Paradigm Shift in Retail Industry - Research Paper Example

? Paradigm Shift in Retail Industry Executive Summary Awareness among the public about the environmental deterioration, the need for the individuals’participation apart from the corporate companies in the environmental activities and increasing pressure on the environment unfriendly companies through the consumer habits has underlined the importance of reorienting the corporate strategies by the companies and integrate their policies in line with the public opinion. The shift in the consumer behavior has reflected in the operations of the retail industry to a greater extent in the recent years. This shift in the behavior is understandable in view of the industries’ close proximity with the public in meeting their day-to-day needs. In view of these developments in the society, the companies are constrained to revisit their strategies to meet the growing expectations of the communities for a sustainable growth and development. This paper seeks to study the implications of this environmental awareness among the people towards the growth of the retail industry, and the response to this movement of the society by the companies in the industry for a sustainable development. Theme of the discussion The growing concerns in the society about the environment in the recent years consequent upon the international negotiations starting from Kyoto protocol has to be analyzed not only from the economic perspective, but also from the social responsibility angle. The retail industry is expected to be torch bearer of this movement on account of its crucial role in the society. Therefore, apart from being a responsible corporate citizen, they are expected to be proactive in taking measures to create more awareness among the people about the environment unfriendly products and processes to enable them to take knowledgeable decisions in their consumption, and change their consumption pattern in accordance with the socially responsible behavior. Apart from these basic twin objectives, they are also required to set an example to the society in relation to the issues such as taking steps to reduce greenhouse gas emissions in their operations, contributing their efforts in maintaining ecological balance, following standard practices for wastage disposal, switching over to waste recycling to avoid the damages caused to the environment in land filling, taking steps to produce renewable energy for its operations, reducing the food-miles and carbon footprint in the food products apart from promoting carbon/eco labels or green labels in their business. Paradigm shift Internationally, the organized retail industry has grown phenomenally over the period of time and the multinational companies in the sector have greatly influenced consumer habits and the policies and the practices of the suppliers cutting across the borders of the nations. The increasing foreign direct investments of the international retail giants in the developing countries would consolidate the positions of these companies as global players with significant stake in the economic development of these countries. On the other hand, the competition in the retail market has been intensifying. The companies seek to improve sales and profit through customer retention by placing emphasis on customer loyalty aiming long-term relationships with the customer. The emergence of food retailing on a global basis and the shift in the consumer behavior in the backdrop of the environmental concerns necessitate changes in the management policies and practices of these companies for rising up to the expectations of the communities internationally by playing a positive role through its CSR policies to be competitive in the market. Strategic consumer management Traditionally, the competitiveness in terms of pricings and quality of the products have been the crucial factors in the management of the retail business. However, the companies need to reorient their strategies over the period of time for the growth of their business through brand equity, online sales in line with the technological developments and strengthening their position in logistics and information systems. However, the rapid development of internet, media, social networks and several pressure groups in the societies presently underline the need for consumer education, training to the employees, active participation in the environment related activities and corporate social responsibility (CSR) by the companies. The study of changes with regard to the consumer behavior has become essential in formulating their strategies for integrating their business with the social developments. The role of HRD and specialized professionals in the field of sociology in providing training to the employees for overall efficiency has increased to cope up with the nuances of customer relationship. The strengthening of the brand values and the introduction and implementation of the CSR programs could be successful only with the understanding, involvement and unstinted cooperation of the employees in shaping up the consumer behavior for a sustainable development. Branding Mishra & Datta (2011, p. 34) state that the customers and brands are the two most important intangible assets of any organization. Building up the brand value is a long term process grounded on various factors such as quality, competitive pricing and excellent after sales service. Brand identity differentiates the products in terms of value as perceived by the consumers in the market place. The perception of value to the customer has undergone changes and stretches across the several areas. For example, the consumers of the developed countries prefer to avoid products of the companies employing child labor or products manufactured by environment unfriendly processes. Shama & Hassan (2011, p. 12) states: “Product branding includes all the tangible and intangible associations that customers have about a product brand. This could include brand quality, brand price, brand features, brand personality and brand image. Product brands target customers, and are likely to create associations about specific products. Thus, marketers’ efforts focus on developing marketing activities that will deliver value to a brand which will enhance its image from the customers’ perspective. Due to its importance, marketing academicians and practitioners are becoming more involved with branding as a means for differentiation”. Positive brand recognition hinges on the psychological perception of the consumers, and the brand loyalty could be ensured or enhanced only by taking conscious efforts in fulfilling the tangible as well as intangible needs of the consumers as perceived by them. Consumer behavior According to Burns (2010, p. 3) many theories of consumer behavior suggest that consumers evaluate products based on their subjective perceptions of the products (perceptions based on signs and symbols) rather than on objective physical reality. However, quality plays on important role in the decision making process of a consumer with reference to purchase of a product. Dakik (2010, p. 18) states “The modern concept of quality was, for the first time, implemented in Japan after the Second World War. It is believed that the quality is a key of the Japanese business success”. The advertisements may be successful in targeting the customers with reference to their behavioral patterns and influencing them in purchasing a product, but the purpose gets completed only when the customer is satisfied with its quality, so that the target marketing could leverage the quality factor effectively. The cultural background of the consumers is an important factor in an advertisement or communication. Clark, A. (2010) states “The Australian arm of the fast-food chain KFC has been accused of racial insensitivity over a television commercial…” The multinational companies need to pay more attention in understanding the cultural background of the society for adopting a suitable marketing communication strategy. Meyers (2010, P. 7) states that “If the product is not in-line with the cultural needs of the consumer, then attitude towards the product and resulting purchase intent will be adversely affected by the marketing efforts. Marketers should therefore keep these findings in mind during the development of their marketing communication strategy”. The company should take innovative actions to improve the shopping experience of the consumers. A good shopping experience enhances the level of consumer satisfaction and it plays a significant role in customer retention. The employees should be trained to deal with the consumers in providing good shopping experience to the consumers in addition to assisting them in buying the right products for satisfying their needs. Limitations of the consumer behavior theories In a fast changing environment, tastes and fashions, the consumer behavior theories postulated earlier based on the prevailing situation may have to be adopted with the changes in tune with the time and place. The strategies evolved should take into account the factors from the ethical and social perspectives. There is a need to understand the responsibilities towards various stakeholders and the environment, and this should reflect in the management policies and practices for striking a proper note with the consumer psychology. Therefore, constant review of the policies and practices is very important to keep abreast of the consumers’ expectations. Customer relationship management (CRM) Introduction of CRM techniques would enable a company to maintain customers’ data and update their preferences and economic status. The knowledge gained through CRM would be useful in matching the services with the consumers’ needs. The company would be in a position to identify the emerging trends in the customer behavior and reposition their brand or streamline the operations suitably, taking into account the changes observed. Corporate Social Responsibility A company is responsible to various stakeholders like employees, customers, suppliers, community and the government in addition to shareholders. There is a growing tendency among the consumers to shift their allegiance towards the companies which deal with environment friendly products and processes in their business. It has become a compulsion of our times to phase out the environmentally unfriendly products and processes. Being the industry in direct touch with the consumers, the retail plays a dominant role in shaping up the attitudes of the individuals also in this mission. The CSR related activities of the companies raise their stature in the society. CSR is not restricted to the obligations imposed on the companies by the statutes or the government machinery. Voluntary adoption of the CSR programs enhances the credibility of the company’s policies in the eyes of the public. The principle of CRS is not against the principle of wealth maximization. In fact, it could be integrated well into the process of wealth creation. The organization and its various stakeholders are parts of the society, and the resources are provided by the society to the company for its existence. The reputation earned by CSR is beneficial to the organization in many ways which include reduced labor turnover, dependability in supplies, cooperation of the local bodies, investors’ support in capital markets and ability to attract talented workforce in recruitment. Ultimately, the overall benefits will reflect in the brand image. Blowfield and Murray (2008, p.24) state “There are various ways of categorizing the main issues that fall under the corporate responsibility”. He has listed out Business ethics, Legal compliance, Philanthropy and community investment, Environmental management, Sustainability, Animal rights, Human rights, Worker rights and welfare, Market relations, Corruption and Corporate governance as prominent areas of corporate responsibility activity today. It has been established that the CSR can improve profitability which reflect in the performance of these companies. 100 Best Corporate Citizens ranked by the Interface Annual Survey on Corporate Social Responsibility Performance of Major U.S. Companies (April 27, 2006) include firms in the Russell 1000 and the S&P 500 whose financial performance was superior compared to the other companies. These companies have been ranked in eight stakeholder categories: shareholders, community, governance, diversity, employees, environment, human rights, and product on performance. The scandals like Enron and Daewoo in corporate governance and environment disaster recently caused by BP have underlined the need for effective CSR policies. CSR Standards The introduction of standards and guidelines for voluntary adoption by the various international bodies, for example, SA8000 global standard established for compliance in corporate social responsibility would be useful in promoting CSR policies by the companies. Sustainable development According to Bruntland report “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” is called as sustainable development (Business Dictionary.com). Air and water pollution, depleting water table, deforestation and extinction of species and imbalances in ecosystem are some of the major environmental threats resulted into global warming. The developmental process taking place at the current rapid phase by exploiting the precious natural resources is not sustainable for a long time. The customer education plays an important role in eliminating the environmentally unfriendly products. The retail industry can discourage use products manufactured with hides and furs of rare animals. As a responsible corporate citizen, an organization should factor the ecological costs in its growth with the ultimate aim of minimizing it through conservation of energy, generation of renewable energy, recycling and proper waste disposal. The Body Shop Stakeholder Panel Review dt.31 August 2008 is a case in point for highlighting the potential in this respect. Plastic bags are replaced by 100% recycled paper bags from 2008. Materials used in store design are reviewed to ensure that all of its store fittings are 100% recyclable, recoverable or reusable at the end of their life 80% of all packaging contains recycled content The recycled content of all its PET bottles is doubled (currently 30%) – with the intro of 100% PCR PET bottle we are potentially the first global retailer to have such high PCR content in our PET bottles The recycled content of gift packaging is increased and secondary packing is reduced The research and development in making the products less harmful to the consumers and the environment, and the products made by adopting these methods should be encouraged by the retail industry. Eco-friendly technologies should be used in all areas of the operations such as packing, storage and distribution by the retail company. The Corporate Responsibility Report of TESCO states that new stores built between 2007 and 2020 to emit half the CO2 of a 2006 new store and reduce emissions per case delivered by 50% by 2012, and plan for zero carbon by 2050. TESCO’s a annual report for 2009 states “emissions from our baseline 2007 store and distribution centre portfolio have fallen by 7.8% over the past year and new stores and distribution centres built since 2006/7 are on average emitting 28.8% less CO2 than their equivalents in 2006/7”. Best Business Practices Voluntary responsibilities of the organizations signify its commitment to CSR as a good corporate citizen. These activities are discretionary and the company is not obligated to undertake such activities by external forces. Annual Report 2009 states that in 2007 Tesco invested ?25m to create a new Sustainable Consumption Institute (SCI) at the University of Manchester. The programs such as eParan Green Leaders Program for 76,000 in South Korea, Planting 950,000 trees in Thailand and an education program on climate change for 12,000 children in Turkey reflect the company’s CSR policy related to the environmental issues. On the contrary, there have been instances which reflect poorly on the CRS management of the companies. “H&M, which was caught by the New York Times shredding unsold clothes from a Manhattan store, rather than donating them to the homeless; and a KFC television advertisement in Australia which provoked … accusations of racism in the US” (Gapper, 2010) With innovative ideas, the management could pursue CSR policies with whatever resources available in good spirit and involvement. “We recently worked with B&Q to make available 6,000 rolls of loft insulation our residents at a massively reduced price, and we delivered them for free to many households –helping them to choose to take a very simple step to make their homes more carbon efficient, and to save on their bills” Daniel Ratchford -Strategic Director, Environment & Leisure, Sutton Council (Payne, 2010). Interaction with the communities at various levels would be effective in the implementation of the CSR programs. Pohle and Hittner (2008) state “the case study of British retailer Marks & Spencer … illustrates, there are numerous benefits in partnering with customers, suppliers and NGOs. In fact, collaboration with NGOs is one bright spot in our survey; 48 percent of businesses report they are already partnering with NGOs or local governments for business purposes” Online shopping Travelling from place to place has become a tedious exercise for the consumers on account of distance, congestion and the inconvenience involved in travelling that causes extreme difficulties especially to the working women, because the domestic purchases are made predominantly by them. When ordering and delivery at the door steps is made simpler by way of online shopping, people prefer to shop online to avoid the inconveniences involved in direct sopping. These changes brought about by the technological developments are properly made use of by the retail industry, and the proportion of online sales has increased. The companies that fail to understand these implications of the technological developments may not be able to compete in the market place effectively or promote their brand with the desired results. Green Marketing The awareness about the negative health aspects of the pesticides used in agriculture has increased substantially over the period of time. Grijp and Hond (1999, iii) observed ‘companies in the conventional food industry and retail trade are taking initiatives aimed to increase the market share of food products produced with substantially less or no pesticides.’ They also (p.10) stated ‘European organic production steeply increased in the last decade: the number of organic farms rose from less than 10,000 to more than 80,000, and the acreage from less than 250,000 to more than 2,200,000 ha (cp. Comber, 1998, Rippin, 1999, Willer, 1999).’ Apart from the health considerations to the people, the environmental consequences due to unrestricted use of chemicals and pesticides in agriculture are viewed by the world community with increased concern. The retail companies need to be cautious under these circumstances in promoting the products of dubious origin. Energy efficiency in Supply chain Transportation is a major component of cost in pricing the product or services rendered by a company. The reduction in transportation cost also implies reduced consumption of fuel thereby pollution. “Marks and Spencer, for example, has a specific initiative under way to reduce “food miles,” sourcing its wares from nearby locales… Other initiatives will increase transportation efficiencies: A truck that once carried 150 items will now carry 300, or carry the same volume of goods with less fuel which will increase transportation efficiencies (Parry, Martha and Grenon, 2007). Carbon footprint represents the greenhouse gases used in manufacturing a product. Also, if food is imported from the other countries, we need to take into account food miles and the carbon footprint of the food we eat, because, when the food is moved from the place of origin to the place of the consumers it involves consumption of fuel, and hence, environmentally not desirable. Carbon Reduction Commitment (CRC) Energy Efficiency Scheme proposed to cut carbon emissions by 1.2 million tonnes of carbon per year by 2020. Carbon footprint (2011) states “The CRC is targeting large non-energy intensive private and public sector organisations within the UK, whose combined electricity use through half hourly metering exceeds 6,000 MWh per year. Approximately 5,000 organisations with energy spend greater than ?500,000 will be obligated to take part”. Carbon label This accreditation process ensures that the products purchased or consumed by the consumers are environment friendly.  Carbon footprint is an area where the retailers should ensure that the products marketed by them are properly tested in this respect to claim their commitment towards their environmental responsibility. Carbon setting-off is an important area where the retailers should focus for achieving their CSR objectives. The UK Government endorses the brands as ‘Approved Carbon Offsetting’ under Quality Assurance Scheme, QAS. The disclosure of Carbon Labels by the companies signifies that the products are manufactured by environment friendly methods for the benefit of the environment conscious consumers. The retailers can play a positive role in creating awareness among the consumers about the carbon label products. Energy saving and recycling The increasing cost of energy is a challenge to the economic development. Efficiency in utilization of energy and exploring opportunities in renewable energy cannot be ignored by the corporate companies for a long time. The potential areas where the company could concentrate in respect of utilization of energy are lighting, transportation, general heating. Recycling of packing materials would result into cost savings also. Waste Management and generation of electricity from waste Waste management is an area where there is potential for recycling and generation of electricity. McDermott (2009) states that UK supermarket chain Tesco can stick a feather in its waste-reduction cap: Its 2,300-odd stores have managed to divert 100% of their waste going into landfills nearly six months ahead of schedule -- a decidedly good thing. According to TESTCO’s website, they turn recycled carrier bags into refuse bags and recycle cardboard boxes to make new one. Waste is used to make alternative sources of energy. 5,000 tonnes of waste meat generate about 2,500 megawatt-hours of renewable electricity. Conclusion There are several pressure groups within the society which espouse the cause of environment. Stakeholders’ activism as exhibited in public rallies, boycotts by the consumers and campaigns in media against the erring corporate companies necessitates engagement with the stakeholders at all levels. It should be noted that the pressure groups within the society are also encouraging socially responsible companies by their patronage. The political favors or other shortcuts may backfire the companies, unless they revisit their SCR policies with a view to strengthen the same in line with the changes in the consumers’ behavior and their expectations, for a sustainable growth in the long run. The changes in the society over the period of time with reference to the issues such as organic food, green consciousness, carbon label, child labor, use of pesticides, etc. reflect a paradigm shift in the tastes and fashions of the consumers. The retail industry will be greatly benefited by reorienting their strategies to meet the needs of the consumers. References Blowfield, M. and Murray, A. (2008). Corporate responsibility, Oxford University Press, ISBN-13:978-0-19-920909-5 Burns, D. (2010) Reconceptualizing Consumer Power: A View from Market Segment Theory in Retailing, Journal of research for consumers, Issue: 17, 2010. Retrieved on March 21, 2010 from http://www.jrconsumers.com/Consumer_Articles/issue_17,_2010?f=42430 Carbon footprint, 2011. Carbon Reduction Commitment (CRC), [online] Retrieved on March 21, 2010 from http://www.carbonfootprint.com/carbonreductioncommitment.html Clark, A. (2010) KFC accused of racism over Australian advertisement, guardian.co.uk, 6 January 2010, Retrieved on March 21, 2010 from http://www.guardian.co.uk/business/2010/jan/06/kfc-advertisement-accused-of-racism Dakik, S. (2010) THE IMPORTANCE OF TQM CONCEPT AS A FACTOR OF COMPETITIVE ADVANTAGE OF COMPANIES, Perspectives of Innovations, Economics & Business, Volume 6, Issue 3, 2010. Retrieved on March 21, 2010 from http://pieb.cz/docs/PIEB/volume6/04_PIEB_V6_SERBIA_STojankaDakic_d_ac.pdf Gapper, J. (2010) The world of the instantaneous corporate scandal, Financial Times, January 7, 2010. Retrieved on March 21, 2010 from http://blogs.ft.com/gapperblog/2010/01/the-world-of-the-instantaneous-corporate-scandal/ Grijp, N.M.V. and Hond, F.D. 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