Retail Theories and Strategies - Essay Example

Retail Theories and Strategies Retailing is an activity of enormous economic significance to most developed nations. In Britain, 2.5 million people are employed in retailing, comprising 10.5 percent of all employees (National Statistics, 2001a). Retailers provide the goods and services needed--from food, auto parts, apparel, home furnishings, appliances and electronics to advice, home improvement and skilled labor. Retailing is one of the fastest-growing segments of the economy. As one of the nation's largest employers, the retail industry provides excellent business opportunities. At least one-third of the 100,000 or so new enterprises launched each year are retail operations. The entrepreneurs behind these ventures risk their capital, invest their time and make a living by offering consumers something they need or want. Most retailing involves buying merchandise or a service from a manufacturer, wholesaler, agent, importer or other retailer and selling it to consumers for their personal use. The price charged for the goods or services covers the retailer's expenses and includes a profit. Each year, this vital sector of the UK economy accounts for about 08 percent of our gross national product--more than $1 billion.. Most are store retailers, though there are other types of enterprises--such as e-commerce, mail order, automatic-merchandising (vending) machines, direct retailing (door-to-door and home party sales), and service providers. There are a considerable number of commentaries on the changing food retailing sector in UK. The sector is seen as being at the fore front of change and the leading food retailers are amongst the largest companies. Growing concentration in the economy has been associated with the increasing power of multiple retailers and a decline in the strength of the co-operatives and independents. The rise of the multiple retailers particularly through economies of scale and replication has produced a situation where only a handful of companies dominate food retailing. Currently the leading food retailers are Sainsbury and Tesco with Safeway in third place. Strategically, food retailing has become a highly competitive industry increasingly answerable to the City and shareholder pressure. Labour represents the second largest financial outlay for the retailer after merchandise costs. The most efficient means of labour utilization are therefore a strategic priority. Attempts to improve market share and increase profitability have resulted in operational changes that have influenced the structure of the retail food labor market. It is essential that retailers are aware of the advantages and disadvantages of different methods of targeting a particular segment of customers which needs to be done considering the suitability of different options to their kind of business and the environments in which they wish to operate. In a retailing environment, it requires major market analysis to understand what type of customers needs to be targeted for a specific product. This is highly time - consuming and irrelevant and inappropriate data might result in the loss of the retailer. Another important task involves, UK retailers and their suppliers of retail branded products must take "all reasonable precautions and exercise all due diligence", in the development, manufacture, distribution, advertising or sale of food products to the consumer. Segmenting Retail Markets Every customer has a different set of needs, wants and motives, but in few consumer goods market it is feasible fully to tailor the retailing mix to the level of the individual customer. Hence the need to identify reasonably homogeneous groupings, or segments, of shoppers to be the target(s) of retail marketing efforts. There are many different ways in which a retailer can define market segments based upon consumer characteristics and/or their shopping orientations. The need for more systematic forms of market segmentation has increased with the intensification of retail competition and with the growth of multiple chains. Meeting the competitions 'head on' in a very broadly defined market, such as electrical goods, is usually a viable strategy only for the retailer(s) that enjoy the greatest economies of scale and cost advantages; even for them, it may well not be the most profitable strategy. Ironically, as the multiples grew rapidly there was an intensive phase of standardization, both in product ranges and in outlet formats. However, the likelihood of the same mix being appropriate in all areas is remote, either within an overall format or by developing various clearly differentiated formats designed to appeal to different market needs. Approaches to Market Segmentation: There are numerous possible bases for market segmentation, including demographics, geographical location, lifestyle and psychographics. The most important characteristic of the segmentation variables are that they should be indicative, directly or indirectly, of relevant need, preference, conception or behavior patterns. The segments must also be : 1. Measurable: For this reason, variables that can easily be identified and measured , such as age, residential areas, may be preferred to variable or attributes requiring more elaborate measurement techniques (Gonzalez - Benito et al, 2000). 2. Economically viable: The segment must be capable of producing the profit contribution to justify the efforts and cost of target marketing and possible repositioning. 3. Accessible: even a segment that is clearly identified and obviously viable may not be accessible, geographically or in terms of cost/ effective media communications. 4. Actionable: The degree to which given limited time and resources a firm can formulate effective programs to attack and serve the segments. (Segal and Giacobbe, 1994). There are numerous other techniques available to identify segments of customers with relatively homogeneous requirement from retailers (Steenkamp and Wedel, 1991). From a study of 37 characteristics that may correlate with store selection, Bellenger et al, (1976) concluded that the relatively simple variables, such as age and income, provided the most useful and manageable bases for segmentation. Gonzalez-Benito et al. (2000) have also confirmed the importance of easily measurable demographic and socio economic variables as indicators of shopping behavior. Segmentation by Shopping Orientation: In spite of earlier operational difficulties, segmentation by shopping orientation has a long history, reflecting its direct relationship with patronage behavior and motives. Considerable attention has been given to four orientation segments in particular, which were defined by Stephenson and Willett (1969): 1. The convenience shopper 2. The recreational shopper 3. The price bargain shopper 4. The store loyal shopper. Besides, there are a large number of retailing types and activities which are being adopted by the retailers in UK Each type of retailing has strengths and weaknesses certain products/services appear more suitable for online sales; others remain more suitable for offline sales. Many successful purely virtual companies deal with digital products, including information storage, retrieval, and modification, music, movies, education, communication, software, photography, and financial transactions. Examples of this type of company include: Google, E-bay and Paypal. Virtual marketers can sell some non-digital products and services successfully. Such products generally have a high value-to-weight ratio, they may involve embarrassing purchases, they may typically go to people in remote locations, and they may have shut-ins as their typical purchasers. Items which can fit through a standard letter-box, such as music CDs, DVDs and books - are particularly suitable for a virtual marketer, and indeed Amazon.com, one of the few enduring dot - com companies, has historically concentrated on this field. Products such as spare parts, both for consumer items like washing machines and for industrial equipment like centrifugal pumps, also seem good candidates for selling online. Retailers often need to order spare parts specially, since they typically do not stock them at consumer outlets -- in such cases, e-commerce solutions in spares do not compete with retail stores, only with other ordering systems. A factor for success in this niche can consist of providing customers with exact, reliable information about which part number their particular version of a product needs, for example by providing parts lists keyed by serial number. UK - Grocery Store Retailing : Arguably, within the UK, the retail sector and within that the food retailing sector, is one of the ost advances employers of labour in terms of flexibility. With de-regulation a motif of the sector, as with land-use planning legislation and trading hours, labour use has had to become fficient and effective. The dominant format in UK food retailing is the superstore. With these large food retailers having higher margins than comparative companies elsewhere there is an additional competitive question about labour usage. Food retailers in the United Kingdom are highly effective and in some aspects of their business are clearly world-leaders. Part of their success is due to their use of labour and the framework for that use that is provided by the state. There is a large variety of types of stores found in the food retail sector in UK. These includes hypermarkets, superstores, convenient stores, format discount stores and so on. Hypermarkets : Hypermarket is a huge store which can be considered as a combination of a departmental store and a super market. It is not merely a very large supermarket ( to give an order of magnitude, supermarkets range from 400 to 1500 square meters, whereas hyermarkets range from 2500 to 12000 square meters).Hypermarkets feature a variety of general merchandise totalling 30,000 to 100,000 products. It sells all possible goods with the consumers paying at the same cashier for food and non-food products. The range of non-food products varies from clothing to consumer electronics to pleasure goods. The challenge of the hypermarket is the optimal trade-off between the varieties of the goods to be sold and the logistics necessary for managing the flows and stock of so many different products ( and related services). However, the solution to both the problems had been developed and implemented and as such there are no major hurdles or obstacles which are in the way of its progress. Superstores: Superstores is usually referred to a super market which is larger than a convenience store but smaller than a hyper market (in terms of size).As discussed, UK food retailing is dominated by superstores and superstores operators, although the market is currently experimenting with various other formats. This dominance is both commercial through the stores and market shares and also political through the power wielded by these companies at national and international level. Whilst the format (superstores) may be under threat; it will remain the dominant format for some time. The companies who operate this format are however becoming stronger through their range of activities at both national and international level. One important component of their strength is their efficiency in labor management which provides both operational efficiency through cost control and profitability and corporate recognition through service and attitude generation. Convenience store: Whilst convenience stores remains relatively new in the UK, the format is gradually replacing a whole series of store formats. Stores which have previously traded as small groups (i.e., symbols and Co-ops), CTNs (confectioners, tobacconists and news agents), petrol forecourt shops and off licenses, have broadened their product range as a means of replacing turnover lost to the multiples. The format of convenience stores look to continue changing. Changes in demographics and the increases in single person households who has less need for superstore trolley shopping is driving convenience stores more towards ready meals and meal solutions. Discount stores: A department store is a retail establishment which specializes in selling a wide range of products without a single predominant merchandise line. Department stores usually sell products including apparel, furniture, appliances, electronics, and additionally select other lines of products such as paint, hardware, toiletries, cosmetics, photographic equipment, jewellery, toys, and sporting goods. Certain department stores are further classified as discount department stores. Discount department stores commonly have central customer checkout areas, generally in the front area of the store. Department stores are usually part of a retail chain of many stores situated around a country or several countries. CONCLUSION: In a retailing business, the success of a firm depends on the value it drives. In today's cut throat competitive market, to gain an advantage the firm must be efficient to implement good and valuable customer services. The successful implementation of good customer service as a differentiation strategy requires recognition that it has to apply within as well as outside the organization. Implementation of good customer service requires management to view staff as internal customers (and vice versa), and the staff are given the resources to meet customers needs effectively and competitively. REFERENCES: Bellenger, D. N., D.H. Robertson and E.C. Hirschmann (1976). 'Age and education as key correlates of store selection for female shoppers'. Journal of retailing, 52 (4), 71 - 78. Cox, R. and Brittain, P. (2004). Retailing - an introduction. 5th ed., Harlow: Financial Times Prentice Hall Fernie, J., Fernie, S. and Moore, C. (2003). Principles of retailing. Oxford: Butterworth Heinemann. Gonzalez - Benito, O., M. Greatoex and P.A. Munoz - Galeego (2000). Assessment of potential segmentation variables. An approach based on a subjective MCI resource allocation model, Journal of retailing and consumer services, 7 (3), 171 - 179. Jennison, P. (1997). The new professionalism in retailing. European retail digest. McGoldrick, P. (2002). Retail marketing. London: McGraw-Hill. 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