sdm- ch 10 tata mcgraw hill publishing 1 chapter 10 channel institutions - retailing

SDM- Ch 10 Tata McGraw Hill Publishing 1

Chapter 10

Channel Institutions - Retailing


Learning Objectives

• Understand what retailing is all about• Global retail scene and trends• Indian retail scene and trends• Types of retailers• Trade and retail formats, trading area• Retail management strategies and operations• Measuring retail performance• Franchising and e-tailing• FDI in retail in India


What is Retailing? • Any business entity selling to consumers

directly is retailing – in a shop, in person, by mail, on the internet, telephone or a vending machine

• Retail also has a life cycle – newer forms of retail come to replace the older ones – the corner grocer may change to a supermarket

• Includes all activities involved in selling or renting products or services to consumers for their home or personal consumption


Retailing • Term retail derived from French word ‘retaillier’

meaning ‘to break bulk’• Characteristics:

– Order sizes tend to be small but many– Caters to a wide variety of customers. Keeps a large

assortment of goods– Lot of buying in the outlet is ‘impulse’- inventory management

is critical– Selling personnel and displays are important elements of the

selling process– Strengths in ‘availability’ and ‘visibility’– Targeted customer mix decides the marketing mix of the

retailer


Retailing

• Retail stores are independent of the producers – not attached to any of them

• A survey shows that only 35% of supermarket purchases are pre-planned. The rest are ‘impulse’- greatly influenced by quality of the merchandising efforts


Functions of Retailers

• Marketing functions to provide consumers a wide variety

• Helps create time, place and possession utilities

• May add form utility (alteration of a trouser bought by a customer)

• Helps create an ‘image’ for the products he sells


Functions of Retailers

• Add value through:– Additional services – extended store

timings, credit, home delivery– Personnel to identify and solve customer

problems– Location in a bazaar to facilitate

comparison shopping


How do Customers Decide on a Retailer?

• Price

• Location

• Product selection

• Fairness in dealings

• Friendly sales people

• Specialized services provided


Kinds of Retailers

Type of retailer

Characteristics

Specialty store Narrow product line with deep assortment – apparel, furniture, books

Department store

Several product line in different departments – Shoppers Stop, Big Bazaar

Supermarket Large, low-cost, low-margin, high volume, self-service operation with a wide offering

Convenience store

Small stores in residential areas, open long hours all days of the week – limited variety of fast moving products like groceries, food

Discount store Standard merchandise sold at lower prices for low margins - Subhiksha


Kinds of Retailers

Type of retailer

Characteristics

Corporate chains

More outlets owned and controlled by one firm – Globus

Voluntary chain Wholesaler sponsored group of independent retailers

Retailer co-ops Independent retailers with centralized buying operations and common promotions

Consumer co-ops

Co-op societies of groups of consumers operating their own stores – farmers, industrial workers etc

Franchise organisation

Contractual arrangement between the producer and retailers – selling products exclusively – Kemp Toys


Retailing Scene - Global

• Well organised in most developing countries• Global biz worth about $ 6.6 trillion• Retail market size is $2325 bln in the US and

$ 280 bln in India.• Organised retail is 85% in the US and about

5% in India. China 20% Taiwan 80%• Retail sector is part of the service sector and

if organised, is a major contributor to a country’s GDP


Retailing Scene - Global

• High potential for generating employment – 2 mln retail outlets in the US employ about 22 mln people

• Retail sector contributes significantly to the growth of the economy

• Organised retail is becoming powerful over its suppliers (who may also be big corporates)

• Producers of goods taking action to protect their turf


Retailers’ Strengths

• Choice of merchandise is their prerogative – put pressure on producer suppliers

• Many new products on offer. Can charge penalty if products do not do well

• New developments in IT help them run operations optimally and keep track of loyal customers. Also helps them identify profitable store locations.


The Indian Retail Scene


Salient Features

• Estimated over 12 mln retail outlets with most of them in the unorganized sector

• 10 outlets per 1000 population

• Average per capita space – 2 sq ft compared to 15 sq ft in the US

• Organized retail is estimated between 4 to 7% but growing fast


Organized Retail

• Growing trends attracting global players• Some of them like Wal Mart and Tesco have

already created buying hubs here.• In Jan 2006, GOI has permitted FDI upto 51%

in single brand retail outlets• Well known brands like Marks & Spencer,

Reebok, Levis, Adidas, Nike, Reebok, McDonalds, KFC, Swarowski are already in India.


Organized Retail - Features• Sponsored by companies or corporate groups• Large formats like supermarkets, department

stores and now hypermarkets• Right ambience to make shopping a pleasure• Use latest technology for customer care and

supply chain management.• Large employment potential• Effectively manage operating costs• Offer consumers value for money


Retailing Trends - India• Consumer wants more benefits without

additional costs• Rising income levels – cheap no longer

works, but ‘value for money’• Explosion of communication channels

influences choices of products• Increased literacy has made consumer more

conscious of his bargaining power• Growing number of urban nuclear families


Retailing Trends - India• Influence of retailer increasing – assortment

plus other facilities offered• Rural consumers want the same things and

as their urban counterparts and are willing to pay for it

• Better organized supply chains to cater to a large number of outlets in different locations

• Improved infrastructure helping the consumers

• Bigger volumes help in economies of scale


FDI in Retail in India• MNC players showing interest to operate in India• Resistance from the existing players• So far only cash-and-carry permitted• Franchisees also allowed – KFC, Tag Heuer,

Swatch, McDonalds• Jan 2006, 51% FDI permitted in single brand

businesses:– All products should be under the same brand name– Same brands should be sold internationally– Branding at the time of manufacturing itself


Trade / Retail Format

• Range of goods and customer service dimensions determine the ‘format’. Elements distinguish between stores and include:– Store ambience. (Kemp Fort)– Saving in time for shopping – interiors of practical

design – reduce time for search and pick-up of goods– Location – Physical characteristics – external appearance,

arrangement of goods

• All these are parts of the positioning strategy and influence the ‘footfalls’ to the store.


Categories of Shoppers (1)• Identified by Cook & Walters• Task focused shopper – visits the store to buy

specific things he has planned for – Convenience, minimum time, easily accessible goods,

pleasing store format– Grocery shopping is an example

• Leisure shopper – more interested in the ambience and environment – Has plenty of time, wants to have a good time while

shopping– Lifestyle stores are examples


Category of Shoppers (2)

• Convenience goods (low value): probable gain from shopping and making comparisons is small compared to the time, effort and mental discomfort required in the search -toothpaste

• Shopping goods (high value): gain is large - refrigerator

• Specialty goods: clearly distinguished by brand preferences – Maruti Zen car or Tag-Heuer watch

Trading area…


Trading Area

• Catchment area from where most of the customers of a retail store come– Corner grocery store caters to the locality in which

it is situated– Discount stores have a wider area. Subhiksha

locations for consumers in 2 km radius– Specialty stores have a much wider trading area –

MTR, Shoppers’ Stop etc

• Trading area increases with the size of the store and the variety it offers


Retail Strategy

• Positioning of the retailer

• Merchandising

• Customer service

• Customer communication


Positioning Strategy

• Wide range with a high value add – Lifestyle brand of stores

• Limited range but a high value add – Tanishque jewelry store

• Limited range with a limited value add – Bata stores

• Wide range of goods but a limited value add – a Food World outlet


Merchandising

• A set of activities involved in acquiring goods and services and making them available at the places, times and prices and the quantity that enable a retailer to reach his goals

• The most critical function in retail• Directly effects the revenue and profitability of

the store• Also takes into account the assortment of

goods and their quality


Customer Service Strategy

• Developed to create ‘stickiness’ in customers• Personal data collected using IT – including

purchasing practices and preferences• Customer loyalty programs planned• Create ‘customer’ delight• Location strategy to give competitive

advantage• Understanding the buying profile of the

customers Communication …


Customer Communication• The manner in which the retailer makes himself

known to his customers. Has two parts to it:– The messages which the retailer sends to his

customers and prospects– The word of mouth support which satisfied

customers give to the retailer by talking to others

• Retailer communicates about:– Announcing the opening of a store– Promotions running in the store– Additional facilities introduced by the stores


Pricing Strategy

• Premium and indicating high value

• Reasonable pricing with good value

• Low pricing but high value for money

• All strategies are focused on giving value to the customer

Product differentiation….


Product Differentiation

• Feature exclusive national brands not available in competing retailers – unlikely

• Exclusivity of products – specialty stores• Mostly private labels – Westside• Feature, big, specially planned merchandising

events – Kemp Fashion sows• Introduce new products before competition -

-again unlikelyPerformance measures…


Retail Performance Measures

• Gross margin return on inventory investment – GMROI– Gross margin multiplied by ratio of sales to

inventory (50%*4= 200%)

• Gross margin per full time equivalent employee

• Gross margin per square foot


Franchising

• Franchisor is the firm which wants to sell its goods or services

• Franchisee is the firm or group that are willing to sell the products or services on behalf of the franchisor– The first party gives advice and help to the

second to find good locations, blue prints for a store, financial, marketing and management assistance

Franchisor benefits…


Benefits to Franchisor

• Faster expansion

• Local franchisee pays lower advertising rates than a national firm

• Owners motivated to work more hours than mere employees

• Local taxes and licenses are responsibility of franchisees

Franchisee benefits…


Benefits to Franchisee

• Quick recognition among potential customers• Management training provided by principal• Principal may buy ingredients and supplies

and sell to franchisee at lower prices• Financial assistance• Promotional aids, in-store displays etc

Electronic channels…


Retailing on the Internet

• Unlimited assortment• Items may not be on hold – someone has to

deliver the product – delays• No product touch or feel• More info makes the customer a better shopper• Comparison shopping possible• Consumer has to plan purchases ahead• No need to handle cash – payment can be on-

line• Shopping is 24X7


E-tailing Issues

• Logistics support to selling

• Payment gateway

• Customer product returns

• Conflicts with Brick &Mortar – overcome by selling separate products

FDI in retail….


Key Learnings• Any business selling / renting a product or

service to a consumer is retailing• A consumer selects a retailer based on price,

location, merchandise selection, fairness in dealings, helpful sales people and other services

• Organized retail is growing strong and negotiating better terms from producer suppliers

• In India, upto 51% foreign investment is permitted in single brand businesses


Key Learnings

• Format defines the physical features of the store and its service

• Trading area is the catchment area from where the customers of store come from

• Retail strategy is built on positioning, product offerings, merchandising and communication

• Retail performance is measured by utilisation of space, inventory and manpower

• E-tailing is buying goods on the Internet

sdm- ch 10 tata mcgraw hill publishing 1 chapter 10 channel institutions - retailing

Documents

tata mcgraw hill publishing

sdm ch

retailer slide

retailing retail stores

retailing term retail

retail formats

india slide

global retail scene