Chapter 2 Building and Sustaining Relationships in Retailing

Chapter 2 • Building and Sustaining Relationships in Retailing Dr. Pointer

Chapter Objectives To explain what “value” really means and highlight its pivotal role in retailers’ building and sustaining relationships To describe how both customer relationships and channel relationships may be nurtured in today’s highly competitive marketplace 2 -2

Chapter Objectives_2 To examine the differences in relationship building between goods and services retailers To discuss the impact of technology on relationships in retailing To consider the interplay between retailers’ ethical performance and relationships in retailing 2 -3

Overview • To be successful as a retailer, he/she must apply concepts of value and relation building so that : a. customers believes retailer offers good value for money and will want to shop often with them over competitors b. wholesalers will also want to do business because they know customers patronize the retailers 2 -4

What is Value? ¯ The bottom line: ¯Consumers will demand more for less from the shopping experience ¯They will spend less time shopping ¯They will split the commodity-shopping trip from the value-added shopping trip Value is the difference between what is paid for item and the perception of what is received 2 -5

What is Value? Channel Perspective: ¯ Value is a series of activities and processes - the value chain - that provides a certain value for the consumer 2 -6 Customer Perspective ¯ Value is the perception that the shopper has of the value chain ¯ It is the view of all the benefits from a purchase versus the price paid.

Retail Value Chain ¯ Represents the total bundle of benefits offered to consumers through a channel of distribution – Store location and parking, retailer ambience, customer service, brands/products carried, product quality, retailer’s in-stock position, shipping, prices, image, and other elements 2 -7

Retailer Relationship • Relationship retailing seeks to form and maintain long-term bonds with customers, rather than act as if each sales transaction is a new encounter • Customer Relationship is key • Loyal customers are the backbone of a prosperous business 2 -8

4 Factors Key to Relationship Retailing • • 2 -9 Customer Base Customer Service Customer satisfaction Loyalty programs/defection rates

Customer Base • Analyze customers to see who they are • Population trends – U. S. population is aging, • Various factors influence shopping behavior - More women than men shop - Know the important reasons given for shopping at various types of retailers * apparel retailers *supermarkets * discounters Core customers (best customers) – nurture the relationships 2 -10

Customer Service • Customer service refers to the identifiable, maybe intangible, activities done along with products/service to sell products • Expected – service level that customers want to receive • Augmented – activities that enhances the shopping experience and gives a competitive advantage 2 -11

3 Aspects of Value-Oriented Retail Strategy Expected Augmented Potential 2 -12

Potential Pitfalls to Avoid in Planning a Value-Oriented Retail Strategy • Planning value with just a price perspective • Providing value-enhanced services that customers do not want or will not pay extra for • Competing in the wrong value/price segment • Believing augmented elements alone create value • Paying lip service to customer service 2 -13

Figure 2. 2 A Value-Oriented Retailing Checklist ü Is value defined from a consumer perspective? ü Does the retailer have a clear value/ price point? ü Is the retailer’s value position competitively defensible? ü Are channel partners capable of delivering value-enhancing services? ü Does the retailer distinguish between expected and augmented value chain elements? ü Has the retailer identified meaningful potential value chain elements? ü Is the retailer’s value-oriented approach aimed at a distinct market segment? ü Is the retailer’s value-oriented approach consistent? 2 -14 ü Is the retailer’s value-oriented approach effectively communicated to the target market? ü Can the target market clearly identify the retailer’s positioning strategy? ü Does the retailer’s positioning strategy consider trade-offs in sales versus profits? ü Does the retailer set customer satisfaction goals? ü Does the retailer periodically measure customer satisfaction levels? ü Is the retailer careful to avoid the pitfalls in value-oriented retailing? ü Is the retailer always looking out for new opportunities that will create customer value?

Customer Service • Expected customer service is the service level that customers want to receive from any retailer such as basic employee courtesy 2 -15 • Augmented customer service includes the activities that enhance the shopping experience and give retailers a competitive advantage

Fundamental Decisions ¯ What customer services are expected and what customer services are augmented for a particular retailer? ¯ What level of customer service is proper to complement a firm’s image? ¯ Should there be a choice of customer services? 2 -16

Fundamental Decisions_2 ¯ Should customer services be free? ¯ How can a retailer measure the benefits of providing customer services against their costs? ¯ How can customer services be terminated? 2 -17

Table 2. 1 Typical Customer Services ¯ Credit ¯ Delivery ¯ Alterations/ Installations ¯ Packaging/ gift wrapping ¯ Complaints/ Return handling ¯ Gift certificates ¯ Trade-ins ¯ Trial purchases ¯ Special sales ¯ Extended store hours ¯ Mail and phone orders Retailers must chose the level. Which of these and how extensive 2 -18

Table 2. 1 Miscellaneous Customer Services ¯ Bridal registry ¯ Restrooms ¯ Interior designers ¯ Restaurants ¯ Personal shoppers ¯ Baby-sitting ¯ Ticket outlets ¯ Fitting rooms ¯ Parking ¯ Beauty salons ¯ Water fountains ¯ Fur storage ¯ Pay phones ¯ Shopping bags ¯ Baby strollers ¯ Information Retailers must chose the level. Which of these and how extensive 2 -19

Figure 2. 6 Turning Around Weak Customer Service Focus on Customer Concerns Empower Front-Line Employees Show That You Are Listening Express Sincere Understanding Apologize and Rectify the Situation 2 -20

Customer Satisfaction • Customer satisfaction occurs when the value and expectations are meet or exceed during the retail experience • Most customers do not complain when dissatisfied. They just shop elsewhere • Retailers need to readily seek consumer feedback to determine level of satisfaction/dissatisfaction HOW? 2 -21

Loyalty Programs • Loyalty programs (frequent shopper) reward best customers • Chief benefits: Getting a good deal (67%) Advance notice of sales (30%) Coupons (31%) Rebates/cash back (29%) Rewards must be useful and attainable in a reasonable period of time 2 -22

Must Have Good Channel Relationships • Members of distribution channel jointly represent the value delivery system • Each channel member is dependent on the others to achieve its objective • Value delivery system is only as good as the weakest link – all trade members are key • The nature of the value delivery system is dependent on the target market 2 -23

Category Management can improves relationship • A practice to improve relationships between retailers and wholesalers • Channel members collaborate to manage products by categories 2 -24

Principles of Category Management ¯ Retailers listen more to customers ¯ Profitability is improved because inventory matches demand more closely ¯ By being better focused, each department is more desirable for shoppers ¯ Retail buyers are given more responsibilities and accountability for category results ¯ Retailers and suppliers must share data and be more computerized ¯ Retailers and suppliers must plan together 2 -25

Figure 2. 7 Elements Contributing to Effective Channel Relationships Consumer orientation, common positioning goals, Inputs into decisions, trust, fairness, reliability, good communication, coordination, consistency, activities being performed as promised, proper lead time, equitable profit distribution, marketing support, timeliness of payments, good inventory planning 2 -26

Difference Between Service and Good Retailing • Goods retailing – focuses on sales of tangible products • Service retailing – focuses on transactions in which consumers do not acquire ownership of a tangible product • Some items are a combination of goods and services • Note: customer service and retailing of service are difference concepts 2 -27

3 Kinds of Service Retailing ¯ Rented goods services- rent or use tangible goods for specific time ¯ Owned goods services – repairs made to goods ¯ Nongoods services – intangible personal services are sold ¯ Service retailing is highly dependent on personal interactions and word of mouth communications 2 -28

Four Characteristics of Services Retailing ¯ Intangibility ¯ Inseparability ¯ Perishability ¯ Variability 2 -29

Figure 2. 8 a Characteristics of Service Retailing Intangibility • No patent protection possible • Difficult to display/communicate service benefits • Service prices difficult to set • Quality judgment is subjective • Some services involve performances/experiences 2 -30

Figure 2. 8 b Characteristics of Service Retailing Inseparability • Consumer may be involved in service production • Centralized mass production difficult • Consumer loyalty may rest with employees 2 -31

Figure 2. 8 c Characteristics of Service Retailing Perishability • Services cannot be inventoried • Effects of seasonality can be severe • Planning employee schedules can be complex 2 -32

Figure 2. 8 d Characteristics of Service Retailing Variability • Standardization and quality control hard to achieve • Services may be delivered in locations beyond control of management • Customers may perceive variability even when it does not actually occur 2 -33

Consumers perception of service retailing is dependent on: Know customer needs Promptness of service Convenience Clarity of benefits Reliability of self service tech Service environment Service quality and reliability Quality of employees Information about service Respectful contact with customers Service provided as promised Dependability in handling problems Service performed right the first time Readiness to respond to customer request 2 -34

Technology and Relationships in Retailing • Technology maybe beneficial in promoting good relationships • It facilitates good communications • Technology use may be perceived as cold and impersonal • New Technology must be efficient and cause minimal disruptions to suppliers, employees and customers 2 -35

Examples of Technology Use • Banking • Supplier interactions 2 -36

Consumer Advantages to Self-Checkout ¯ Shorter lines ¯ Increased speed ¯ Privacy This is used by many retailers now. What is the future of self checkout? 2 -37

Ethical Performance • Retailers must consider their ethical performance in three board areas 1. Ethics 2. Social Responsibility 3. consumerism 2 -38

Ethics • Ethics deals with doing what is acceptable by retailers constituencies (customers, public, suppliers, competitors, and others) • Some examples of ethical practices are? • Many firms have established a code of ethics 2 -39

Social Responsibility • Social responsibility refers to retailers acting in the interest of society as well as themselves • Often being socially responsible may mean increased costs but not for all activities • Retailers know that consumers are aware of how socially responsible they are • Give some examples of socially responsible acts of retailers. 2 -40

Consumerism • Consumerism involves the activities of government, business, and other organizations to protect people from practices that infringing on their rights as consumers or that are dangerous and unsafe. . • John F. Kennedy bill of rights… 2 -41

Retailers Must Avoid Practices that Violate Consumers Rights • Some retail practices are covered by legislation, Americans with Disabilities Act (ADA) which mandates disable consumers have access to retailers’ stores • People more apt to patronize firms viewed as customer oriented • Consumers are more knowledgeable, cost conscious and selective these days 2 -42

Retailers Must Avoid practices that violate consumers rights • • 2 -43 Large retailers may be viewed as indifferent Self-service technology can be frustrating Innovative technology is unsettling Retailers directly interact with customers and maybe blamed for many problems (often problems are caused by producers)

Questions 2 -44