningvariablemarkups.•Incompetitionorientedpricing,theretaileridentifieshismaincompetitorsandsetshispricesaccordingly.•Price images are the result of the fact that consumers are unable and often unwilling to carry out a full and •current price comparison for all products offered by a particular retailer.The price positioning of a retailer, that is his price image in relation to his competitors, is determined largely •by the general positioning of the company.Price reductions pose the danger that they change the customers’ reference price.•

Referencestribalinsight., 2009. • Supermarket Psychology: Specials, pricing, labelling and packaging [Video Online] Available at: <http://www.youtube.com/watch?v=yzRDEKyqIJs>[Accessed29November2011].PlanetRetailGlobal., 2011. • Planet Retail in the Spotlight - Retailer Pricing [Video Online] Available at: <http://www.youtube.com/watch?v=biLn7aXAKu0>[Accessed29November2011].Zentes, J., & Morschett, D., & Klein, S. H., 2007. • Strategic Retail Management : 1st ed., Gabler.Sharma, M. B., 2008. • Strategic Retail Management : 1st ed., Book Enclave.Christie Frazier-Coleman., • Retail Pricing Strategy: Insights and Opportunities Available at: <http://www.revionics.com/pdf/Revionics.White.Paper.%5BRetail.Pricing.Strategy.Insights.and.Opportunities%5D.pdf.>[Accessed 29th November 2011].Lan Li, Richard J. Sexton., • Retailer Pricing Strategies for Differentiated Products Available at: <http://ageconsearch.umn.edu/bitstream/19110/1/sp05li11.pdf.>[Accessed29thNovember2011].

Recommended ReadingRonald Bond.,2008. • Retail in Detail , 4th ed., Entrepreneur Press.Bob Phibbs., 2010. • The Retail Doctor’s Guide to Growing Your Business: A Step-by-Step Approach to Quickly Diagnose, Treat, and Cure , 1st ed., Wiley.Carol L.Schroeder., 2007. • Specialty Shop Retailing: Everything You Need to Know to Run Your Own Store , 3rd ed., Wiely.

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Self AssessmentWhat is cost oriented price method also called?1.

Cost plus pricinga. Competition oriented pricingb. Demand oriented pricingc. Retail pricingd.

Directproductprofitabilityisasophisticatedmethodforplanningvariable________.2. markupsa. profitb. lossc. purchased.

The price elasticity of demand is a measure of ________ sensitivity to price.3. producera. manufacturerb. retailerc. consumerd.

Which of the following software can predict demand for individual products at a certain price level?4. Price optimisationa. Cost optimisationb. Product optimisationc. Data optimisationd.

Which of the following statement is false?5. In the premium price segment, retailers attract customers who are less concerned with price than with service, a. merchandisequality,prestige,andotherstoreattributes.Theretailformatinfluencesthegeneralpriceimageofaretailoutlet,sincecustomersexpectcertainpriceb. levels at certain retail formats.Withapriceelasticityof|ϵ|>1,iftheretailerraisesprices,totalrevenueremainsconstant.c. Price differentiation means, charging different customers different prices for the same product.d.

Which of the following statement is false?6. Pricepromotionscaninfluencetheretailer’spriceimage.a. Price reductions pose the danger that they change the customers’ reference price.b. Heavypricepromotionactivitycanerodeconsumerconfidenceinregularprices.c. Offering different price levels allows a retailer to target manufacturers with a differing willingness to pay d. for a product.

In which of the following does the retailer bases his prices on consumer demand?7. Cost plus pricinga. Competition oriented pricingb. Demand oriented pricingc. Retail pricingd.

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Inwhichofthefollowingdoestheretaileridentifieshismaincompetitorsandsetshispricesaccordingly?8. Cost plus pricinga. Competition oriented pricingb. Demand oriented pricingc. Retail pricingd.

In _______ retailing, it is about 1 % of sales, so that a product that is sold for 1.00 EUR, leaves the retailer with 9. anaverageprofitof1cent.

fooda. fashionb. auto machinesc. clothd.

Whichofthefollowingisnotapricereducingtechnique?10. Promotion packa. Multipackb. Couponc. New ranged.

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Chapter V

Retail Logistics and Distribution

Aim

The aim of this chapter is to:

explain the marketing channel•

elucidate the reason of choosing intermediary in distribution channel•

discuss the level of channel in the distribution•

Objectives

The objectives of this chapter are to:

explain the factors of channel distribution •

enlist the function of marketing channel•

illustrate the relationship between distribution channel and marketing mix•

Learning outcome

At the end of this chapter, you will be able to:

recognise the concept of customer serivces•

classify the objectives of physical distribution•

describe the role played by logistics in distribution channel•

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5.1 IntroductionToday,theroleof‘place’or‘physicaldistribution’inmarketingmixhaschangedsignificantly.Ithasbecomeamoredynamic function in today’s highly competitive marketing environment. As modern marketing concept revolves around the customer satisfaction, every marketing mix variable has to contribute more in achieving this objective. Atthesametime,cutthroatcompetitionandshrinkingprofitmarginshaveforcedthemanufacturerstogoforcostreduction and critically evaluate and carefully design every marketing mix variable. Today, physical distribution is not restricted to merely making goods/services available to the customer, but it plays a vital role and it largely contributes in achieving both objectives i.e., customer satisfaction and cost reduction. Channel management is the core of the physical distribution and channel decisions are critical in marketing management.

Option I Option II

direct marketing without middleman 0 level

indirect marketing using middleman1 to n level

Producers

Customers

Middleman

Fig. 5.1 Ways to reach the customers

5.2 Reasons of Choosing Intermediary in Distribution ChannelWhen the producers use the intermediaries and delegate them some of the selling responsibilities, they actually lose the opportunity to interact with their customers, understand them and lose their hold and control, too. Still they use intermediaries. This is because of the reason:

Intermediaries bring the buyers and sellers together, simplify and facilitate the transactions. •Intermediaries are the independent business organisations. These are the private and professional institutions •withtheobjectiveofprofitmaking.Hence,itiseasierandeconomicaltoworkthroughtheirextensiveandestablished network. Intermediaries create time, place, form and possession utilities for the customers by making the products/services •available at the convenient place, time and in convenient form. Manyproducerslackthefinancialresourcesandexpertisetocarryoutdirectmarketing.Hence,theyprefer•marketing channels.Forthesmallproducershavingverylimitedbudgetforpromotion,itisquitedifficulttocreatetheawareness,•interest and desire to buy products among customers. In this case, intermediaries being closer to the customers and having direct and regular interaction with them can effectively promote and sell the products. They can sell unpackaged commodities more effectively and economically compared to the producers. Intermediaries through their contacts in the market, experience, specialisation, infrastructure, relations and •rapportwiththecustomerscandosellingactivitiesmoreprofitablycomparedtothatofdonebytheproducerson their own. If the producers delegate distribution to the intermediaries, they can increase their investment and can focus •more on their main business activities.Intermediariesplayimportantrole inbridgingthegapbetweenthecustomers’quality,quantityandvariety•expectations and producers’ offerings. Intermediaries reduce the number of transactions thereby reducing the efforts and cost. •

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5.3 Functions of Marketing ChannelsImportant functions of the channels are as follows:

Facilitation: Bringing the buyers and sellers together and facilitating both the parties in closing the deal. •Promotion: Promoting the products/services, that is, building and promoting the producers’ brands.•Information: Giving information about the products/services to customers.•Negotiation: Negotiations on behalf of the manufacturer with customers on prices, terms of delivery, etc. Transfer •of the title and ownership: They help in transfer of title or ownership from one party i.e., sellers to other party i.e., buyers. Holding inventory and sharing risk: Channels hold the stock of ready products with them, thus they share the •risk and cost associated with holding the inventory. Finance: Channels keep deposit with the manufacturers, book the orders in advance, and keep the stock of ready •products.Thus,theyreducethemanufacturers’financialburden.Providing pre-sale and post-sale services: Channels provide pre-sale and post-sale services, maintenance services, •etc. to the customers on behalf of producers as they cannot personally reach individual customers. Change agents: Channels inform the customers about the changes in product and price. They tell the customers •about the new or additional features introduced. They can create a positive, favourable opinion about these changes among the customers, as they are closer to customers and they directly and regularly interact with their customers. Thus, they act as ‘Change Agents’.Warehousing and transportation: Warehousing facility and arrange transport warehouses to the markets/retailers/•end users. Market feedback and intelligence: Valuable and authentic information about competitors, market changes and •trends and provide from the channels provide the customers, market conditions to the manufacturers. Also maintain the sales records database of the customers, which can be useful to the manufacturer in future decision making.

5.4 Factors of Channel DistributionA manufacturer may adopt different methods of distribution according to his convenience and may change them over a period and in different situations. Channel choke is a long-term decision and various factors need to be considered while determining the channel of distribution. Theseare as follows:

Nature of product•Nature of consumer •Middlemen considerations •

Cost of channel �Suitability of middlemen �Availability of middlemen �Legal regulations and restrictions �Cost of maintaining middlemen �

Company considerations organisation (Company refers to manufacturing organisation) •Company capabilities, that is, availability of all type of resources �Company’s distribution policy and organisational structure �Company’ssalestargetsandprofitmarginsinthesaleofgoods � Market coverage/desired intensity of distribution: �

Exclusive distribution i. Selective distribution ii. Intensive distribution iii.

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Market considerations •Nature of market �Market size �Spread of market �Sizeandfrequencyofcustomer’sorder �

Competitor’s channels•

5.5 Levels of ChannelThere are following levels of channels:

Zero-level channel:• Manufacturers sell products directly to consumers eliminating the middlemen. This structure issuitablefor theluxuriousandexclusiveproducts.Companieswithsoundfinancialpositioncanaffordtosell their products directly through their own outlets or exclusive showrooms. On the other hand, even small producers who cannot afford to use channels and targeting only local market can also use direct marketing. farm products that are highly perishable in nature also use direct channel. One-level channel:• There is only one middleman between the manufacturers and their customers, that is,

manufacturer/franchiser/service provider- dealer/ large retailers/franchisee/agents- consumer: for example, �automobiles, super markets, food products, life insurance, personal computers and so on.

Two level channel:• There are two layers. Examples: e.g., Consumers: Manufacturer – Wholesaler- Retailer- Consumers: for example, all FMCG’s �Manufacturers- Brokers-Retailers- Consumers: for example, food grains �

Three or more level channel:• Manufacturer - C &F agent - Stockist – Retailers- Consumers; for example: drugs and medicines � Manufacturer - C &F Agent - Redistribution stockist – Retailer- Consumers: e.g., HLL products �

In Japan, food distribution may involve as many as six levels.

5.6 Definition of LogisticsThe terms physical distribution and logistics are sometimes used interchangeably to refer to activities associated with the physical transfer of goods. The term logistics is borrowed from the military and has a wider scope than merely physical distribution. It includes procurement, distribution, maintenance, and replacement of material and personnel.Scopeofphysicaldistributionmanagementisrestrictedonlytotheoutboundflowoffinishedgoodsfrommanufacturertocustomers.However,logisticsmanagementalsoincludesinboundflowofrawmaterialthatlargelyaffects the success of overall marketing programme. Logistics management includes both physical distribution and physical supply.

5.7 Relation with Distribution Channel and Marketing MixAll marketing mix variables are interrelated and integrated. Unless there is a harmony between all these variables, marketing mix cannot be perfect and successful.

Product - physical distribution:• Distribution decisions largely depends on the nature of product. Channel strategy also varies with the nature of product, e.g., complex technical products may be sold and distributed by the manufacturers directly instead of using any intermediary. For distribution of Fast Moving Consumer Goods (FMCG), manufactures use a large number of intermediaries. In the distribution of FMCG, warehouses play an important role, whereas for the Industrial goods warehouses are hardly in use. Forthedistributionofperishableproducts,suchasmilk,fish,fruitsandvegetables,etc.,theshortest channel is used and it needs special cold storage facilities in the warehouses or in the delivery vans.

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Price - physical distribution:• Price of the product changes with factors such as distribution mode, number of intermediaries used and so on. For example, prices of products will be high if they are delivered using air transport. The prices could be high if more levels of intermediaries are involved in the distribution. Price and physical distribution shares the reciprocal relationship. Experts believe that substantial savings are possible in the physical distribution area. The manufacturers try to reduce their prices to gain competitive advantage.Promotion - physical distribution:• Promotion decisions differ at various intermediaries’ level than that of the manufacturer. Advertising and promotional campaigns must be planned and coordinated with logistics system to ensure product availability at appropriate place and time, e.g., company’s advertising policy changes if the products are being distributed with the help of intermediaries. The manufacturers can opt for cooperative advertisements where the advertising cost is shared by the manufacturers and other channel members. Heavily advertised products can have more demand in the market. In such situations, to grab the market potential and enjoymaximumbenefits,intermediariesmustensureuninterruptedflowofgoodsatthetimeandplacethatisconvenient to the consumers.

5.8 Objectives of Physical Distribution(Channel Management and Retail Marketing, Dhotre, Meenal,page -XXII)Physical distribution is primarily responsible for the cost reduction and customer satisfaction. Physical distribution dealswithmovementandstorageoffinishedgoodsaswellasrawmaterials.Physicaldistributionensurescontinuousflowofphysicalgoodsintoandoutofthefirm.Themostimportantobjectiveofphysicaldistributionis,toensurebalancebetween the good customer service, theminimumcosts andhighprofitmargins. Someobjectives arediscussed in detail.

Total cost concept:• Physical distribution includes various transactions. Each transaction/element has certain cost, for example, transportation cost, rent of the warehouse, inventory carrying cost, cost of order processing and so on. The total cost concept refers to the goal of lowering the overall cost of distribution by balancing all individual cost elements. Customer service concept:• Traditionally, the manufacturers used to consider, services as something to be offered at the end of marketing process. Today, customer service is the key to customer satisfaction. Customer service in terms of time, dependability, communication, convenience, and accuracy can achieve the goal of customer satisfaction. These customer service elements are discussed below:

Time: The products should be made available to customers as and when asked. The time from ordering to �delivery, which is also referred as the lead time or the replenishment time or the order cycle time, should be minimum. Reducing lead time often increases the associated costs. Time is a critical element in the cost-service tussle. For example, in order to give prompt/ex-stock delivery or to reduce delivery time, intermediaries need to maintain a large inventory and thus they have to bear the cost and risk associated with the inventory.Dependability: Dependability refers to the interdependence of all participants in the physical distribution and �its impact on cost-service objective. There has to be reliability and consistency in lead time. Customers may accept longer lead time if they are informed in advance. Surprise delays and even uninformed early deliveries should be strictly avoided as the customers are not prepared for that or do not have any arrangements. For example, if suppliers fail to deliver raw materials to manufacturers in time, it affects rather disturbs the entire production and marketing activities. This ultimately leads to a poor customer service. Late deliveries often result in losing the customers permanently.Communication:Regularcommunicationbetweenthemanufacturerandhiscustomerscanensureefficient �physical distribution. Communication must occur during the order booking and order processing, during transitandevenafterthereceiptofgoods.Itbecomeseasiertotraceoutthereasonsandtakequickactionfornon-arrival of goods or lost consignments, if there is a continuous communication between the manufacturer/intermediaries and the customers. The loss can be minimised if the actions are taken early.

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Convenience: Convenience is the important criteria in the customer service and satisfaction. Through �this element, the manufacturers can gain the competitive advantage, as well. Different customers expect differentserviceneeds.Hence,customerserviceshouldbeflexibletomatchwiththesechangingneeds.For example, home delivery of the products or late working hours of the outlet are very convenient to the customers. ICICI Banks are open for the longer period, i.e., 8 AM to 8 PM, which is very convenient for the busy customers. Many banks have now opened the Automatic Teller Machine (ATM) centers at the convenient locations. The concept of 24 X 7 is very successful and welcomed by many customers due to the convenience in the purchase.

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Summary Intermediaries bring the buyers and sellers together, simplify and facilitate the transactions.•Warehousing facility and arrange transport warehouses to the markets/retailers/end users.•Channels keep deposit with the manufacturers, book the orders in advance, and keep the stock of ready products. •Thustheyreducethemanufacturers’financialburden.Channels provide pre-sale and post-sale services, maintenance services, etc. to the customers on behalf of the •producers as they cannot personally reach to the individual customer.In a zero level channel, manufacturers sell the products directly to the consumers eliminating the middlemen.•Logistics management includes both physical distribution and physical supply.•Forthedistributionofperishableproducts,suchasmilk,fish,fruitsandvegetables,etc.,theshortestchannelis•used and it needs special cold storage facilities in the warehouses or in the delivery vans.Advertising and promotional campaigns must be planned and coordinated with the logistics system to ensure •product availability at appropriate place and time.Physical distribution is primarily responsible for cost reduction and customer satisfaction.•

References pjvdixon., 2008. • Retail Home Delivery: Online Customers, Logistics and Supply Chain Management - Keynote speaker [Video Online] Available at: <http://www.youtube.com/watch?v=ZbPMaxNl3J4> {accessed 30November2011].RetailIndustryLeader., 2010. • Casey Chroust discusses Logistics Trends in Retail [Video Online] Available at: <http://www.youtube.com/watch?v=DNRjjC2pxac>[Accessed30November2011].Fernie, J., & Sparks, J., • Retail logistics: changes and challenges [Online] Available at: <http://www.sclgme.org/shopcart/Documents/Retail%20Logistics%20-%20Change%20and%20Challenges.pdf.> [Accessed 30November 2011].Dhotre, M., 2010. • Channel Management and Retail Marketing., Global Media.Chunawalla, S. A., 2009. • Contours of Retailing Management., Global Media.

Recommended Reading Marshall Fisher, Ananth Raman., 2010. • The New Science of Retailing: How Analytics are Transforming the Supply Chain and Improving Performance, Harvard Business Press.Michael H. Hugos.,• 2005. Supply Chain Management in the Retail Industry, 1st ed., Wiley.James B. Ayers, Mary Ann Odegaard.,• 2007. Retail Supply Chain Management, Auerbach Publications.

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Self AssessmentWhich of the following is false?1.

Intermediaries bring the buyers and sellers together, simplify and facilitate the transactions.a. Intermediaries are the inter-dependent business organisations.b. Manyproducerslackthefinancialresourcesandexpertisetocarryoutdirectmarketing.Hencetheypreferc. marketing channels.If the producers delegate distribution to the intermediaries, they can increase their investment and can focus d. more on their main business activities.

_______play an important role in bridging the gapbetween the customers’ quality, quantity andvariety2. expectations and producers’ offerings.

Intermediariesa. Storesb. Bargainingc. Costd.

Match the following:3.

Facilitation1. Building and promoting the producers’ brands.a.

Promotion2. Giving the information about the products/services to the customers.b.

Information3. Channels keep deposit with the manufacturers, book the orders in c. advance, and keep the stock of ready products.

Finance4. Bringing the buyers and sellers together and facilitating both the d. parties in closing the deal.

1-d, 2-c; 3-b; 4-aa. 1-d, 2-a; 3-b; 4-cb. 1-b, 2-c; 3-d; 4-ac. 1-a, 2-b; 3-c; 4-dd.

Through which of the following elements a manufacturer can gain competitive advantage in customer- service 4. concept?

Timea. Dependabilityb. Communicationc. Convenienced.

Which of the following is not a function of marketing channel?5. Providing pre-sale and post-sale servicesa. Change agentsb. Market feedback and intelligencec. Free home deliveryd.

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Which of the following is not a factor of channel distribution?6. Nature of producta. Nature of consumer b. Consumer considerations c. Competitor’s channelsd.

In which of the following level of channel, manufacturers sell products directly to consumers eliminating the 7. middlemen?

Zero-level channela. One-level channelb. Two-level channelc. Three or more level channeld.

Which of the following statement is false?8. Price of the product changes with the factors such as the distribution mode, number of intermediaries used a. and so on.Promotion decisions differ at the intermediaries’ level than that of the manufacturer.b. Distribution decisions largely depend on the nature of product.c. All marketing mix variables are constant and non-related.d.

Which of the following is not a customer service element?9. Timea. Dependabilityb. Communicationc. Discountsd.

___________ and promotional campaigns must be planned and coordinated with the logistics system.10. Advertisinga. Distributionb. Press conferencec. Planningd.

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Chapter VI

Retail Location Strategy

Aim

The aim of this chapter is to:

explain the need of space planning in the store•

elucidate the types of space planning system•

discuss the factors of space management•

Objectives

The objectives of this chapter are to:

explain the location of store•

enlistsignificanceoflocation•

illustrate the criteria to measure space performance•

Learning outcome

At the end of this chapter, you will be able to:

recognise the importance of space management•

classify inventory turnover and stock sell ratio•

describe the importance of space planning•

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6.1 Introduction Space is one of the most important infrastructures for a retail store. The process of management of a retail store starts with managing space. It is to be planned and determined how the various activities of retail operations are undertaken in the premises. The main objectives of retail space management are:

Toobtainahighreturnoninvestmentbyincreasingtheproductivityofretailspace,whichrequireseffective•utilisation of ·space for merchandise display and convenience of customers, To ensure a compatible, exciting and rational between the customer, merchandise and sales people. •

Retail store must be a place where a customer could reach easily and conveniently. Presently, space is one of the scarcestthingsineachcountry.Thesupplyofspaceisfixedinthesensethatitisnoteasytoexpandeitherbecauseofinvestmentconstraintoravailabilityoftheland.Managingspaceisthefirstandforemostconcernofalmostevery retailer, when it comes to designing the store’s interior. Space is always an expensive and scarce resource. Retailersalwaystrytomaximisethereturnonsalespersquarefoot.Allocationoftheavailablespacetodepartments,categories,variousitemsandotherpurposes,isoneofthemostcomplicatedanddifficultdecisionbeforetheretailer.Every retailer has to take decision on following issues, while managing the space:

The nature and number of offerings, departments and suppliers.•Optimise the selling area and minimise the non selling parts. The selling area is that part where merchandise is •presented and customers do actual shopping. The non selling area consists of other activities and uses such as parking, entertainment, back area, staircases, circulation space, etc.Items, vendors, categories and departments to be carried, taking into account the space in the store.•Thequantityofeachitem,tobecarriedatatime,inthestore.•The location of the merchandise, so as to get the maximum attention.•The location and proportion of space given to the particular merchandise.•

Thus,thespacinginthestorerequiresrationalplanning.

6.2 Space Planning Space planning systems can be split into two types - numeric and visual. Store layout and visual merchandising arefactorsthatcontributetotheuniquenessofastore.Theexteriorandinteriorofastoreconveyseveralmessagesabout the store to the consumers.

6.2.1 Numeric Planning SystemIt simply allows users to take account of space available and to calculate ratios like return on space.

The building that houses retail store, (whether new or old) and the exterior design of the store are important •aspectsofthedesignofthestore.Marquees,walkways,entrances,doors,displaywindows,theheightandsizeof the building, colours and materials used, and theft prevention are some of the key factors to be kept in mind while developing a store’s exterior. Planningalayoutforthestore’sinterioristhefirststepindesigningthestore’sinterior.Allocatingspaceto•various merchandise categories in a store is very important. Allocation of space can be based on many factors, like historical sales, gross margins, industry averages and strategic objectives. Apart from allocating space to various merchandise categories, space has to be allocated for carrying out some •essentialfunctions.Suchspaceincludesthebackroomforreceivingtheinventoriesandsortingthemout,officeandotherfunctionalspaces,aislesandcustomerservicedesk,floorspaceandwallspace.

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6.2.2 Visual SystemIt allows users to create three dimensional walk-through models of the stores and to preview the look of a store once ranging decisions have been made.

Theinteriorofastoreinfluencesthepurchasingbehaviourofthecustomerstoagreatextent.Designingthe•interiorofastoreinsuchawayastoinfluencecustomer’sbehaviourisreferredtoasvisualmerchandising.Itincludesoptimumandappropriateuseoffixtures,displays,colour,lighting,music,scent,ceilingsandfloor,•and designing all of these properly. Merchandise presentation is themost significant aspect of store designbecause it helps attract customers’•attention. A retailer can resort to many forms of presentation such as idea-oriented presentation, item-oriented presentation, •price lining, colour presentation, vertical merchandising, tonnage merchandising and frontal presentation.

6.3 Factors for Space Management The planning processes always keeps in mind the objectives in accordance with various activities which are organised. In general, sales productivity is the main consideration of a retailer. Initially the store planner must adjust his estimation on the basis of the following:

The profitability of merchandise:Aretailerhastoallocatespacetostockkeepingunitstomaximisethemerchandisecategory’sprofitability.Itistobe decided that whether popular brands should be kept in forefront or other ones. The goods can be divided into 3 categories from this consideration:

Staple goods which are the core selling products of a store, and constitute nearly half of the store offering may •be kept at the central and deeper ends of the store. This enhances visibility of all customers passing through the entire store to reach them. Shirts and trousers in a garment store or grains and sugar in a supermarket put in the category of staple goods. Convenience goods are no fuss basic merchandise and constitute about one third of the store and mostly bought •in multiple units. Considering the convenience of customers they must be kept in a proper location where customercanfindthemimmediatelywithoutanysearch.Impulse purchase merchandise has normally the highest rate of sale. This constitutes about 15% of the total •sales. These need to be given maximum exposure so that customers are tempted to buy them. Candies, socks, hair products, children games, etc. are some of such products. It is generally preferred to keep them near the cash counters and entrance. Thus, locations of various goods to be chosen carefully to ensure their exposures tocustomersforincreasingprofitability.

Inventory turnover and stock sell ratio: In every retail store the monthly/daily inventory levels vary according to seasonal demands, holidays, festivals, etc. The space manager must allocate space on the basis of these seasonal needsratherthangoingbyprofitabilityoryearlyaverages.

Displays and back up stock: Displays are very important to attract the attention of customers whereas it occupies larger space as compared to back up stock in a storage area.

Merchandise display: Fixtures and merchandise go together. Fixtures have physical limitations and they occupy larger space, however products on them are more attractive.

Importance to items: A retailer may wish to give greater importance to an item hence the space allocated to it should be prime one and displayed in an orderly manner.

Size of items and space: Sometimes, retailer has to take a decision whether particular items, if they occupy large space, be continued to offer or dropped considering the cost effectiveness of the space.

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Personnel space: The space is needed for use of personnel of the store for comforts, rests, coffee breaks, lunch, change clothes, etc.

Customer space: In a big store, space for customers which include a lounge, benches, chairs, dressing rooms, a restaurant,anursery,parkingetc.influencescustomerandcr~atesdifferentiations.

6.4 Criteria to Measure the Space Performance The space performance can be judged by:

Sales per square foot: This is also known as top line plan. This measures space productivity by volume of sale and valuereceivedpersquarefootperday.

Margins per square foot: This is also called bottom line plan or gross margin return on footage. This measures the spaceproductivitybygrossmargins,earnedpersquarefootperday.

Stock holding per square foot: This is also called bottom line tool or gross margin returns on inventory. It measures spaceproductivitybytheaverageinventoryholdingpersquarefootperdayandcompareswiththeideallevelofstock holding planned for a designated space in the store. Stock turns in such designated space plays vital role in earning good revenue returns on the space occupied when they are optimised.

6.5 Importance of Space Management The planned space management has several advantages. It is important from the point of view of both the retailer and customer.

Itenablesasmoothandefficientcustomerflownotonlyintothestorebutwithinit.Theotherfactorssuchas•thefixtures,theplacementofmerchandise,floorarrangement,andlayoutdesignallaredirectedtowardthecustomer considerations.It provides an opportunity to the customer to reach and have access to desired merchandise without any •inconvenience.Theaestheticsofawellplannedfloorgivesaninvitationtothecustomerwherehewouldliketocometimeand•again and develops a sense of belonging.A planned space management helps in creating a feeling of comfort in the minds of the customers. Generally, •alargenumberofpurchasedecisionsaremadewhilewalkingonthefloorofthestore.Ultimately, it helps the retailer in selling more effectively and retains customers.•

The planning of space is called planogram. Planogram is a visual representation of the space for selling, merchandise, personnel, product categories, customers, including in store placement. Now a large number of retailers are using this for managing space.

6.6 Store Location Retailing is the critical aspect of marketing. The most important P (place) in retailing is the store location, that is, at whichplacestoreislocated.Thelocationofanystore,inamostappropriateplace,isthefirstconditionofsuccess.Thelocationofstoreconveysafairamountoftheimageandinfluencesthebuyingdecisionofthecustomer.Properlocation many times is the guarantee of success and may compensate some of the negative features. The scarcity of land at a proper place is responsible for high price and rent of the property. The decision to start a new store is determined to a great extent by the availability of property at a proper location.

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Significance of location: Where a retailer chooses to locate his retail business will have a major impact on everything that shop does. The difference between selecting the wrong location and the right site could be the difference between business failure and success. Store decision is the most important decision before a retailer for a number of reasons:

It involves a large capital investment since the property is to be located at an appropriate place which might be •considered prime location from various considerations.The location is to be decided keeping in mind, the convenience of the target customers.•Location decision will be determined by the nature of merchandise since a customer will take decision •regarding travelling a particular distance on the basis of nature of product or service. Since it adds to the cost of transportation and time consumed.Thecustomeralwaysprefersastoreclosesttohisreach.Thus,itaffectstheamountofcustomertraffic.•The location decision has a strategic importance, since it may provide in developing a strategic importance since •it a sustainable competitive advantage.Changing location means loosing image, customers, employees and incur huge cost. Location decisions are •harder to change because retailers have to make huge investment in buying, developing and designing the layouts, etc according to his needs. Thecompetitionamongretailersmakethedecisionoflocationdifficultandcostlysincevariousbigretailers•are opening new 10cations.The problem becomes acute when there is slowdown both in population growth and construction of new shopping centres.Thehighrent,complicatedleasesandexpensivefixturing,remodellingandsoon,canincreasethecostand•therefore need proper attention.

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Summary The process of management of a retail store starts with managing space.•Retail store must be a place where a customer could reach easily and conveniently.•Allocation of the available space to departments, categories, various items and other purposes, is one of the •mostcomplicatedanddifficultdecisionbeforetheretailer.Space planning systems can be split into two types - numeric and visual.•Aretailerhastoallocatespacetostockkeepingunitstomaximisethemerchandisecategory’sprofitability.ltis•to be decided that whether popular brands be kept in forefront or other ones.In every retail store the monthly/daily inventory levels vary according to seasonal demands, holidays, festivals, •etc.Thespacinginastorerequiresrationalplanning.•The exterior and interior of a store convey several messages about the store to the consumers.•Aretailerhastoallocatespacetostockkeepingunitstomaximisethemerchandisecategory’sprofitability.•Space planning provides an opportunity to the customer to reach and have access to desired merchandise without •any inconvenience.Planogram is a visual representation of the space for selling, merchandise, personnel, product categories, •customers, including in store placement.The scarcity of land at a proper place is responsible for high price and rent of the property.•Location decision will be determined by the nature of merchandise since a customer will take decision regarding •travelling a particular distance on the basis of nature of product or service.

References FranchiseIndia• ., 2010., The Location Strategy by Mr. Kush Medhore, CEO, EWDPL [Video Online] Available at: <http://www.youtube.com/watch?v=vjxtCx5rRTc>[Accessed30November2011].devpoer• ., 2008. Class is in Session - Retail Strategy: Retail Market Strategy and Retail Location [Vidoe Online] Available at:<http://www.youtube.com/watch?v=kEDd08tQgQY>[Accessed30November2011].Gustavo Vicentini., 2011. • Location Strategy of Chain Retailers: The Case of Supermarkets and Drug Stores in an Urban Market [Online] Available at: <http://5566429071505386505-a-1802744773732722657-s-sites.googlegroups.com/site/gvicentini/Vicentini-LocationStrategyofChainRetailers-September2011%28all%29.pdf?attachauth=ANoY7cr9VC2DsKHFswv8p-aC2jgjGAbNVkWej74Xf0R11xFINpxaPf4rc6N-dXCYIghM1_a0Cd0Um0rsh8YRcRqv2kMiBmWI4Eiph55rFI3f8-2FKs6OHCbJAZEdGLQesp96rAcewnZkbqxwvLK1QHNeUJhSmAau-rCvCVIP8v99a1eUi9JRReMiJ8PnVlyzYANw6SDXMHWHDRHQQ8wn49ZLjYqgyrUwihDapVdg3gS8CObX0rybX_qNO68tdqfXZA5dKIyvwBSazFu0N3avmsE_8-0u-Q6tWw%3D%3D&attredirects=0.>[Accessed30th November 2011].Charles G. Schmidt.,• Location Decision-Making within a Retail Corporation [Online] Available at: <http://www.jrap-journal.org/pastvolumes/1980/v13/13-1-6.pdf.>[Accessed30thNovember2011].Chunawalla, S. A., 2009. • Contours of Retailing Management., Global MediaSharma, B. M.,• 2008., Strategic Retail Management. Global Media.

Recommended ReadingSegel, R., 2008. • Retail Business Kit For Dummies : 2nd ed., John Wiley & Sons.Raeon. F., 2010 . • The A B C’s of SITE SELECTION: How to Pick Winners and Avoid Losers . Xlibris.Brown, . D. R., & Fullen, S. L., 2004. • How to Open a Financially Successful Specialty Retail & Gourmet Foods Shop. Atlantic Publishing Group Inc.

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Self Assessment_________ is one of the most important infrastructures for a retail store.1.

Spacea. Price distributionb. Marketing strategyc. Consumersd.

Which of the following statement is false?2. Thespacinginthestorerequiresrationalplanning.a. Space planning systems can be split into two types - numeric and visual.b. Managingspaceisthefirstandforemostconcernofalmosteveryretailer.c. Planning a layout for the store’s interior is the last step in designing the store’s interior.d.

Whichofthefollowingfactorscontributetotheuniquenessofthestore?3. Consumer crowda. Offers and discountsb. Brand preferencec. Store layoutd.

Which of the following is not one of the bases for the estimation of a store planner?4. Theprofitabilityofmerchandisea. Inventory Turnover and Stock Sell Ratiob. Displays and back up stockc. Retailer spaced.

Which of the following is not one of the criteria for space performance?5. Customer spacea. Salespersquarefootb. Marginspersquarefootc. Stockholdingpersquarefootd.

________measuresspaceproductivitybytheaverageinventoryholdingpersquarefootperday.6. Salespersquarefoota. Marginspersquarefootb. Stockholdingpersquarefootc. Personnel spaced.

Which of the following statement is false?7. Theaestheticsofawellplannedfloorgiveaninvitationtothecustomerwherehewouldliketocometimea. and again and develops a sense of belonging.Space planning provides the opportunity to the customer to reach and have access to desired merchandise b. without any inconvenience.Space planning helps the retailer in selling more effectively and retains customers.c. Retailerenablesasmoothandefficientcustomerflownotonlyintothestorebutwithinit.d.

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Itisdifficulttochangethe__________inashortperiodandeveninalongperiodwithoutbearingextracost.8. locationa. productsb. employeesc. stored.

The _____________ is the main consideration of a retailer.9. producta. sales productivityb. consumerc. locationd.

Which of the following allows users to create three dimensional walk-through models of the stores and to 10. preview the look of a store once ranging decisions have been made?

Numeric planning systema. Visual Systemb. Store locationc. Product displayd.

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Chapter VII

Retail Human Resource Management

Aim

The aim of this chapter is to:

explain the objective of human resource management •

elucidate the factors affecting retail resource management•

discuss expenses in controlling manpower•

Objectives

The objectives of this chapter are to:

explain the concept of centralisation•

enlist the different approaches used by retailers•

illustrate the issues related to retail designing•

Learning outcome

At the end of this chapter, you will be able to:

recognise the methods of developing talent in employees•

classify the employment talent war•

describe various methods of motivating talent among employees•

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7.1 Introduction (Page -220 & 221)A primary objective of human resource (HR) management is to build a basis for a sustainable competitive advantage. This advantage is attainable since:

labourcostsaccountforasignificantpercentageofaretailer’stotalexpenses•the customer behaviour with a retailer is determined by the activities of employees who select merchandise; •provide information and assistance and stock displays and shelves.

Thus, employees can play a major role in differentiating a retailer’s offering from its competitor’s. Finally, these potentialadvantagesaredifficultforcompetitorstoduplicate.

Another strategic objective of human resource management is to align the capabilities and behaviours of employees withtheshort-andlong-termgoalsofaretailfirm.Retailersuseseveralstandardmetricstomeasurehowtheyaredoing. One human resource metric is employee productivity. Employee productivity can be improved by increasing the sales generated by employees, reducing the number of employees, or both.

Whereasemployeeproductivityisdirectlyrelatedtotheretailer’sshort-termprofits,othermeasuresofemployeeattitudes, such as job satisfaction and commitment, have important effects on the long-term performance of the retailer. Committed employees are more motivated to assist the retailer in achieving its goals, such as improving the satisfaction of customers and building customer loyalty.

Retailer’s ResponseLayoffs• Freeze On Hiring And •PromotionReduced Training•Salary Freeze• Greater Use of Part-Time •Employees And More Outsourcing

Employee Response Decreased Motivation •and EffortPoor Customer Service•Lower Job Satisfaction•Greater Turnover•

Financial performance problems

lowprofits•high costs•

Fig. 7.1 Performance spiral

no. of employees leaving the job during the yearEmployee turnover = no. of positions

Ifastoreownerhadfivesalesassociatepositionsbutthreeemployeesleftandwerereplacedduringtheyear,theturnover would be 3 ÷ 60 percent. Turnover can be greater than 100 percent if a substantial number of people are replaced more than once during the year. In our example, if the replacements for the three employees that left also left during the year, the turnover would be 6 ÷ 5 120 percent.

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A failure to consider both long- and short-term objectives can result in the mismanagement of human resources and adownwardperformancespiral.Sometimes,whenretailers’salesandprofitsdeclineduetoincreasedcompetition,retailers respond by decreasing labour costs. They reduce the number of sales associates in stores, hire more part-timers, andspendlessontraining.Althoughtheseactionsmayincreaseshort-termproductivityandprofits,theyhaveanadverse effect on long-term performance because employee morale and customer service decline.

7.2 Factors in Retail Human Resource ManagementThe factors affecting retail resource management are as follows:

7.2.1 Balancing the Human Resource TriadThe full potential of a retailer’s human resources is realised when three elements of the HR triad work together:

HR professionals•store managers •employees•

Humanresourceprofessionals,whotypicallyworkoutofthecorporateoffice,havespecialisedknowledgeofHRpractices and labour laws. They are responsible for establishing HR policies that enforce the retailer’s strategy and provide the tools and training used by store managers and employees to implement those policies. Store managers are responsible for bringing the policies to life through their daily management of the employees who work for them.

7.2.2 Expenses in Controlling ManpowerRetailersmustcontroltheirexpensesiftheyaretobeprofitable.Thus,theyarecautiousaboutpayinghighwagestohourly employees who perform low-skill jobs. To control costs, retailers often hire people with little or no experience to work as sales associates, bank tellers, and waiters. High turnover, absenteeism and poor performance often result from this use of inexperienced, low-wage employees.

The lack of experience and motivation among many retail employees is particularly troublesome because these employees are often in direct contact with customers. Poor appearance, manners, and attitudes can have a negative effect on sales and customer loyalty. Research has shown that in some types of retail operations, a modest investment inhiringmorestaffwillresultinasignificantincreaseinsales.Ifcustomerscan’tfindaparticularproductontheirown, or if they can’t get an explanation of how it works or how it is used, the product probably won’t sell. One method of controlling expenses is to utilise part-time employees.

7.2.3 Part Time EmployeesRetailer's needs for store employees vary depending on the time of day, day of week, time of year, and promotion schedule. Retailers use computerised scheduling systems that are designed to boost service and trim costs by matching staffsizetocustomertraffic,hourbyhour.Thesesystemscanfactortheeffectsofstorepromotions,sportingevents,graduations,andeventheweathertodeterminetherightstaffingfordifferenthoursanddays.Tominimisecosts,the systems suggest that retailers complement their full-time (40-hours-per-week) store employees with part-time workers. Part-time employees are less expensive than comparable full-time employees. Further, they are usually offerednohealthorretirementbenefitsandlittlejobsecurity.

7.2.4 Optimum Utilisation of EmployeesThechangingdemographicpatternwillresultinachronicshortageofqualifiedsalesassociates.So,besidesutilisingless expensive part-time labour, retailers are increasing their efforts to recruit, train, manage, and retain mature, minority, and handicapped workers. Although, young employees have traditionally made up the majority of retail labour force, retailers have realised that what these employees want out of their jobs and work environments is quitedifferentfromwhattheiroldersupervisorswantand,therefore,thesedifferentapproachesneedtobeusedtomanagethem.Theywantmoreflexibility,meaningfuljobs,professionalfreedom,andabetterwork-lifebalancethan older employees do. Younger employees readily switch jobs if their expectations aren’t met, making employee turnoverhigh.Tohelpeasetheoveralllabourshortageandtheperceiveddeficienciesofyoungerworkers,retailersare increasingly turning to older employees because they are more reliable, have lower turnover rates, and often have better work performance.

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Training costs are also lower for older people since they generally have had strong work experience. These advantages of hiring older employees counterbalance any increased costs in missed days for medical problems.

7.3 Retail Design IssuesTwo important issues in the design of a retail organisation are:

the degree to which decision making is centralised or decentralised •the approaches used to coordinate merchandise and store management •

Thefirstissuetranslatesintowhetherthedecisionsaboutactivitiessuchasmerchandisemanagement,informationand distribution systems, and human resource management are made by regional, district, or store managers or by managersinthecorporateheadquarters.Thesecondissuearisesbecauseretailersdividemerchandiseandstoremanagementactivitiesintodifferentorganisationswithinthefirm.Thus,theyneedtodevelopwaystocoordinatethese interdependent activities. Some of the ways are discussed as under:

7.3.1 Coordination in Merchandise and Store ManagementSmall,independentretailershavelittledifficultycoordinatingtheirstores’buyingandsellingactivities.Owner-managers typically buy the merchandise and work with their salespeople to sell it. In close contact with customers, the owner-managers know what their customers want.

Incontrast,largeretailfirmsorganisethebuyingandsellingfunctionsintoseparatedivisions.Buyersspecialisein buying merchandise and have limited contact with the store management responsible for selling it. While this specialisation increases buyers’ skills and expertise, it makes it harder for them to understand customers’ needs. Three approaches large retailers use to coordinate buying and selling are as follows:

Improving appreciation for store environmentSome retailers have management trainees who work in the stores before they become buyers. Others utilise a mixed careerpathinwhichmanagersareencouragedtofloatbetweenstoreandcorporateassignments.Thisstoreexperiencehelps corporate managers and buyers gain an appreciation for the activities performed in the stores, the problems salespeople and department managers’ encounter and the needs of customers.

Store visitAnother approach to increasing customer contact and communication is to have buyers and other executives visit the stores. Every week, Terry Lundgren, Macy’s CEO, goes into several stores, calls the store managers on their cellphones,andasksthemtomeethimonthesellingfloor.Theseunannouncedvisitsdon’tgivethestoresortheirmanager’stimetopreparetoanswer,questionsorchangeanythingonthesellingfloor,soheseesthestoresjustasthe customers do. The visits provide managers and buyers with a richer view of store and customer needs than they could get from reading impersonal sales reports or talking on the phone.

Assigning employees to co-coordinating roles Some retailers, like TJX, maintain people in both the merchandise division (planners and allocators who work with buyers) and stores who are responsible for coordinating buying and selling activities.

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7.3.2 Centralisation (Describe its disadvantages also) Centralisation occurs when the authority for retailing decisions is delegated to corporate managers rather than to geographically dispersed managers.

Retailers reduce costs when decision making is centralised in corporate management, as:First,overheadfallsbecausefewermanagersarerequiredtomakethemerchandise,humanresource,marketing,•realestate,informationsystem,andfinancialdecisions.Second, by coordinating buying across geographically dispersed stores, the company can achieve lower prices •from suppliers. The retailer can negotiate better purchasing terms by placing one large order rather than a number of smaller orders.Third, centralisation provides an opportunity to have the best people make decisions for the entire corporation. •For example, in a centralised organisation, people with the greatest expertise in areas such as management informationsystems(MISs),buying,storedesign,orvisualmerchandisecanofferallstoresthebenefitoftheirskills.Fourth,centralisationincreasesefficiency.Standardoperatingpoliciesdevelopedatthecorporateheadquarters•are applied to the stores, allowing store managers to focus on their core responsibilities. For example, corporate merchandisers perform considerable research to determine the best method of presenting merchandise. They provide detailed guides for displaying merchandise to each store manager so that all stores have a consistent brand image throughout the country. Because they offer the same core merchandise in all stores, centralised retailers can achieve economies of scale by advertising through national media rather than more costly local media.

Although centralisation has advantages in reducing costs, its disadvantages are:Itmakesitmoredifficultforaretailertoadapttolocalmarketconditions.Forexample,Gainesvilleislocatedin•centralFlorida,andthusthemanagerinchargeofthefishingcategoryattheSportsAuthoritycorporateofficemightthinkthattheGainesvillestore’scustomersprimarilyengageinfreshwaterfishing.Butthelocalstoremanagerknowsthatmostofhiscustomersdrive90milestogosaltwaterfishingineithertheGulfofMexicoor the Atlantic Ocean.Inadditiontoproblemswithtailoringitsmerchandisetolocalneeds,acentralisedretailermayhavedifficulty•responding to local competition and labour markets.Becausepricingisestablishedcentrally,individualstoresmaynotbeabletorespondquicklytocompetition•in their market. Centralised personnel policies may make it hard for local managers to pay competitive wages in their area or •hire appropriate types of salespeople.

However, centralised retailers are relying more on their information systems to react to local market conditions. For example,manyretailersarenowusingmerchandiseandpricingoptimisationtechniques.

7.4 Employee Talent WarThere is a need for managers who can effectively deal with increased complexities of retail jobs, such as the use of new technologies, increased global competition, and a diverse workforce. Thus, retailers are engaged in a “war” with their competitors for talent, that is, for effective employees and managers. Corporate HR departments are the generals in the war for talent. They are responsible for developing programs that will attract, develop, motivate, and keep talent.

7.4.1 Attracting TalentThe HR departments for retailers such as Starbucks and Marriott develop marketing programs to attract the best and brightest potential employees. These programs, called employment marketing or employment branding, involve undertaking marketing research to understand what potential employees are seeking, as well as what they think about the retailer; developing a value proposition and an employment brand image; communicating that brand image to potentialemployees;andthenfulfillingthebrandpromisebyensuringthattheemployeeexperiencematchesthatwhich was advertised. Retailers often use advertising agencies that specialise in employment marketing to develop creative approaches to attract employees.

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For example, Starbucks’ research revealed that prospective and existing employees like their jobs. The rewards they receive from working at Starbucks go beyond pay and promotion opportunities. So Starbucks developed an employment marketing program based on the theme “Love What You Do.” Southwest uses a similar tagline for its employment marketing program: “The Flight of Your Life, Not Just a Career, a Cause.” Starbucks uses the Love What You Do theme on its Internet site, in its printed material available to prospective employees in stores, and in videos designed to describe the Starbucks employee experience.

In this collateral material, real employees describe why they love what they do. Starbucks encourages all of its partners (employees) to get involved in recruiting potential employees. Employees in its stores are trained to respond tocustomerinquiriesaboutjobopportunitiesandquestionsaboutworkinginthestores.

7.4.2 Developing TalentTwo activities that retailers undertake to develop knowledge, skills, and abilities in their human resources are selection and training. Retailers that build a competitive advantage through their human resources are very selective in hiring peopleandmakesignificantinvestmentsintraining.

Selective hiring:• Thefirst step in building an effectiveworkforce is to recruit the right people.AtU.K.-based sandwich shop chain Pret A Manger, candidates applying for any position, including in the corporate offices,mustwork in a shop for a day.The teamwhoworks there gets a say onwhether the candidatewill fit inwith the team. If not, the candidate isn’t hired. Pret goes out of itsway to hire happypeople. Zappos, the online shoe, apparel, and accessories retailer, also takes special care in the hiring process. They want people who believe in what they are doing and love doing it. Hiring the right people is so important to Zappos that it offers new hires$2,000toquit,although,thatmightnotbeenoughsinceonly1percentofnewhirestakeZapposupontheoffer. Electronics retailer Best Buy has refocused its selection process to include more women. After 20 years of focusing on selling to males between the ages of 18 and 25, Best Buy recognised that female spending represents a huge share of its sales. It also found that women preferred to buy from other women.Training:• Training is particularly important in retailing because the overwhelming majority of retail employees have direct contact with customers, which means they are responsible for helping customers satisfy their needs and resolve their problems. At the Zappos family of companies, each new hire, regardless of position, begins hisorherjobwithfiveweeksoftraining,includingtimetakingphoneorders.Thisallowsnewemployeestolearn about the merchandise and the importance of satisfying customers. This experience also helps weed out employees who believe they are too important to spend time helping customers. An interesting challenge facing retailersishowtotrainyoungeremployees.RetailershaverecognisedthatGenerationY,thefirstgenerationtogrow up with the Internet and Internet-based games, learns differently than previous generations do.

7.4.3 Motivating TalentThetaskofaligningtheemployees’andthefirm’sgoalsisoftendifficult,becauseemployees’goalsusuallydifferfromthoseofthefirm.Forexample,asalesassociatemightfinditmorepersonallyrewardingtoarrangeadisplaycreatively than to help a customer. Retailers generally use three methods to motivate their employees’ activities:

Policies and Supervision:• Perhaps the most fundamental method of coordination is to prepare written policies that indicate what employees should do and then to have supervisors enforcing these policies. For example, retailers may set policies about when and how merchandise can be returned by customers. If employees use the written policies to make return decisions, their actions will be consistent with the retailer’s strategy. But strict reliance on written policies also can reduce employee’s motivation, because employees have little opportunity to use their own initiative to improve performance in their areas of responsibility. As a result, they eventuallymightfind their jobs uninteresting.Relyingon rules as amethodof coordination leads toa lot of red tape. Situations will arise that aren’t covered by a rule, in which case employees may need to talk to a supervisor. Alternatively, many retailers empower their employees to make decisions on their own. The second method of motivating and coordinating employees involves the use of various forms of compensation to encourage them to perform activities consistent with the retailer’s objectives. A common type of compensation for retail salespeople is a commission, which is a type of incentive based on a percentage of their sales or margin. Many retailers base at least part of salespeople’s compensation on commissions.

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Another individual incentive is a bonus, which is additional compensation awarded periodically on the basis of an evaluation of the employee’s performance. For example, store managers often receive bonuses at the end of the year basedontheirstore’sperformancerelativetoitsbudgetedsalesandprofits.Inadditiontoreceivingcompensation-based incentives,basedon individualperformance, retailmanagersoften receive incomebasedon theirfirm’sperformance.Knownasprofitsharing, thistypeofincentivecanbeofferedasacashbonusbasedonthefirm’sprofitsorasagrantofstockoptionsthatlinkadditionalincometotheperformanceofthefirm’sstock.

Some retailers use stock incentives to motivate and reward all employees, including sales associates. Employees are encouraged to buy shares in their companies at discounted prices through payroll deduction plans. These stock incentives align employees’ interests with those of the company and can be very rewarding when the company does well. However, if growth in the company’s stock price declines, employee morale declines too, corporate culture is threatened,anddemandsforhigherwagesandmorebenefitsdevelop.

Anincreasinglyimportantcompensation-basedincentiveforretailemployeesistheprovisionofhealthcarebenefits.Ashealthcarecostscontinue torise,someemployeesfind thisbenefitas importantas thebasiccompensationprogram, particularly if it includes other family members. For instance, Burgerville, a 39-restaurant chain in Vancouver, Washington, pays at least 90 percent of health care premiums for hourly employees who work at least 20 hours a week.

Executivestherebelievethisunusualbenefithassavedmoneybycuttingturnover,boostingsales,andimprovingproductivity. Incentives are very effective at motivating employees to perform the activities on which the incentives are based. But incentives also may cause employees to ignore other activities. For example, salespeople whose compensation is based entirely on their salesmaybe reluctant to spend time restockingfixtures and shelves.Excessive use of incentives to motivate employees also can reduce employee commitment. Company loyalty falls becauseemployeesfeelthatthefirmhasn’tmadeacommitmenttothem(becauseitisunwillingtoguaranteetheircompensation).

Organisation culture:• Thefinalmethodformotivatingandcoordinatingemployeesistodevelopastrongorganisationculture. An organisation culture isthesetofvalues,traditions,andcustomsofafirmthatguidesemployeebehaviour. These guidelines aren’t written down as a set of policies and procedures; they are traditions passed along by experienced employees to new employees.Many retail firms have strong organisation cultures.An organisation culture often has a much stronger effect on employees’ actions than do rewards offered through compensation plans, directions provided by supervisors, or written company policies. For example in Nordstrom, lack of written rules doesn’t mean that employees have no guidelines or restrictions on their behaviour; rather, the organisation culture guides employees’ behaviour. New salespeople learn from other employees that they should always wear clothes sold at Nordstrom, that they should park their cars at the outskirts of the parking lot so that customers can park in more convenient locations, that they should approach customers who enter their department, that they should accept any merchandise returned by a customer even if the merchandise wasn’t purchased at a Nordstrom store, and that they should offer to carry packages to the customer’s car. Organisation cultures are developed and maintained through stories and symbols. Values in an organisation culture are often explained to new employees and reinforced to present employees through stories. Symbols are an effective means of communicating with employees because the values they represent can be remembered easily. Wal- Mart makes extensive use of symbols and symbolic behaviour to reinforce its emphasis oncontrollingcostsandkeepingincontactwithitscustomers.Photocopymachinesatcorporateheadquartershave cups on them for employees to use to pay for any personal copying. At the traditional Saturday morning executive meeting, employees present information on the cost-control measures they’ve recently undertaken. Managerswhohavebeentravellinginthefieldreportonwhatthey’veseen,uniqueprogramsundertakeninthe stores, and promising merchandise.

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Empowering employees:• Empowerment is a process in which managers share power and decision-making authoritywithemployees.Whenemployeeshavetheauthoritytomakedecisions,theyaremoreconfidentintheirabilities,haveagreateropportunitytoprovideservicetocustomersandaremorecommittedtothefirm’ssuccess.Conveniencestorechain,quiktrip,notonlyempowersitsemployeestomakedecisionsaboutroutinetransactions, such as remaking a sandwich or giving a customer a refund, but also allows them to make decisions about how to help individuals in need. Quik Trip is integrally involved in National Safe Place; a youth outreach programthateducatesyoungpeopleaboutthedangersofrunningawayortryingtosolvedifficultsituationsontheir own. Safe Place has a network of “safe locations” at schools, libraries, and Quik Trip stores. When kids seek a Quik Trip sanctuary because they feel threatened or are afraid to go home for whatever reason, Quik Trip employeesaretrainedtodowhateverittakestomakethemfeelsafeuntilatrainedcounsellorarrives.Thefirststepinempoweringemployeesisreviewingemployeeactivitiesthatrequireamanager’sapproval.Forexample,Parisian, an upscale department store chain owned by Belk, changed its check authorisation policy, thereby empowering sales associates to accept personal checks of up to $1,000 without a manager’s approval. Under the old policy, a customer often had to wait more than 10 minutes for the sales associate to locate a manager. Thenthebusymanagersimplysignedthecheckwithoutreviewingthecustomer’sidentification.Whenthesalesassociates were empowered to make approvals, service improved, and the number of bad checks decreased, becausethesalesassociatesfeltpersonallyresponsibleandcheckedidentificationcarefully.Empowermentofretail employees transfers authority and responsibility for making decisions to lower levels in the organisation. Since these employees are closer to the customers, they are in a good position to know what it takes to satisfy them. For empowerment to work, managers must have an attitude of respect and trust, not control and distrust.Creating partnering relationships:• Three HR management activities that build commitment by developing partnering relationships with employees are:

reducing status differences �promoting from within and �enabling employees to balance their careers and families. �

Reducing status differences:• Many retailers attempt to reduce status differences among employees. With limited statusdifferences,employeesfeelthattheyplayimportantrolesinthefirm’sabilitytoachieveitsgoalsandthattheir contributions are valued. Status differences can be reduced symbolically through the use of language and substantively by lowering wage differences and increasing communications among managers at different levels in the company. To build involvement and commitment among its employees, Penney’s has dropped many of thetraditionalpretencesthatdefinedanold-stylehierarchicalorganisation.Forinstance,atthePlano,Texas,corporateheadquarters,allemployeesareonafirst-namebasis,haveaflexibleworkweek,andmayattendleadership workshops intended to build an executive team for the future.

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SummaryEmployees can play a major role in differentiating a retailer’s offering from its competitor’s.•Committed employees are more motivated to assist the retailer in achieving its goals, such as improving the •satisfaction of customers and building customer loyalty.Thefinalmethodformotivatingandcoordinatingemployeesistodevelopastrongorganisationculture.•Training is particularly important in retailing because the overwhelming majority of retail employees have •direct contact with customers, which means they are responsible for helping customers satisfy their needs and resolve their problems.Empowerment• is a process in which managers share power and decision-making authority with employees.Some retailers use stock incentives to motivate and reward all employees, including sales associates. Employees •are encouraged to buy shares in their companies at discounted prices through payroll deduction plansCentralisation• occurs when the authority for retailing decisions is delegated to corporate managers rather than to geographically dispersed managers.

References Human Resource and Skill Requirments in the Organised Retail Sector• (2022). Available at: <http://www.nsdcindia.org/pdf/Organised-Retail.pdf.>[Accessed30thNovember2011].An Analysis of Emerging Human Resources Trends• . Available at: <http://www.retailcouncil.org/training/research/industry/rcc_hrtrends_eng_20091202.pdf.>[Accessed30thNovember2011].Chunawalla, S.A., 2009 . • Contours of Retailing Management. Global Media.Sharma, B. M., 2008. • Strategic Retail Management. Global Media.

Recommended Reading Brief, A., 1984. • Managing Human Resources in Retail Organizations. Lexington Books.Fullen, S. L., & Brown, D. R., • How to Open a Financially Successful Specialty Retail & Gourmet Foods Shop.Thomas, C., & Heil, G., 2005. • Employee Management and Customer Service in the Retail Industry., 1st ed., Wiley.

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Self AssessmentWhat is the primary objective of human resource management?1.

Constant supply of productsa. Check the labour costb. Build a basis for a sustainable competitive advantagec. To build various standard metrics to measure the customer’s needd.

Which of the following is not a factor in retail human resource management?2. Balancing the human resource triada. Expense in controlling manpowerb. Optimum utilisation of employeesc. Maintain relationship with other retailersd.

Which of the following is not one of the approaches that large retailers use to coordinate buying and selling?3. Improving appreciation for store environmenta. Store visitb. Designing the store ambiencec. Assigning employees to co-coordinating roles d.

___________ occurs when the authority for retailing decisions is delegated to corporate managers rather than 4. to geographically dispersed managers.

Centralisationa. Decentralisationb. Reductionc. Degradingd.

Which of the following is not a disadvantage of centralisation?5. Individualstoresmaynotbeabletorespondquicklytocompetitionintheirmarket.a. Retailermayhavedifficultyrespondingtolocalcompetitionandlabourmarkets.b. Itincreasesefficiencyc. Policies may make it hard for local managers to pay competitive wages in their area or hire appropriate d. types of salespeople.

______________ is an additional compensation awarded periodically on the basis of an evaluation of the 6. employee’s performance.

Bonusa. Commissionb. Stock incentivec. Salaryd.

___________ are an effective means of communicating with employees because the values they represent can 7. be remembered easily.

Periodic lettersa. Symbolsb. Salesc. Discountsd.

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_____________ is a process in which managers share power and decision-making authority with employees.8. Centralisationa. Empowermentb. Partnering c. Valuationd.

Which of the following is not a method used to reduce status difference?9. Use of languagea. By lowering wage differencesb. Use of symbolsc. increasing communications among managers at different levelsd.

Some retailers use _____________ to motivate and reward all employees, including sale associates.10. Bonusa. Commissionb. Stock incentivec. Salaryd.

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Chapter VIII

Ethical Issues in Retail

Aim

The aim of this chapter is to:

explain the importance and need of ethics in retailing•

elucidate the concept of corporate social responsibility •

discuss the problems faced by retailers related customers•

Objectives

The objectives of this chapter are to:

explain the problems caused by peers•

enlist various policies used •

illustrate the need of policies•

Learning outcome

At the end of this chapter, you will be able to:

recognise the legal and ethical consideration•

classify various ethical principles •

describe the value of ethical considerations•

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8.1 IntroductionEthics in retailing pose certain critical issues. Retailers may use certain ethical standards that guide decision makingwhenconfrontingquestionablesituationsthatmaynotbecoveredbylaw.Retailsaleshavebeenselectedas an important frame of reference as the retail salespeople are likely to encounter situations that could be ethically troublesome. Ethical decisions ensure society’s sense of order and justice. But trying to determine what falls into thatsenseoforderandjusticecanbedifficult.Onedepartmentthatisfrequentlymalignedforunethicalactsinbusiness is marketing.

A major reason for this negativity is that marketing tends to be the most visible or conspicuous department to the publicatlarge.Forexample,fictitiouspricing,deceptiveadvertisingandfalsesalespitchesfromsalespersonneloftenbecomecannonfodderforaggrievedcustomersandthemedia.Studieshaveconfirmedthatunethicalmarketingdecisions can engender considerable personal, organisational and social costs. There are moral constraints built into the very dynamics through which marketing works. For example, contemporary marketing practitioners often argue that dishonest marketing will be unsuccessful marketing that the market will weed out those who violate the common morality. After all, ethics function is a form of social control, something that is especially critical to customers, salespeople and the organisation.

The concept of Corporate Social Responsibility (CSR) is often associated with the concept of corporate ethics and accordingtomanydefinitions,CSRappearstobetheethicalexpressionofthebusiness.Consequentlyretailers’ethics may be focused on the notion of ethical responsibility to contribute to sustainable economic development; workingwithemployees,theirfamilies,thelocalcommunityandsocietyatlargetoimprovetheirqualityoflife.The retailers’ ethics may be analysed from the standpoint of ethical practices, seen as “Good Actions”.

Retailingplaysavitalroleintheeconomy.Theretailindustryisthefirstlinkinthedistributionchain,fromthecustomer’s point of view. It is therefore vital for retailers to act in an ethical manner because they affect the lives of many people.

One area in marketing where ethical misconduct can easily occur is the selling area. Sales personnel tend to be guided by their professional demands for bending ethics. Marketing personnel are the unfortunate victims of the ethics gap. Institutional support for encouraging ethical behaviour is more useful than a punitive or reformatory approach. If ethicality is measured, sales and marketing personnel may be as ethical as other groups in the organisation. This however needs to be reinforced organisationally. Failure to structure supportive ethical work environment is a case of managerial malfeasance.

8.2 Major Finding in Ethical Issues Ethical sales abound in business and as stated earlier retail salespeople encounter situations that could be ethically troublesome. The individuals with whom salespeople interact (within and outside the organisation) are likely to have different needs and problems that salespeople might satisfy or resolve. Because these individuals help foster their own interests served or problems solved. The demands communicated to salespeople by the individuals are likely tobediverseandoftenincompatible.Consequentlyretailsalespersonnelmayoftenfaceethicaldilemmaswhentorn between short run pressures from management (to achieve sales target or some other objectives) and long run goalsofachievingcustomerconfidenceandgoodwill.

Frequencydistributionshavebeenusedtoexamineaggregateresponsesforthedifferentsituationsontheseven-pointscaleasmentionedabove.Thesituationshavebeenclassifiedwithregardtothreedifferentareas,i.e.,thecustomer, peer and work.

For retail salespeople, the key individuals who may bring about ethical problems will be the salespeople's customers, peersandmanagement.Consequently,theirproblemshavebeenclassifiedas:

Customer:• Customer related situations encompass those situations that entail involvement with customers and have direct impact upon customers.

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Peer:• Peer related situations involve interactions with salespeoples’ non-work peers (friends and relatives) and fellow employees.Work:• Work related situations entail circumstances that may be precipitated by company operating procedures, practices or directives or are fostered by the work environment. Not all situations pose ethical issues to the retail salespeople.

Ethical problemsOf the thirty three situations administered to the respondents only four are seen by one-third or more of the retail salespeople as being ethical issues. Of these two (out of 17) are customer related situations, none (out of 8) is peer related situation and 2 (out of 8) are work related situation.

The customer related situations are:Charge full price for a sale item without the customers’ knowledge.•Don’t tell the complete truth to a customer about the characteristics of a product.•

The work related situations are:Salespersons receive an unfair work load.•Performyourjobwithinadequatejobinformationortraining.•

Existence of policiesEight of the thirty three situations evaluated by sales personnel are believed to be addressed by policies in more than 33 percent of the respondents’ companies. Of these 5 (out of 17) are customer related situations; 1 (out of 8) is peer-related situation; and 2 (out of 8) are work related situations. The situations are:

Customer related situations:Sell more expensive product when a less expensive product would be better for the customer.•Don’t offer information to the customer about an upcoming sale.•Make excuses to customers about unavailable merchandise when merchandise is not in stock or is sold out.•Take return from customers when you believe the item should not be accepted.•Give preferential treatment to certain customers.•

Peer related situation:Pressure from a friend to give him/her your employee discount.•

Work related situations:Salesperson receives an unfair workload.•Sellmerchandisethatisnotofgoodquality.•

The 25 remaining situations however are not believed to be covered by policies in the majority of the salespeoples’ companies. Out of the 4 ethically troublesome situations only in one situation (that is, salespersons receiving an unfair workload) about one third of the respondents believe their companies have policies addressing the situations.

Need of policiesThis study also investigated which situations salespeople believe should be addressed by company policies, regardless of whether policy already exists. The retailers’ sales people want company guidelines on 15 of the 33 situations evaluated by the respondents. In fact they want policy help on all the four ethically troublesome situations. Of the 15 situations 8(out of 17) are customer related; 2(out of 8) are peer related; and 5(out of 8) are work related. The situations are:

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Customer related:

i. Charge full price for a sale item without customer’s knowledge

ii. Don’t tell the complete truth to a customer about the characteristic of the product

iii. Customer damages product in the store and wants a mark down

iv. Makes excuses when merchandise is not ready for customer to pick up

v. Sell a more expensive product when a less expensive would be a better for a customer

vi. Don’t offer information to the customer about an upcoming sale ( which will include merchandise the customer is planning to buy).

vii. Make excuses to customers about the unavailable merchandise is not yet out of stock or sold out.

viii. Give preferential treatment to certain customers.

Peer related:

i. Pressure from fellow employees not to report employee theft

ii. Offer to give a friend and employee discount

Work related:

i. Sales person receives an unfair workload

ii. Sellmerchandisethatisnotofgoodquality

iii. Sell the product as if it were an exclusive when in fact it is available in other stores

iv. Performyourjobwithinadequatejobinformationortraining

v. Use of sales contest for sales contest for sales people in order to generate sales from customers

Table 8.1 Various situations for the formulation of policies

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8.3 Legal and Ethical Consideration When making the decisions discussed previously, managers need to consider the ethical and legal implications of their decisions,inadditiontotheeffectsthatthosedecisionshaveontheprofitabilityoftheirfirmsandthesatisfactionof their customers.

Ethics are principles governing individuals and companies that establish appropriate behaviour and indicate what isrightandwrong.Definingthetermiseasy,butdeterminingwhattheprinciplesareisdifficult.Whatonepersonthinks is ethical, another may consider unethical. Ethics can vary from country to country and from industry to industry. For example, offering bribes to overcome bureaucratic roadblocks is an accepted practice in Middle Eastern countries but is considered unethical, and even illegal, in the United States.

Ethical principles also can change over time. For example, some years ago, doctors and lawyers who advertised their services were considered unethical. Today such advertising is accepted as common practice.

Examplesofdifficultsituationsthatretailmanagersfaceincludethefollowing:The retailer sell merchandise that it suspects was made using child labour.•The retailer advertises that its prices are the lowest available in the market, even though some are not.•A retail buyer accepts an expensive gift from a vendor.•A retailer charges a supplier a fee for getting a new item in its store.•Retail salespeople use a high-pressure sales approach when they know the product is not the best for the •customer’s needs.A retailer discloses product information that may affect whether or not it is purchased.•A retailer promotes a product as being “on sale” if it never sold at a higher, nonsale price.•A retailer offers credit at a higher interest rate or sells products at higher prices in stores patronized mostly by •low-income customers.

Laws dictate those activities, which society has deemed to be clearly wrong, those activities for which retailers and their employees will be punished through the federal or state legal systems. However, most business decisions are notregulatedbylaws.Oftenretailmanagershavetorelyontheirfirms’andindustries’codesofethicsand/ortheirown codes of ethics to determine the right thing to do.

Many companies have codes of ethics to provide guidelines for their employees in making their ethical decisions. These ethical policies provide a clear sense of right and wrong so that companies and their customers can depend ontheiremployeeswhenquestionablesituationsarise.However,inmanysituations,retailmanagersneedtorelyon their personal code of ethics—their personal sense of what is right or wrong.

Ethical behaviour is determined by widely accepted views of what is right and wrong. Thus, you should engage only in activities about which you would be proud to tell your family, friends, employer, and customers. If the answer to anyofthesequestionsisyes,thebehaviouroractivityisprobablyunethical,andyoushouldnotdoit.

Firmcanstronglyaffecttheethicalchoicesyouwillhavetomake.Whenyouviewyourfirm’spoliciesorrequestsas improper, you have three choices:

Ignore your personal values, and do what your company asks you to do• . Self-respect suffers when you have to compromise your principles to please an employer. If you take this path, you will probably feel guilty and be dissatisfiedwithyourjobinthelongrun.Take a• stand, and tell your employer what you think. Trytoinfluencethedecisionsandpoliciesofyourcompanyand supervisors.Refuse• to compromise your principles. Takingthispathmaymeanyouwillgetfiredorbeforcedtoquit.

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Youshouldnot takea jobwithacompanywhoseproducts,policies,andconductconflictwithyourstandards.Beforetakingajob,investigatethecompany’sproceduresandsellingapproachtoseewhethertheyconflictwithyour personal ethical standards. Throughout this text, we will highlight the legal and ethical issues associated with the retail decisions made by managers.

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Summary Retail sales have been selected as an important frame of reference as the retail salespeople are likely to encounter •situations that could be ethically troublesome.Retailindustryisthefirstlinkinthedistributionchain,fromthecustomer’spointofview.Itisthereforevital•for retailers to act in an ethical manner because they affect the lives of many people.Eight of the thirty three situations evaluated by sales personnel are believed to be addressed by policies in more •than 33 percent of the respondents’ companies. Of these 5 (out of 17) are customer related situations; 1 (out of 8) is peer-related situation; and 2 (out of 8) are work related situations.Ethical behaviour is determined by widely accepted views of what is right and wrong.•

References BRCCSIFE• ., 2010. Retail ethics[VideoOnline]Availableat:<http://www.youtube.com/watch?v=B_PdJpqjxZA>[Accessed 30 November 2011].Sustainable Brands., 2010. • Sustainable Retail and Social Responsibility - Kevin Brady and David Ian Gray [VidoeOnline]Availableat:<http://vimeo.com/16102996>[Accessed30November2011].Thomas, J. L. • Retail ethics: an exploratory examination of consumer perceptions [Online] Available at: <https://docs.google.com/viewer?a=v&q=cache:UexJ91b44Q8J:www.sbaer.uca.edu/research/sma/1995/pdf/32.pdf+%22retail+ethics%22&hl=en&gl=in&pid=bl&srcid=ADGEESg4-Ti08MQPzaSSr180aZLiIh_Rc2DXgQR0VWCK_4C0AoI9O8DSPBwQZxnbDKbvTuvCa_R3wnWyUjWg76Xg8Xgsz_OcjeMqe4oGAd89TKIPAt5wHGPafDy-jFG_-CS2CPP7FmL8&sig=AHIEtbRFJA_LsuPzluxcD0UMRwu2qxTznQ&pli=1>[Accessed30November2011].Kurt, G., & GHacioglu, G., 2010. • Ethics as a customer perceived value driver in thecontext of online retailing. AfricanJournalofBusinessManagement[Online]Availableat:<http://www.academicjournals.org/AJBM>[Accessed 30 November 2011].Mitchell, & Curry, C., & Edmund, J., 2008. • Short Course in International Business Ethics: Combining Ethics andProfitsinGlobalBusiness, World Trade Press.

Recommended ReadingFerrell, O. C., 2010. • Business Ethics: Ethical Decision Making & Cases., 8th ed., South-Western College Pub.Shaw, W. H., • Business Ethics: A Textbook with Cases,, 7 ed., Wadsworth Publishing.Maxwell.J. C., 2003. • There’s No Such Thing As “Business” Ethics: There’s Only One Rule For Making Decisions. Center Street.

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Self Assessment____________ is a form of social control, something that is especially critical to customers, salespeople and 1. the organisation.

Ethics functiona. Corporate controlb. Retailingc. Ethical conductd.

One area in marketing where ethical misconduct can easily occur is the ___________ area.2. sellinga. manufacturingb. retailingc. distributingd.

Which of the following is not associated with peer related problem?3. interactions with salespeople’s non-work peersa. asking for discount by the relative and friends of the employeeb. fellow employeesc. customersd.

_________ are the principles governing individuals and companies which establish appropriate behaviour and 4. indicate what is right and wrong.

Ethicsa. Legal behaviourb. Ethical policiesc. Ethical behaviourd.

Which of the following statement is false?5. Most business decisions are not regulated by laws.a. Laws dictate those activities, which society has deemed to be clearly right.b. Many companies have codes of ethics to provide guidelines for their employees in making their ethical c. decisions.Ethical behaviour is determined by widely accepted views of what is right and wrong.d.

Which of the following is not a customer related situation?6. Don’t offer information to the customer about an upcoming sale.a. Give preferential treatment to certain customers.b. Take return from customers when you believe the item should not be accepted.c. Salesperson receives an unfair workload.d.

Which situations encompass those situations that entail involvement with customers and have direct impact 7. upon customers?

Peera. Workb. Customerc. Producerd.

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What does CSR stand for?8. Corporate Social Rulesa. Corporate Social Responsibilityb. Corporate Situational Responsibilityc. Common Social Responsibilityd.

____________ of the thirty three situations evaluated by sales personnel are believed to be addressed by policies 9. in more than 33 percent of the respondents’ companies.

Fivea. Sevenb. Tenc. Eightd.

The concept of __________ is often associated with the concept of corporate ethics.10. Corporate Social Rulesa. Corporate Social Responsibilityb. Corporate Situational Responsibilityc. Common Social Responsibilityd.

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Case Study I

How to fuel an innovation in concept: The NRL thrust

IntroductionIn the realmof petro-retailing, launching a small refining company froma remote up-country location to themainstream of marketing amongst existing giants like BPCL, IOC, HPCL, IBP, Reliance, Shell, ONGC, etc. means an everydayfearoffacingextinctioninamarketdominatedbyestablishedplayers.ThisishowNumaligarhRefineriesLimited (NRL) is attempting to cross the divide.

The in-road challenge was mainly to capture the mindshare and create high recall branding of NRL in the minds of the customers. The composite marketing strategy of NRL was to project it as dynamic and sensitive to changing user expectations. Conceived, designed and developed by Bharat Petroleum Corporation Ltd., the result creates a dramatically different petro retail outlet from existing formats, through innovative amenities, indigenous ingenuity and world-class service.

Having entered the retail sector in 2006, the action plan includes the set up 510 retail outlets spread over eastern and parts of northern and southern region of India.

Atfirstglance,anNRLoutlet’saero-foilshapedhornedcanopywithanaestheticallycurvedinnerstructure,taperedcolumns, monolith and other signage creates an inviting atmosphere. It depicts stark digressions from contemporary conventional retail outlets visible in the country, thereby branding the retail station as an “Energy Station” connoting a future looking organisation with future fuels/ energy in mind.

Value-addedservicesprefixed“Quick”suchasQuickShoppe,QuickService,QuickBank,QuickCall,Quicksurf,QuickLube,QuickBiteetc.depictpromptandefficientservices.

Withtheaimofattractingcustomersandassuringthemoftheexperienceofaquickandpleasurablefuellingstop,highqualityserviceandtocreateawarenessonquality,quantityandsafety,severaluniquesalesproposals(USPs)as mentioned below are visible at the NRL Energy Station:

Highly distinct and differentiated designNRL retail outlets were conceived and created with starkly distinct and differentiated design from any other petroleum retail outlet in the country. This brings to NRL a high level of brand recall and advertises itself to lure customers. The stations are planned as a self sustaining revenue earning resources besides sale of fuel and other value-added services through the avenues of advertising. NRL is not advertised as a brand but the composite plan at the Energy station advertises itself to lure customers.

Aerofoil shaped canopyTobreakmonotony,thecanopywasdesignedasacantileveredonewithanaerofoilshapedroofing.Unliketheconventional canopies, which are given backlit fascias, the canopy was not backlit. In fact, the canopy signages at the front and sides were well lit.

Besides this, the horn structures (representing the horn of the hippo – the beast of the North East) at the top of the canopy were lit to attract customers from a distance.

Compound wallThe compound wall, which otherwise was conventionally used only for site security purposes, was also made a brand element in NRL with colour railings matching the NRL theme. The street lamp posts are coloured in the same theme and placed to match the other elements, thereby lending uniformity to the ambience.

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Office SignageTheofficeroofstructureshavebeendesignedtomatchtheaerofoildesignofthecanopy.Theirmodularitygivesincreased advantage of extension in future business propositions while still maintaining uniformity, thus making the formal language of the outlet more pronounced and attractive through the use of brand colours.

Parallel display unitA major attraction among the customers, as the vehicle operator observes the fuel dispensing at his front through TVscreensalongwithenlargedLED-displayedparallelindicationoffuellingquantityandrates.Thisalsoisanentertainment source for co-passengers with revenue earning resource through advertisements.

Bay status indicator Unseen in any petro-retailing station, the Red & Green lights for Wait & Go indications on the canopy pillar facilitates the customer to choose among the free bays for fuelling as he enters.

Strollers Thesedisplaythesafety,qualityandquantityawarenesspromotionamongconsumersinaninnovativeandeducativeway,insteadofthenormalpracticeofpastingthestatutorysigns.Thisuniquefeaturecapturesthemindofthecustomeras he is able to appreciate the reasons. It also works towards advertising and entertainment for co-passengers, while being a revenue earning resource.

Add on unit The transparent top three shelves of this multi-purpose facility provides an excellent opportunity for displaying co-branded products and attracts a customer’s attention.

Automatic bill print out Thissystemforeverysalestransactionassuresquantitydelivery.IlluminationImportedluminariesofPhilipswithup-lighters and down-lighters provide highest colour rendering index for customers to appreciate the creativity, beautyandalsoprovideadequatevisibilityatthefuellingbay.TheconceptofsymmetricandasymmetricluminaireshavebeenintroducedforthefirsttimeinIndiathroughNRLstations.

Monolith with auto price change unit A dynamic, computerised system to remotely change prices from the sales room. This futuristic thought of adjusting prices can provide a better competitive edge in price wars in a free market scenario.

Materials New technology materials such as aluminium composite materials, PET G, Zinc alum sheets and 3M Vinyl were used for developing these “Designer Outlets”. 3M materials were used for monoliths, spreaders, logos and fascia signage.

Mini 300 luminaries, designed exclusively for petrol station applications, were introduced to achieve symmetric andasymmetriclightingrequirements.Dependinguponspaceavailabilityinthesupportingstructuralmembers,Compact Fluorescent Lamps (CFLs) were used. Life cycle costing of the elements was taking into consideration while selecting the materials and components.

To achieve harmonisation in branding, colours of NRL and the curve indicating ”rising Energy of the East” were used in every possible element of the outlet for powerful brand recall.

(Source: http://www.indiaretailing.com/case_study-nrl.asp)

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QuestionsWhen was the blueprint for NRL devised? 1. AnswerThe blueprint for NRL was devised way back in April 2004. The main challenge was to create a distinct identity in petrol retailing through innovation, world class infrastructure and services that were different from the present established market players. Another challenge was to execute a different canopy design that would replicate the look of a space station. The aim was to have a low life-cycle cost for all the material that was used.

Are NRL energy stations an integral part of BPCL stations or stand-alone and independent? 2. AnswerNRL is a subsidiary company of BPCL; however permission from Ministry of Petroleum and Natural Gas was taken to develop retail outlets on stand-alone and independent basis.

How many NRL stations are there in existence and where? 3. AnswerThere are at present about 59 retail outlets of NRL that are located in north, south east and north east states. ThefirstretailoutletofNRLwascommissionedatKaziranga,about240kmfromGuwahati(Assam),whichis a world heritage centre for the Rhino.

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Case Study II

Empowering and Sustaining through Supply Chain

IntroductionMaintainingthesamequalityandidentityacrossallitsstoresisacommendableachievement.Hence,Fabindiawas recently awarded for ‘excellence in supply chain management’ at the ‘6th TIE Annual Retail Summit 2010’. Butinmaintainingthatsamehighqualityandidentity,Fabindiawitnessedthechallengeofsourcingtheresources.To meet up this challenge, Fabindia’s main stress is on the importance of a robust and responsive supply chain in a retail sector.

ChallengeEstablished in1960 as an export house by John Bissell, today Fabindia is present in 44 cities in India and abroad including – Italy, China, UAE, Bahrain and Qatar through its 115 stores.

Known for its hand woven and hand printed fabric, Fabindia’s product portfolio includes non-textile range (started in 2000), organic foods range (in 2004), Fabindia Sana – the body care product range (in 2006) and handcrafted jewellery (in 2008).

Fabindiahadadualmandate,firstlytomaintainbeingaprofitableretailplatform,andsecondly,itwascommittedto creating 1,00,000 artisan shareholders in the community owned company that comprised its supply chain, and significantlyimpactedsustainablelivelihoodsintheruralsector.

SCM (supply chain management) in India is still at a nascent stage, but its potential is undeniable. “Indian retail is beginning to come into its own, and with it SCM is becoming an interesting and exciting area. There is also the growing realisation that it is not enough to emulate foreign models, however, effective they might have been in their own environment – we will have to develop our own solutions, and management parameters,” Bissell opines.

With this intention, a joint venture investment fund was established under Fabindia’s subsidiary – Artisans Micro Finance Pvt. Ltd. (AMFPL). Its role was to further facilitate the setting up of community owned companies (CoCs). TheAMFPLassistsinestablishingqualitystandards,providingaccesstomarketthroughFabindiaandinprovidingaccess to funding from banks. He said, “This is an exciting time for Indian Retail – rapidly growing demand, and one of the best growth rates. The way we have chosen to respond to the issues of supply chain is particular to us – so in that sense, we have chosen to tread a different path.”

Empowering the supply chain – CoCsPresently, there are 17 fully operational CoCs (community owned companies) in India. They help in strengthening the supply capabilities from where the goods are produced. A common system of stocking, production and delivery isexecuted,whichfurtherensuresthattheprofitsoftheCoCsareploughedbackintothebusiness.

TheCoCsfacilitatethetrainingofartisansinordertoimprovequalityandaddvaluetotheproduceandalsoenablesthe purchase of materials in bulk so as to get the best price, hence, the CoCs have evolved the supply chain of Fabindia from a centralised model to a regional supplier companies.

Bissellfurtheraffirmedthatitisawellcontextualisedoffering,andthehandicraftsectorisatthecore.

Benefits of this novel approach:Fabindia’suniqueapproachtosupplychainmanagementhadmanybenefits,like:•Enabling it to create 100,000 sustainable rural jobs across India•Enabling access to working capital• – the main hurdle to capacity building

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Closertosourcing–shorteningthesupplychain,betterqualityandpricing•Direct interface with artisans•

(Source:http://retail.franchiseindia.com/articles/Retail-Business-Practice/Case-studies/Empowering-Sustaining-through-Supply-Chain-280/)

Questions What is Fabindia’s product portfolio?1. What are the challenges faced by Fabindia in maintaining the supply of the product?2. What is the main function of AMFPL?3.

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Case Study III

Pantaloon Retail: A Domestic Organised Retailer Shows How It’s Done

Organised retail in India is simultaneously a promising and challenging prospect. New entrants can learn a lot from those currently operating in the Indian organised retail sector. This comprehensive case-study of a domestic organised retailerprovidesanin-depthviewofthelevelsofadaptationrequiredtosucceedintheIndianretailsector.

If there is one organised retailer in India that has recognised the potential of Indian retail early, understood the uniquecharacteristicsofretailinIndiaandbuiltupitselftocounteranycompetition,bothdomesticandforeign,it is without a doubt, Pantaloon Retail. What started as a small men’s wear retailer has become one of the largest organised retail chains in India with a presence in every retail sector imaginable and more!

Pantaloon’s Success Pantaloon’s success and continuous growth in the Indian organised retail market can be attributed to a number of factors, some of which mimic the strategies of large retailers in the west and others that have been completely tailored to the Indian market. What is evident at the outset is that Pantaloon has foreseen and understood the Indian retail roadmap better than anyone else.

Ground-up Development Pantaloon’smajoradvantageovercurrentandnewcompetitorsintheretailsectorhasbeenitsuniqueunderstandingoftheIndianorganisedretailmarketwithallitsquirks,shortcomingsandchallenges.Bycreatingaretailbusinessfromtheground-upandexpandingrapidly,PantaloonhasfollowedaWalMart-esquepatternofgrowth.However,unlikeWal-Mart,Pantaloon’snextstepwasnotstrengtheningitssuppliernetworkandback-officeoperations.InsteadthecompanyrecognisedthattheinadequaciesofIndianinfrastructurewouldgreatlydelayanyreturnsorevenresultsof investing in supply-chain platforms. It decided to experiment with as many retail formats, product-mixes and brands as was possible in order to gain maximum knowledge about the uncertain Indian organised retail sector and get a leg-up on any possible competition. In fact, current entrants in the organised retail market not only have to learn theropesoftheuniqueIndianorganisedretailsector,butalsohavetofindawaytocombatPantaloon’sdominantmarket share in almost all forms of organised retail-an uphill task for any competitor, regardless of size.

Multiple formats, multiple brands-A Comprehensive Retail Experiment Pantaloon has experimented with every retail format possible. They have opened supermarkets, hypermarkets, malls,departmentstores,fresh-producemarkets,singleareashops-likesportsshops,officesupplyshopsandothers(See Exhibit 15 for a list of Pantaloon’s stores). Most of their experiments have proved successful and Pantaloon is continuously to experiment while expanding current ventures.

However, success or not, what the real reward of these experiments is en enormous amount of knowledge and experience about the organised retail in India, consumer preferences, and operational strategies. This is knowledge that was most elusive in a previously untouched and unknown organised retail sector. What’s more impressive is the insight of the company in recognising the need for experimentation over expansion. This is an example of Pantaloon adapting itself to the Indian market rather than attempting to copy a Macy’s or a Wal-Mart and follow a cookie-cutter model.

The experimentation process has not ended with testing different store formats alone. Pantaloon is also experimenting with a variety of products. From men’s wear the company has moved on to experiment with retailing furniture, sportswear, kitchen appliances, food, electronics and children’s apparel. Again, it knows what works and doesn’t work in the Indian market, something that would not have been apparent as little as a decade ago. Pantaloon has also gone a step further by experimenting with brands as well. It has introduced a number of its own brands, a successful strategy that has worked in stores like Target and Wal-Mart.

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For example, it has experimented with launching clothing lines based on famous Indian Bollywood movies. It has also introduced a number of specialty fashion stores where it has launched several clothing lines of its own. Within the brand retailing space, Pantaloon has also tied up with some of India’s most popular brands like Gini and Jony to sell them in their stores. Rather than attempt to compete with existing popular brands the company has decided to partnerwith major Indian brands and leverage the success of these brands in the ambiguous Indian market. For whatever reason these brands have achieved success and a loyal following; Pantaloon’s move is sure to bring in more customers and retain them.

With its comprehensive experimentation, Pantaloon has reached a stage where it can write the book on Indian organised retail as well as be in the best position to criticise it. Sure, Pantaloon’s competitors have the opportunity to learn from the retail giant’s experiences, but the experience that comes with managing these diverse retail formats in the Indian scenario with the sourcing, supply and real-estate challenges is something that new entrants will have tolearnontheirown.WiththepaceatwhichPantaloonismoving,itislikelybythetimenewentrantsfigureouttheir strategy, Pantaloon would have made the several sectors of organised retail in India out of anybody’s reach.

The right JV’s at the right time In accordance with its experimentation policy and leveraging its unparalleled experience in the organised Indian retail market, Pantaloon has moved to form key joint ventures with a number of popular names like Staples and Starbucks. Rather than blindly throw these brands onto the retail scene. One can be sure that Pantaloon will tailor andpositiontheseforeignbrandstocatertotheIndianretailmarket.Withitsfirst-moveradvantagePantaloonisactively closing doors for its competitors by snapping up major brands before other can get to them.

Versatile Retailing Rather than (expand as a men’s wear retailer alone” policy, Pantaloon’s policy of comprehensive experimentation has given it an important advantage. Intentionally or unintentionally, Pantaloon has developed a versatile retail presence. Indian consumers see Pantaloon as an exclusive brand retailer, discount retailer, specialty retailer and food retailer all at once. The company has managed to avoid retail stereotypes and the insular strategies that result from catering to them. So while Wal-Mart is seen as a discount store, Safeway is considered a food retailer and Ikea is known as a furniture seller, Pantaloon is all of these at once. One of the reasons for this versatility is that the Pantaloon name has not been forced or even associated with the different products and stores other than the original men’s wear line. Instead each store and product has been given its own identity and presence. While this has proven to be a successful bet for the company, it is not entirely a blind one. In a country where unorganised retailers, who have no co-ordination between themselves, control 98% of the market, versatile retailing might be the best way to go. Pantaloon is essentially an organised retailer in the disguise of a large number and variety of unorganised retailers. Thisagainrepresentsthecompany’suniqueunderstandingoftheIndianscenario.

Winning TeamWhile Pantaloon retail has achieved much of its success on the back of its experimentation policy, it has also made some great recruiting decisions that have put the right people in charge of the right departments (See Exhibit 17 for Pantaloon’s Management Team and their diverse experience). The company understood the absence of any real knowledge or experience-base in the organised retail market. Instead of head-hunting people with pure retail experience, the company has poached a number of highly experienced managers and executives from a number of diverse and successful Indian companies. Their knowledge about the Indian business environment and supply-chain dynamicsaswellasexperienceoflaunchingproductsinthecountryandadaptingstrategiestotheuniquetastesoftheIndianconsumerhavebeenkeytoPantaloon’ssuccess.Thecompanyunderstoodthecorecompetenciesrequiredto dominate in the untapped organised retail sector and made hiring decisions accordingly.

Looking AheadPantaloonhascontinueditspolicyofcomprehensiveexperimentation,buthavingachievedsignificantscaleinanumber of sectors, the company has begun to implement the more conventional strategies of organised retail to further improve its market-share and future growth. Although capital was initially exclusively used for experimentation, the company is now allocating resources in two major areas:

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Real-estateTo cater to the Indian consumer that is used to shopping a few meters away from his house, location is of prime importanceforanyretailer.Pantaloon’sfirst-moveradvantagehasgivenitaccesstosomeofthemostexclusiveandretail friendly real-estate in the major urban centers. Yet, with the entry of a number of new and wealthy competitors, thecompanyhasrecognisedtheneedtorampupitseffortsinacquiringanddevelopingprimereal-estateforretail.Pantaloon has set up major real-estate funds, “Kshitij” and “Horizon” exclusively for the purchase and development of key real-estate for retail.

It has also begun to make strategic purchases in the smaller cities where the retail boom is predicted to continue once it stagnates in the major cities. However, in a crowded India where geographic proximity is most important, catering to a population that likes to shop close-by is the single largest factor that will determine success in the future. Pantaloon has at least recognised this and is preparing itself appropriately.

Supply-Chain and Behind-the-Scenes Operations For major retailers like Pantaloon especially, that have established a name and market presence through multi-format experimentation, the next step is the improvement of the supply-chain and behind-the-scene operations. These factors serve as the backbone of a successful organised retail chain in the long-run. Pantaloon cleverly ignored these aspects duetotheuniqueinadequaciesofIndianinfrastructureandrightlyfavouredexperimentationoverorganisation.But,tocontinuetogrowatthepaceithasoverthelastfiveyearsitneedstopayattentiontoitssourcingnetwork,transportation system and other logistics. By developing these now, Pantaloon will also be able to gain a leg-up on itscompetitors.Havinglostthefirstmoveradvantage,newentrantsintheIndianretailsectorarelikelytostartwithback-endoperationsratherthanformatexperimentation.WhilethispolicyisaflawedoneintheIndianmarket,thedisadvantagesofthisapproachmaybemorethancompensatedforbyachievingefficiencyandscaleinback-endoperations,bothofwhichareverydifficultinIndia.UltimatelygiantslikeWal-MartandCostco,nomatterhowthey reached their market position, rely on solid supplier-network and strategic back-end operation management to survive and continue to grow. In this matter India is no different from any other country. What Pantaloon will have to improvise though, is the absence of basic infrastructure like transportation and regulation that the Wal-Marts and Safeways could make use of in their climb up the retail ladder. The pace of expansion of the retail industry is likely to outstrip that of the development of the country’s infrastructure. Pantaloon will have to be innovative in how it compensatesfortheseinadequacieswhileefficientlymanagingitssupplychainandlogistics.

ThreatsPantaloon has the upper hand on the most potential foreign and domestic competition in the organised retail sector. Howeverthesamecharacteristicsthathavemadeitanexclusiveandversatileretailercanfinditadisadvantage.

Money: The Ultimate DifferentiatorMuch of Pantaloon’s competition consists is either retail ventures of large Indian industrial houses (Reliance Retail, Birla’s retail venture) or foreign retail giants (Wal-Mart). In other words, Pantaloon’s competition is rich, very rich. While competitors may not have Pantaloon’s large and diverse experience and knowledge bank, they still have enough money bank to potentially compensate for that. While the money versus experience competition is yet to play itself out in the Indian organised retail sector, in most industries money is a pretty good tool to compete with. Pantaloon,whichisalmostexclusivelyaretailbodydespitescatteredeffortstodiversifyitsportfolio,mightfinditdifficulttoraisesufficientresourcestocompetewiththelikesofWal-MartandReliance.Theymighthavealeg-upwith their early-bird advantage but how long that will last in the face of stiff competition is anyone’s guess. With capital intensive inputs like real-estate and supply chain development likely to dictate success in the organised retail market,Pantaloonmightfinditdifficulttocompeteonanequalfooting.MoreovercompetitorslikeReliancewillmorethanlikelythrowaroundtheirfinancialweightinhopesofachievingadominantmarket-share,especiallyifno other method works. One approach that the company has implemented is the formation of JV’s with a number of leading international companies and brands from which it may be able to derive additional funding given it deliversstrongresults.Yet,thereisnoguaranteethatJV’swillbeasufficientsourceofadditionalresourcesandPantaloon’s prosperous market position might turn precarious if it doesn’t address its lack of resources compared to its competitors.

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Connections and RelationshipsPantaloon made the right decision by making supply-chain development secondary to experimentation to gain dominance in the unknown organised retail market. Its recent initiative to begin paying attention to back-end-operations would be successful if it weren’t faced with formidable competition. Companies like Reliance that do business in a variety of sectors and locations in India might be better suited to developing a strong supply-chain and back-end operation system. Leveraging their diverse relationships across the board of Indian industry, Reliance mightbeabletoquicklydevelopasourcing-networkthatisbothefficientandcheap.Thisscenariohasthepotentialof robbing Pantaloon of the advantages it has enjoyed from its early presence and better understanding of the market.

(Source: http://cs.stanford.edu/people/thathoo/retail.pdf)

QuestionsWhat is Pantaloon’s major advantage over current and new competitors in the retail sector?1. WhatarethevariousstrategieshashelpedPantalooninacquiringanstatuesoforganisedretailerSop?2. What are the various threat faced by Pantaloons?3.

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Kurt, G., & GHacioglu, G., 2010. • Ethics as a customer perceived value driver in thecontext of online retailing. AfricanJournalofBusinessManagement[Online]Availableat:<http://www.academicjournals.org/AJBM>[Accessed 30 November 2011].Lan Li, Richard J. Sexton., • Retailer Pricing Strategies for Differentiated Products Available at: <http://ageconsearch.umn.edu/bitstream/19110/1/sp05li11.pdf.>[Accessed29thNovember2011]. Learnmarketing., 2009. Marketing Mix: Place Strategies [Video Online] Available at: http://www.youtube.•com/watch?v=r2JJYyeKOkk&list=PL733ECB06B0103992&index=10&feature=plpp_video [Accessed 29 November 2011].Marketing Mix• [Online]Availableat:<http://www.nos.org/srsec319/319-22.pdf.>[Accessed29thNovember2011].marketingmansite., 2011. • Retailers.mp4 [Video Online] Available at: <http://www.youtube.com/watch?v=gbV7-usNTXw.>[Accessed29November2011].Mitchell, & Curry, C., & Edmund, J., 2008. • Short Course in International Business Ethics: Combining Ethics andProfitsinGlobalBusiness, World Trade Press.Naimahveiled., 2011. • Marketing by Grewal/Levy., 2nd ed., [Video Online] Available at: <http://www.youtube.com/watch?v=dBmveXPfW1I>[Accessed29November2011].P., Shail. & S., Antoine.,• Models of Consumer Behaviour Available at : http://www.maths-in-industry.org/miis/38/1/Consumers.pdf. [Accessed 29 November 2011]. • pjvdixon., 2008. Retail Home Delivery: Online Customers, Logistics and Supply Chain Management - Keynote speaker [Video Online] Available at: <http://www.youtube.com/watch?v=ZbPMaxNl3J4>{accessed30November2011].PlanetRetailGlobal., 2011. • Planet Retail in the Spotlight - Retailer Pricing [Video Online] Available at: <http://www.youtube.com/watch?v=biLn7aXAKu0>[Accessed29November2011].Retail Industry In India• Availableat:<http://www.cci.in/pdf/surveys_reports/indias_retail_sector.pdf>.[Accessed29 November 2011]. RetailIndustryLeader., 2010. • Casey Chroust discusses Logistics Trends in Retail [Video Online] Available at: <http://www.youtube.com/watch?v=DNRjjC2pxac>[Accessed30November2011].Sharma, B. M., 2008. • Strategic Retail Management, Book Enclave.Sustainable Brands., 2010. • Sustainable Retail and Social Responsibility - Kevin Brady and David Ian Gray [VidoeOnline]Availableat:<http://vimeo.com/16102996>[Accessed30November2011].Thomas, J. L. • Retail ethics: an exploratory examination of consumer perceptions [Online] Available at: <https://docs.google.com/viewer?a=v&q=cache:UexJ91b44Q8J:www.sbaer.uca.edu/research/sma/1995/pdf/32.pdf+%22retail+ethics%22&hl=en&gl=in&pid=bl&srcid=ADGEESg4-Ti08MQPzaSSr180aZLiIh_Rc2DXgQR0VWCK_4C0AoI9O8DSPBwQZxnbDKbvTuvCa_R3wnWyUjWg76Xg8Xgsz_OcjeMqe4oGAd89TKIPAt5wHGPafDy-jFG_-CS2CPP7FmL8&sig=AHIEtbRFJA_LsuPzluxcD0UMRwu2qxTznQ&pli=1>[Accessed30November2011].tribalinsight., 2009. • Supermarket Psychology: Specials, pricing, labelling and packaging [Video Online] Available at: <http://www.youtube.com/watch?v=yzRDEKyqIJs>[Accessed29November2011].Zentes, J., & Morschett, D., & Klein, S. H., 2007. • Strategic Retail Management : 1st ed., Gabler.

Recommended ReadingAyers, J. B., & Odegaard,• M. A., 2007. Retail Supply Chain Management, Auerbach Publications. Barry Berman., • Retail Management: A Strategic Approach, 11th ed., Pearson Education India. Bob Phibbs., 2010. • The Retail Doctor’s Guide to Growing Your Business: A Step-by-Step Approach to Quickly Diagnose, Treat, and Cure , 1st ed., Wiley.Bond, R., 2008. • Retail in Detail , 4th ed., Entrepreneur Press.Brief, A., 1984. • Managing Human Resources in Retail Organizations. Lexington Books.

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Brown, D. R., & Fullen, S. L., 2004. • How to Open a Financially Successful Specialty Retail & Gourmet Foods Shop. Atlantic Publishing Group Inc. Bruce, M., & Moore, C., Birtwistle, G., 2004, • Marketing: A Case Study Approach, A Butterworth-Heinemann Title .Carol L.Schroeder., 2007. • Specialty Shop Retailing: Everything You Need to Know to Run Your Own Store , 3rd ed., Wiely.Cox, R., & Brittain, P., 2004. • Retailing: An Introduction, 5th ed., Financial Times/ Prentice Hall.Dion, J. E., 2008. • The Complete Idiot’s Guide to Starting and Running a Retail Store, Alpha.DrRafiq.M.,2003.• Principles of Retail Management, Rosemary : Varley Palgrave Macmillan. Ferrell, O. C., 2010. • Business Ethics: Ethical Decision Making & Cases., 8th ed., South-Western College Pub.Fisher, M., & Raman, A., 2010. • The New Science of Retailing: How Analytics are Transforming the Supply Chain and Improving Performance, Harvard Business Press.Fleming, P., 2007. • Retail Management: Mercury Business Books, 2nd edition .Fullen, S. L., & Brown, D. R., • How to Open a Financially Successful Specialty Retail & Gourmet Foods Shop.Gilbert, D., 2002. • Retail Marketing Management : Financial Times/; 2 edition., Prentice Hall.Hugos,• M. H., 2005. Supply Chain Management in the Retail Industry, 1st ed., Wiley.Lewis, R., 2010. • The New Rules of Retail: Competing in the World’s Toughest Marketplace, Palgrave Macmillan.Maxwell.J. C., 2003. • There’s No Such Thing As “Business” Ethics: There’s Only One Rule For Making Decisions. Center Street.Mcgoldrick, P., 2002. • Retail Marketing, INTSTDT ed., McGraw-Hill Higher Education. Raeon, F., 2010 . • The A B C’s of SITE SELECTION: How to Pick Winners and Avoid Losers . Xlibris.Segel, R., 2008. • Retail Business Kit For Dummies : 2nd ed., John Wiley & Sons.Shaw, W. H., • Business Ethics: A Textbook with Cases,, 7 ed., Wadsworth Publishing.Thomas, C., & Heil, G., 2005. • Employee Management and Customer Service in the Retail Industry., 1st ed., Wiley.

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Self Assessment Answers

Chapter Id1. b2. d3. b4. a5. c6. b7. a8. d9. a10.

Chapter IIb1. a2. c3. a4. c5. d6. c7. c8. b9. a10.

Chapter III d1. a2. c3. c4. a5. d6. d7. c8. b9. b10.

Chapter IVa1. a2. d3. a4. c5. d6. c7. c8. a9. d10.

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Chapter Vb1. a2. b3. d4. d5. c6. a7. d8. d9. a10.

Chapter VIa1. d2. d3. d4. a5. c6. d7. a8. b9. b10.

Chapter VIIc1. d2. c3. a4. c5. a6. b7. b8. c9. c10.

Chapter VIIIa1. a2. d3. a4. b5. d6. c7. b8. d9. b10.