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Strategic Retail Planning Process Dr. Parveen Kaur
Retail Strategy ØRetail strategy is a clear and definite plan that the retailer outlines to tap the market and build a long – term relationship with the consumers. ØRetail Strategy is a statement identifying (i) the retailer’s target market, (ii) the format the retailer plans to use to satisfy the target market’s needs, and (iii) the bases on which the retailer plans to build a sustainable competitive advantage.
Retail Strategy • Target Market - market segment towards which the retailer plans to focus its resources and retail mix. • Retail Format - nature of retailer’s operations - its retail mix - that he will use to satisfy the needs of target market. • Sustainable Competitive Advantage is an advantage the retailer has over its competitors that is not easily copied and thus can be maintained over a long period of time. ØRetail Strategy is fundamental to the existence of a retail organization
Retail Strategy ØA sustainable competitive advantage is an advantage the retailer has over its competitors, that is not easily copied by competitors and thus can be maintained over a long period of time. ØThree approaches for developing a sustainable competitive advantage are (1) building strong relationships with customers Customer Loyalty – brand image, positioning, unique merchandise, customer service, CRM programs. (2) building strong relationships with suppliers – vendor relations (3) achieving efficient internal operations - Larger retailers have more bargaining power with vendors and thus can buy merchandise at lower costs, better human resource management and invest in sophisticated systems information and supply chain management systems.
Strategic Retail Planning Process ØStrategic retail planning process is the set of steps a retailer goes through to develop a strategy and plan. ØIt describes how retailers select target market segments, determine the appropriate retail format, and build sustainable competitive advantage. ØThe areas influenced by the business strategy to be adopted by retailers are: • Store Location • Merchandising • Pricing • Marketing
Strategic Retail Planning Process Define Business Mission Situation Audit Identify Strategic Opportunities Evaluate Strategic Alternatives Establish Specific Objectives & Allocate Resources Develop Retail Mix Evaluate Performance & Make Adjustment
Stages in Strategic Retail Planning 1. Define Business Mission • Mission statement is a broad description of a retailer’s objectives and the scope of activities it plans to undertake. • In developing the mission statement, managers need to answer five questions: i. What business are we in? ii. What should our business be in the future? iii. Who are our customers? iv. What are our capabilities? v. What do we want to accomplish?
Stages in Strategic Retail Planning Examples - Business Mission: 1. Café Coffee Day To be the best Cafe chain by offering a world class coffee experience at affordable prices. 2. Amazon “To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. ” 3. D – Mart To provide the best value possible for our customers, so that every rupee they spend on shopping with us gives them more value for money than they would get anywhere else.
Stages in Strategic Retail Planning 2. Conduct a Situation Audit An analysis of the opportunities and threats in the retail environment and the strengths and weaknesses of the retail business relative to its competitors. It may include SWOT Analysis, PESTLE Analysis… Market Factors Competitive Factors Elements in Situation Audit Analysis of Strength & Weaknesses Environmental Factors
Stages in Strategic Retail Planning I. Market Factors ØMarket size indicates a retailer’s opportunity to generate revenues to cover its investment. ØGrowing markets are more attractive than mature or declining markets as competition is less intense. ØBecause new customers are just beginning to patronize stores in growing markets, they may not have developed strong store loyalties and thus might be easier to attract to new retail offerings. ØRetail markets for merchandise that is affected by economic conditions (such as cars and major appliances) are less attractive than retail markets that are less affected by economic conditions (such as food). ØMarkets with highly seasonal sales are unattractive because a lot of resources are needed to accommodate the peak season and then the resources go underutilized the rest of the year.
Stages in Strategic Retail Planning II. Competitive Factors ØThe nature of the competition in retail markets is affected by barriers to entry, the bargaining power of vendors, and competitive rivalry. • Barriers to Entry - Conditions in a retail market that make it difficult for other firms to enter the market. Some of these conditions are – üScale economies: Cost advantages due to a retailer’s size. Markets dominated by large competitors with scale economies are unattractive because the dominant firms have sustainable cost advantages üCustomer loyalty: Retail markets dominated by a well-established retailer that has developed a loyal group of customers are unattractive. üGood location
Stages in Strategic Retail Planning • Bargaining Power of Vendors Markets are less attractive when only a few vendors control the merchandise sold in the market. In such situations, vendors have the opportunity to dictate prices and other terms, thereby reducing the retailer’s profits. • Competitive Rivalry Frequency and intensity of reactions to actions undertaken by competitors. When rivalry is high, price wars erupt, advertising and promotion expenses increase, and profits fall. Conditions that lead to intense rivalry include - large number of competitors that are of similar size, slow growth, high fixed costs, and lack of perceived differences between competing retailers.
Stages in Strategic Retail Planning III. Environmental Factors Include factors such as political, economic, regulatory, technological and social changes (trends in demographics, lifestyles, attitudes etc. ). IV. Analysis of Strength and Weaknesses Indicates how well the business can seize opportunities and avoid harm from threats/ challenges in the environment.
Stages in Strategic Retail Planning 3. Identify Strategic Opportunities After completing situation audit, the next step is to identify opportunities for increasing retail sales. Some of the alternatives available to retailer include: • Increase the number of customers • Increase their basket size • Retail format development • Increase assortments • Diversification • Tapping new geographical markets…
Stages in Strategic Retail Planning 4. Evaluate Strategic Opportunities • It determines the retailer’s potential to establish a sustainable competitive advantage and gain long-term profits from the opportunities being evaluated. • Retailer must focus on opportunities that utilize its strengths and its competitive advantage. • Market attractiveness and the strengths and weaknesses of the retailer need to be considered in evaluating strategic opportunities • Investments should be made in market opportunities for which the retailer has a strong competitive position.
Stages in Strategic Retail Planning 5. Establish Specific Objectives and Allocate Resources • Objectives are translation of mission statement in operational terms, retailer’s overall objective is included in the mission statement • Management sets long-term and short-term objectives, that give direction and set standards for measurement of performance. • Specific objectives are goals against which progress towards the overall objective can be measured. It has three components: (i) Performance sought (ii) Time frame within which the goal is to be achieved (iii) Level of investment needed to achieve the objective. • The resources that have to be allocated are financial, physical and human
Stages in Strategic Retail Planning 6. Develop a Retail Mix to Implement the Strategy • Retail Mix - term used to describe the various elements and methods required to formulate and execute retail marketing strategy. • It is the retail marketing plan that include key factors such as the type of merchandise and services offered, pricing policy, advertising and promotion programs, store design and visual merchandising, location, and customer services • In planning the mix, retailers should be guided by three basic principles: üThe mix must be consistent with the expectation of target customers üElements must be consistent with each other to create synergy üThe mix must be responsive to competitive strategy
Stages in Strategic Retail Planning 7. Evaluate Performance and Make Adjustments • The final step in the planning process is to evaluate the results of the strategy and implementation program. • The effectiveness of the strategy must be periodically evaluated • If the retailer is meeting or exceeding its objectives, changes are not needed. But if the retailer fails to meet its objectives, reanalysis is required. • Reanalysis starts with reviewing the implementation programs, but it may indicate that the strategy or even the mission statement needs to be reconsidered. This conclusion would result in starting a new planning process, including a new situation audit.
References 1. Michael Levy & Barton A Weitz, “Retailing Management”, 8 th Edition, Tata Mc Graw Hill. 2. Swapna Pradhan, “Retailing Management–Text and Cases”, 4 th Edn, Tata Mc Graw Hill.