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Chapter

RMG 200 Chapter Notes -La Senza, Competitive Advantage, Target Market


Department
Retail Management
Course Code
RMG 200
Professor
Brent Barr

Page:
of 4
Ch 4: Retail Market Strategy
WHAT IS RETAIL STRATEGY?
Definition of Retail Market Strategy
A retail strategy is a statement identifying the retailer’s:
o Target market
o The format the retailer plans to use to satisfy the target market’s needs
o The bases upon which the retailer plans to build a sustainable competitive advantage
Target market: the market segment(s) toward which the retailer plans to focus its resources and retail mi
Retail format: the retailers’ type of retail mix (nature of merchandise and services offered, pricing policy,
advertising and promotion program, approach to store design and visual merchandising, and typical location)
Sustainable competitive advantage: a distinct competency of a retailer relative to its competitors that can be
maintained over a considerable time period
Target Market and Retail Formats
Retailing concept: a management orientation that holds that the key task of a retailer is to determine the needs
and wants of its target markets and to direct the firm toward satisfying those needs and wants more effectively
and efficiently than competitors do
Retail market: a group of consumers with similar needs (a market segment) and a group of retailers using a
similar retail format to satisfy those consumer needs
BUILDING A SUSTAINABLE COMPETITVE ADVANTAGE
When developing a retail strategy, two sets of variables that will impact your retail business must be assessed:
Micro-environment
Macro-environment
All of the things within the retailer’s control,
including the retail product that will be sold, the
price for the product, the store location, the
promotion and visual image of the store, and the
store management decisions
The external environment that the retailer cannot
control, including competition, economic stability of
the trade area, the technology that will make
retailing more efficient, the regulatory and ethical
environment in which the business operates, and
the social trends including consumer behaviour and
lifestyle and demographic trends
SWOT analysis: an analysis of strengths,
weaknesses, opportunities, and threats designed to
assess both the micro and macro environments and
their relation to the retailer
Methods for Developing Competitive Advantage
A. Customer loyalty: customers’ commitment to shopping at a store
Some ways that retailers build loyalty are by:
o Developing clear and precise position strategies
o Developing a strong brand for the store or store brands
o Creating an emotional attachment with customers through loyalty programs
Retail branding eg. Kenmore only sold at Sears
Positioning: (aka brand building) the design and implementation of a retail mix to create in the customer’s
mind an image of the retailer relative to its competitors
Loyalty programs part of an overall customer relationship management (CRM) program
o Data warehouse: the coordinated and periodic copying of data from various sources, both inside and
outside the enterprise, in an environment ready for analytical and informational processing. It contains all
of the data the firm has collected about its customers and is the foundation for subsequent CRM activities
B. Location Not easily duplicated
C. Human Resource Management Knowledgable and skilled employees committed to the retailer’s objectives
are critical assets that support success, recruiting and training great employees is not easy
D. Distribution and Information Systems goal is to get their customers the merchandise they want, when they
want it, in the wuantities that are required, at a lower delivered cost than their competitors
E. Unique Merchandise private-label brands: (aka store brands) products developed and marketed by a retailer
and only available for sale by that retailer
F. Vendor Relations
By developing strong relations with vendors, retailers may gain exclusive rights to:
o Sell merchandise in a specific region
o Obtain special terms of purchase that are not available to competitors who lack such relations
o Receive popular merchandise in short supply
G. Customer Service offering good service consistently is difficult because humans are less consistent than
machines
GROWTH STRATEGIES
Target Markets
Retail Format
Existing
New
Market Penetration
Market Expansion
Format Development
Diversification
A. Market Penetration
Market penetration opportunity: an investment opportunity strategy that focuses on increasing sales to
present customers using the present retailing format
Approaches
Attracting new customers by opening more stores in the target market and keeping existing store open for
longer hours
Displaying merchandise to increase impulse purchases and training salespeople to cross sell
Cross sell: when sales associates in one department attempt to sell complementary merchandise from other
department to their customers
B. Market Expansion
Market expansion opportunity: a strategy investment opportunity that employs the existing retailing format in
new market segments
Eg. Abercrombie and Fitch’s target market is university students rolled out lower-priced Hollister for high
schoolers
C. Retail Format Development
Retail format development opportunity: an investment opportunity strategy in which a retailer offers a new
retail format a format involving a different retail mix to the same target market
Eg. Chapters is a store based retailer began selling books to its present target market over the Internet
Retailer adds merchandise categories (eg. Amazon began selling DVDs and electronics)
D. Diversification
Diversification opportunity: a strategic investment opportunity that involves an entirely new retail format
directed toward a market segment not presently being served (eg. La Senza opened La Senza Girl to attract
tween market)
Vertical integration is diversification by retailers into wholesaling or manufacturing
Related Diversification
Unrelated Diversification
A diversification opportunity strategy in which the
retailer’s present offering and market share
something in common with the market and format
being considered
Purchasing from same vendors, using same
distribution or management information system,
advertising in the same newspapers to similar
target markets
Diversification in which there is no commonality
between the present business and the new business
Eg. Footlocker owned some Burger King Franchises
Very risky
THE STRATEGIC RETAIL PLANNING PROCESS
Strategic retail planning process: the steps a retailer goes through to develop a strategic retail plan. It describes
how retailers select target market segments, determine the appropriate retail format, and build sustainable
competitive advantages
Step 1: Define the Business Mission
Mission statement: a broad description of the scope of activities a business plans to undertake
o What business are we in?
o What should be our business in the future?
o Who are our customers?
o What are our capabilities?
o What do we want to accomplish?
Step 2: Conduct a Situation Audit
Situation audit or SWOT analysis: an analysis of the opportunities and threats in the retail environment and the
strengths and weaknesses of the retail business relative to its competitors
Market Factors
Size important because it indicates a retailer’s opportunity for generating revenues to cover
its investment
Growth growing markets are typically more attractive than mature or declining markets
because margins and prices are higher in growing markets because competition is less
intense than in mature markets
Seasonality markets with highly seasonal sales are unattractive because a lot of resources
are needed to accommodate the peak season, but then resources are underutilized the rest of
the year
Business cycles
Competitive
Factors
Barriers to entry: conditions in a retail market that make it difficult for firms to enter the
market
o Scale economies: cost advantage due to the size of a retailer
o Customer loyalty
o Availability of great locations
Bargaining power of vendors: a competitive factor that makes a market unattractive when a
few vendors control the merchandise sold in it. In these situations, vendors have an
opportunity to dictate prices and other terms, reducing retailer’s profits
Competitive rivalry: the frequency and intensity of reactions to actions undertaken by
competitors
Environmental
Factors
(Macro-
environment)
Technology when a retail market is going through significant changes in technology,
present competitors are vulnerable to new entrants that are skilled at using the new
technology
Economic during touch economic times, retailers that offer a perceived high value offering,
such as discount, off price, warehouse clubs, and extreme value retailers, are in much better
position than retailers specializing in luxury goods
Regulatory eg. Local governments within Canada have tried to stop Wal-Mart from entering
their market in an attempt to protect locally owned retailers