Sdm ch10
- 1. Chapter 10 Channel Institutions - Retailing SDM- Ch 10 Tata McGraw Hill Publishing 1
- 2. 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 Publishing 2
- 3. 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 Publishing 3
- 4. 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 Publishing 4
- 5. 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 SDM- Ch 10 Tata McGraw Hill Publishing 5
- 6. 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 Publishing 6
- 7. 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 Publishing 7
- 8. How do Customers Decide on a Retailer? • Price • Location • Product selection • Fairness in dealings • Friendly sales people • Specialized services provided SDM- Ch 10 Tata McGraw Hill Publishing 8
- 9. Kinds of Retailers Type of Characteristics retailer Specialty store Narrow product line with deep assortment – apparel, furniture, books Department Several product line in different departments – Shoppers store Stop, Big Bazaar Supermarket Large, low-cost, low-margin, high volume, self-service operation with a wide offering Convenience Small stores in residential areas, open long hours all store 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 Publishing 9
- 10. Kinds of Retailers Type of Characteristics retailer Corporate More outlets owned and controlled by one firm – Globus chains Voluntary chain Wholesaler sponsored group of independent retailers Retailer co-ops Independent retailers with centralized buying operations and common promotions Consumer co- Co-op societies of groups of consumers operating their ops own stores – farmers, industrial workers etc Franchise Contractual arrangement between the producer and organisation retailers – selling products exclusively – Kemp Toys SDM- Ch 10 Tata McGraw Hill Publishing 10
- 11. 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 SDM- Ch 10 Tata McGraw Hill Publishing 11
- 12. 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 SDM- Ch 10 Tata McGraw Hill Publishing 12
- 13. 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. SDM- Ch 10 Tata McGraw Hill Publishing 13
- 14. The Indian Retail Scene SDM- Ch 10 Tata McGraw Hill Publishing 14
- 15. 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 SDM- Ch 10 Tata McGraw Hill Publishing 15
- 16. 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. SDM- Ch 10 Tata McGraw Hill Publishing 16
- 17. 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 SDM- Ch 10 Tata McGraw Hill Publishing 17
- 18. 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 SDM- Ch 10 Tata McGraw Hill Publishing 18
- 19. 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 SDM- Ch 10 Tata McGraw Hill Publishing 19
- 20. 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 SDM- Ch 10 Tata McGraw Hill Publishing 20
- 21. 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. SDM- Ch 10 Tata McGraw Hill Publishing 21
- 22. 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 SDM- Ch 10 Tata McGraw Hill Publishing 22
- 23. 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 SDM- Ch 10 Tata McGraw Hill Publishing 23 Trading area…
- 24. 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 SDM- Ch 10 Tata McGraw Hill Publishing 24
- 25. Retail Strategy • Positioning of the retailer • Merchandising • Customer service • Customer communication SDM- Ch 10 Tata McGraw Hill Publishing 25
- 26. 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 Publishing 26
- 27. 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 Publishing 27
- 28. 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 Publishing 28
- 29. 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 Publishing 29
- 30. 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 Publishing 30
- 31. 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 Publishing 31
- 32. 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 Publishing 32
- 33. 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… SDM- Ch 10 Tata McGraw Hill Publishing 33
- 34. 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 Publishing 34
- 35. 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 Publishing 35
- 36. 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 Publishing 36
- 37. 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 Publishing 37
- 38. 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 Publishing 38
- 39. 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 39