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Chapter 10, channel institutions - Retailing. After studying this chapter you will be able: 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.
Chapter 10 Channel Institutions - Retailing SDM Ch 10 Tata McGraw Hill 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 SDM Ch 10 Tata McGraw Hill 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 SDM Ch 10 Tata McGraw Hill 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 SDM Ch 10 Tata McGraw Hill Retailing • Retail stores are independent of the producers – not attached to any of them • A survey shows that only 35% of supermarket purchases are preplanned The rest are ‘impulse’- greatly influenced by quality of the merchandising efforts SDM Ch 10 Tata McGraw Hill 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 SDM Ch 10 Tata McGraw Hill 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 SDM Ch 10 Tata McGraw Hill How Customers Decide on a Retailer? • • • • • • Price Location Product selection Fairness in dealings Friendly sales people Specialized services provided SDM Ch 10 Tata McGraw Hill 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 SDM Ch 10 Tata McGraw Hill 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 coops 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 SDM Ch 10 Tata McGraw Hill 10 Retail Strategy • • • • Positioning of the retailer Merchandising Customer service Customer communication SDM Ch 10 Tata McGraw Hill 25 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 SDM Ch 10 Tata McGraw Hill 26 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 SDM Ch 10 Tata McGraw Hill 27 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 … SDM Ch 10 Tata McGraw Hill 28 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 SDM Ch 10 Tata McGraw Hill 29 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… SDM Ch 10 Tata McGraw Hill 30 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 unlikely Performance measures… SDM Ch 10 Tata McGraw Hill 31 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 SDM Ch 10 Tata McGraw Hill 32 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 SDM Ch 10 Tata McGraw Hill Franchisor benefits… 33 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… SDM Ch 10 Tata McGraw Hill 34 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… SDM Ch 10 Tata McGraw Hill 35 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 SDM Ch 10 Tata McGraw Hill 36 E-tailing Issues • • • • Logistics support to selling Payment gateway Customer product returns Conflicts with Brick &Mortar – overcome by selling separate products FDI in retail… SDM Ch 10 Tata McGraw Hill 37 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 SDM Ch 10 Tata McGraw Hill 38 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 39 ... 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 SDM Ch 10. .. Tata McGraw Hill 16 Organized Retail - Features • Sponsored by companies or corporate groups • Large formats like supermarkets, department stores and now hypermarkets • Right ambience to make... same brand name – Same brands should be sold internationally – Branding at the time of manufacturing itself SDM Ch 10 Tata McGraw Hill 20 Trade / Retail Format • Range of goods and customer