Understanding the Retail Industrys Ecology - Essay Example

Assessing the Validity of the Notion that Evolution is Central to Understanding the Retail Industry’s Ecology with the Consumer BY YOU YOUR SCHOOL INFO HERE DATE HERE Introduction Established retailers have built ecology with consumers, an intricate relationship founded on years of brand communications and relationship development which can theoretically build brand preference for a retailer. Brand preference, when able to be established, becomes a source of competitive advantage and underpins consumer loyalty to a particular retailer. In a retail market with many competitors and risks of new market entrants, the ability to build consumer loyalty have a tool by which to block new market entrants (Aaker 1996). Positive brand ecology, the totality of relationship between consumer and retailer, is underpinned by established trust in the brand or retail organization, having superior service quality, and providing perceptions of value as determined by important target consumers (Deng, Lua, Wei and Zhang 2010). However, in order to be a relevant and sustainable retail model that maintains loyal consumers, the capability of the business to evolve is critical. Evolution, from a retail perspective, suggests such activities as repositioning the brand, altering pricing structures, providing new product offerings, or even changing promotional strategy. Because external market conditions change consistently and consumer behaviour patterns fluctuate, it has been argued that retail evolution is a critical consideration vital to maintaining long-term profitability and competitiveness for a retail organization. However, based on the tangible reality of conducting retail business, should it be considered valid that evolution is essential for understanding the dynamics of consumer ecology for a retail firm? Through an exploration of the Wheel of Retailing Model and theories of innovation, evidence indicates that evolution is absolutely critical to sustaining positive ecology between consumer and firm which were founded on vintage brand ideologies and consumer relationship development. Evidence Supporting Evolution’s Necessity Michael Porter, a renowned business strategist and theorist, identified that one of the primary risks to a retail business is the threat of new market entrants (Gamble, Thompson and Strickland 2010). With the emergence of new competition, it lowers the switching costs to consumers as it pertains to brand defection of a preferred retailer in favour of the new competitor in the market. What, however, drives consumers to have an incentive to begin developing a relationship with a new market entrant? In some markets, as iterated by the Wheel of Retailing Model, a new market entrant may establish a low pricing structure on its products as a means of competing with an established or mature retailer. Known as penetration pricing, a retailer sets prices low in order to attract and entice consumers loyal to another brand or gain revenues from a wholly-new set of target consumers (Boone and Kurtz 2007). It is not until the new entrant has established a positive brand reputation or managed to build considerable brand recognition or preference that prices are raised once the entrant has evolved to an established retailer position amongst competition. In many markets, consumers are price-sensitive, thus price becomes a potent method by which a retailer can differentiate itself from other competing retailers. In such a situation where an established or mature retailer now faces a new retail rival, creating an environment with price competition, the established retailer may be forced into a scenario where marketing evolution is absolutely critical to retain its existing customer base. One can consider a mature retailer that now maintains the capability to charge premium prices on its products as a result of competent promotional effectiveness, sustaining a superior service model, or even having built a reputation for superior overall quality in the minds of consumers. Consumers who have illustrated loyalty toward this retailer are willing to pay premium prices and total expenditures tend to increase over a long period of time (Chaudhuri and Holbrook 2001). However, in a scenario where these consumers who have built loyalty toward a retailer now become price-sensitive (perhaps as a result of changing national economic conditions) and the mature retailer continues to operate its business model in a rigid fashion (i.e. the same distribution channels, same products and service systems), consumers now have a legitimate incentive to explore what a new market entrant offers with supplementary support from a lower pricing strategy. Hence, the most effective method of avoiding a retail decline in revenues along the retail life cycle is to consider new strategies by which to combat the growing competitive strength of a new market entrant. For instance, the mature retailer, which might not have, previously, emphasised pricing as part of promotional strategy now has an opportunity to use pricing to their advantage. The firm can utilise a high-low pricing strategy, such as offering a short-term promotional price on a particular product in order to attract consumers (Boone and Kurtz). Using advertisements, such as print circular ads or web-based advertisements, the established retailer using high-low pricing has evolved to be more attractive to the price-sensitive buyers that are defecting from their retail brand. Though, historically, the mature retailer maintained some dimension of consumer loyalty as a result of legitimate service competency or more convenient distribution channels, now the relationship between retailer and consumer has evolved to better fit their changing preferences and price-sensitive characteristics. This would, theoretically, expand the life cycle of the mature organization. From a different perspective, an established retailer may have built strong relationships with consumers and built equity through the achievement of brand loyalty. However, failure to evolve the retail business model has stagnated product variety. One can consider an electronics retailer, a sales industry where many manufacturers consistently innovate features of their distributed products. Over time, however, competitors have revamped their supply chains to include more products from international vendors creating ingenious consumer electronic innovations. The mature retailer, however, maintains a less-diversified supply chain, hence providing consumers with domestic electronics with standardised or obsolete benefits and features. In such a scenario, retailers with a more diversified supply methodology provide consumers with incentive to defect from the mature retailer. Retailers that seek innovative products have a substantial advantage over that of established retailers. Pioneers become a model or prototype for a particular product category in the minds of consumers by which other retailers are judged; usually negatively against the innovator (Kalyanaram and Gurumurthy 2008). Hence, even though (from a vintage perspective), the established and mature retailer had once offered products relevant and enticing to consumers, over time the procurement strategy of the firm has eroded the novelty and originality of the retailer as perceived by important target consumer segments. Failure to evolve supply strategy and seek relationships with more innovative foreign producers could potentially lead to consumers viewing the brand as being outmoded or old-fashioned. This occurred with the smartphone manufacturer, Blackberry, which failed to produce more innovative products. Once considered a pioneer in its product category, other emerging competitors such as Samsung began producing ground-breaking smartphone products. A consumer study found that, today, consumers believe Blackberry is an obsolete brand and were no longer interested in its smartphone products (Paul 2013). In the aforementioned scenario, conventional retailing and failure to recognise the importance of product in the retail mix led to the decline of Blackberry as a potent competitor with considerable consumer brand loyalty. In a market environment where consumers demand innovation as a primary incentive to favour a particular retailer, the vintage relationship ecology between brand and consumer is no longer viable when the retailer is viewed as being outmoded or uncreative. Where once consumers were potentially satisfied by standardised products, with more competitive offerings available with much more innovative products than that offered by the mature retailer, the mature business now faces threats of ultimate decline unless willing to evolve procurement (in the value chain) to better build relationships with a more demanding and inspired consumer demographic. Conclusion As illustrated by the research, evolution is critical to understanding the retail industry’s ecology with consumers. If retailers were to assume that consumers maintained static characteristics, attitudes and values that do not change over time, it would be theoretically possible for a mature retailer to sustain its existing business model and marketing strategies to retain important target consumers. However, the external market is in a constant state of change and consumers demand that a retail organisation adjusts its ideologies and systems to better service a changing consumer dynamic. This essay explored the risk of new market entrants using price-related strategies to differentiate and failure to innovate elements of the retail mix as two examples for why a retailer can begin entering a decline stage. Even the Wheel of Retailing Model illustrates an inevitable transition to an innovator in order to sustain the retailer’s life cycle. The dynamics of what constituted a positive relationship between consumer and the retailer are not longitudinal, meaning that what underpinned a quality relationship might not be relevant once the retailer has matured and once new market entrants begin lessening switching costs to the consumers. Evolution, therefore, is absolutely critical to understanding vintage consumer ecology and a fundamental method by which a retailer can remain relevant and be perceived, by consumers, as having durable value for satisfying ever-changing consumer needs and expectations. References Aaker, D.A. (1996). Measuring brand equity across products and markets, California Management Review, 38(3), pp.102-120. Boone, L. and Kurtz, D. (2007). Contemporary marketing, 12th edn. Thompson South Western. Chaudhuri, A. and Holbrook, M. (2001). The chain of effects from brand trust and brand affect to brand performance: the role of brand loyalty, Journal of Marketing, 65(2), pp.81-93. Deng, Z., Lua, Y., Wei, K.K. and Zhang, J. (2010). Understanding customer satisfaction and loyalty: an empirical study of mobile instant messages in China, International Journal of Information Management, 30, pp.289-300. Gamble, A.A., Thompson, A.J. and Strickland, J.E. (2010). Crafting and executing strategy: the quest for competitive advantage: concepts and cases, 17th edn. McGraw Hill Irwin. Kalyanaram, G. and Gurumurthy, R. (2008). Market entry strategies: pioneers versus late arrivals, Wright University [online] Available at: http://www.wright.edu/~tdung/entry.pdf (accessed 8 February 2015). Paul, D. (2013). The importance of brand in technology purchasing – Mintel Report, Mintel Group Ltd. Read More