Understanding Retail and Services Marketing - Case Study Example

Understanding Retail and Services Marketing

• Development of e-tailing Western countries compared to other parts of the world

E-retailing (also known as e-tailing) is the process through which customers can purchase goods and services from retailers with the help of internet without requiring to physically visiting the stores. According to the arguments of Gong et al (2013), e-tailing depends on development of internet and telecommunication. Scholars such as Fernie et al (2010) have acknowledged that the concept of e-tailing developed rapidly in the past 15-20 years in the Western countries. In contrast, the popularity of e-tailing in emerging and other economically underdeveloped countries are still in an infancy stage because of low penetration of technology and services in addition to poor literacy of the population. Some countries like China and India are economically growing and developing at very high pace and with such development the spending power of the population is increasing. The development of internet in China has been exceptional for instance, as the people of China prefers internet for buying goods and services (Fernie and Sparks, 2014).

According to a report by McKinsey (2013), China has become the second largest e-tailing market of the world with total value over $200 billion. In the last decade the e-tailing sector in China grew by over 120 percent. However, the e-tailing sector in China is very different from that of developed markets like Europe or United States. For instance, over 90 percent of e-tailing in China occurs via virtual marketplaces. A virtual marketplace is different from traditional brick-and-mortar stores in the sense that in virtual marketplaces the retailers offer products and services to customer through online platforms similar to eBay or Amazon. Some of the biggest e-tailing companies in China are Tmall, PaiPai and Taobao. These companies are owned by large e-commerce groups like the Alibaba Group but these companies offer products and services exclusively through online platforms. In contrast, the e-taining industry in USA and Europe involves both pure online merchants (like eBay or Amazon) as well as brick-and-mortar companies that offer products and services to customers online (like Carrefour, Tesco, and Walmart).

Figure 1: Online spending in China

(Source: McKinsey, 2013)

Figure 2: Growth of e-tailing in different countries

(Source: Pareles, 2013)

The above figure shows that USA is the leading country in e-tailing followed by China and Japan. However, there are still many countries like Malta, Bulgaria, India, Bangladesh, African counties and counties in the Middle East where the penetration of e-commerce is very low and people hardly prefer internet for buying groceries or luxury clothing (Eutostat, 2015). For people living in the Western countries online shopping has become a common phenomenon but the same cannot be said about other parts of the world where the concept of e-tailing is still in a nascent stage (Xu and Quaddus, 2010). There are many reasons which influence online shopping (especially luxury clothing or supermarket goods) like economic condition, penetration of internet connectivity, etc. Some of the major factors due to which e-tailing is still in infancy are:

• Internet facilities – Internet connectivity is still a fancy for many African countries where the infrastructure for internet connectivity is very poor. The problem is also prevalent in Asia and Latin America where even though internet exists but it is unreliable and slows (Xu and Quaddus, 2010; Kim et al, 2011).
• Data privacy – e-tailing firms have to collect some private information about the customers while they shop online like name, deliver address, contact details, payment details, etc. Many people still fear that their personal information could be stolen and misused. This kind of negative thoughts regarding e-commerce industry discourages customers to switch to online shopping (Kim et al, 2011).
• Culture and local language – The reason why companies many global companies abstain from internationalising retails in underdeveloped countries is because of lack of education. Illiteracy and lack of technological awareness creates prejudice in the minds of people discouraging them to try new methods for shopping (Xu and Quaddus, 2010).

Hence, from the above discussion it is clear that there has been significant rise of e-tailing in the Western countries but it is still in an infancy stage in many other parts of the world.

• Critical review of retail internationalisation

In contemporary era globalisation has become an important trend for companies to expand their services and products to international customers. According to Yu and Ramanathan (2012), a vast majority of international retailers need to adjust their business model as per the business environment in new market. However, international expansion is not only about opening stores abroad but it involves many other important activities which are explained below:

(Source: Author’s creation)

Geographic proximity – The feasibility and sustainability of the process of internationalisation depends on geographic proximity because the logistics and supply chain will also have to be managed (Lynn-Childs and Jin, 2014).

Cultural proximity – According to Fernie et al (2010), the main challenge for global firms is to persuade the customers and internal staff regarding brand image, corporate culture, and cross-cultural communication.

Competitive condition – Gong et al (2013), if the international market is highly competitive then internationalisation process will have to be cost effective. If a company is able to sell products and services to the customers at low price it will attain competitive advantage.

Table 1: Stages of internationalisation

Stages of internationalisation

Critical management activities

Focus from domestic market to international market

When the company realises that the domestic market is saturated and there is opportunity for the company to expand its products and services in the international markets

Pre-internationalisation process

The management will have to conduct research and evaluate the feasibility of undertaking the project of international expansion because the process requires huge capital investment

Experimental involvement

The company can test the demand of its products and services in the target market by typically selling some sample products through exports

Active involvement

If the company finds out that its products have significant demand in the international market then it could strategise entry strategies for providing services in new markets

Long-term involvement

After the company has selected the best choice for internationalisation it will to allocate resources in new market accordingly

(Source: Author’s creation)

The next stage in the internationalisation process is selection of entry mode which may be licensing, franchising, turnkey projects, subsidiaries, joint ventures or strategic alliance.

• Licensing – It is an international agreement which allows foreign companies to exclusively produce or sell proprietor’s product in domestic market. The level of control in this type of internationalisation strategy is moderate. The main advantage from proprietor’s point of view is reaching new markets which may not be available through exports (Moore et al, 2010).
• Franchising – It allows local firms (or franchisee) to use the trademarks and products of the franchiser (or parent company) in exchange of fees or royalties. One advantage of franchising allows companies to internationalise at low cost (Moore et al, 2010).
• Turnkey projects refer to process by which companies export their business process to other foreign countries by building manufacturing facilities. One of the advantages of turnkey projects is that it requires foreign investment which allows the company to earn profit in foreign country (Moore et al, 2010).
• Subsidiaries – The retailer can either investment in Greenfield, mergers and acquisitions. Greenfield investment involves management of complex processes but it provides the firm complete control. Merger and acquisitions on the other hand helps the firm to attain more market share and greater bargaining power over distributors, suppliers and customers (Moore et al, 2010).
• Joint venture – It helps internationalisation through sharing resources, technologies, manpower and financial capabilities. However, for a joint venture to be successful it is important that both parties entering into joint venture have the same strategic goals. The main factors to be considered in a joint venture includes control over operations, ownership, terms of the agreement, technological knowhow and transfer, pricing, management of local firm capabilities and intentions of the government (Moore et al, 2010). 

According to Lu et al (2011), the process of retail internationalisation is not only about opening outlets and stores abroad but also addressing issues in response to transfer of imperceptible dimensions like human resource and material sourcing, technological knowhow transfer and financial management. The firm will have to select target market after analysing factors like political landscape, regulatory obstacles, market demand for target product or service, scope of internalisation in regards to infrastructure development, economic condition, customer awareness and technological penetration (Moore, Bruce and Birtwistle, 2007).

• Critical evaluation of store design and merchandising

In the contemporary era retailers are finding it difficult to differentiate their services from their competitors. The main problem is that customers have many choices when it comes to shopping as merchandises are easily available. According to Gounaris et al (2010), the main challenge for retailers is to convert foot-fall of the customer in stores into prospective sales. This requires the retailers to design an innovative store layout and merchandising techniques which will lead to customer satisfaction and loyalty for kids clothing.

(Source: Author’s creation)

According to Dion and Arnould (2011), good product merchandising has become an important requirement for customer loyalty because when the shoppers find it easy to locate what they are looking for then make happy purchase which leads to customer satisfaction. Inappropriate and unorganised store design and merchandising creates a negative perception in the eyes of the customer leading to severe customer dissatisfaction.

(Source: Author’s creation)

• Totality – It refers to synergy amongst design features and it has an overall impact on storage design.
• Time – The retailers should change the physical appearances once a while to renew store design and capture customer’s attention.
• Value – The retailer’s investment in design and merchandising should live-up to stakeholders’ expectations.
• Resource – The resources include technology, materials, finance, etc. which needs to managed efficiently for creating value.
• Synthesis – The management needs to synthesise on both micro (internal resources) and macro level (design based on industry trends).
• Iteration – There should be a continued process of evaluation and review of current design.
• Relationship – This principle requires customer knowledge and understanding which is build on experience.
• Competency – The retailer can implement centralised or decentralised expertise.
• Service – The retailer should focus on sustainable business model through optimal customer service and sustainability.

According to Dion and Arnould (2011), visual merchandising uses designing skills of the sellers to promote brand image, services and products. The display designer’s objective is to promote the client’s products and brands in such a manner that it catches the attention/ interest of the customer. For example, during special occasions like Valentine’s Day or Christmas the retailer can decorate the stores in special themes and also organise products in different categories like males only, kid section, or women’s dedicated section. In this way the customers will not be confused regarding which counter they need to visit for particular merchandise. The main idea behind a good store design and merchandise storing is to assist the customers in making buying decision. According to Gounaris et al (2010), if the customers get a happy experience during their shopping sessions then it is likely that they will turn into repeat customers and also influence other buyers through word-of-mouth and referrals.

According to Dion and Arnould (2011) proper design and merchandise storing can help increase customer interests, especially kids who influence modern day purchasing decisions. Scholars like Lu et al (2011) advised that retailers can also try additional decorations, fixtures and signs to suit the environment and create a positive atmosphere. It may be noted that all item used by the retailers in store design may not be for sale but the ultimate objective is to capture the attention of kids and adult customers.

• Reference list

Dion, D. and Arnould, E., 2011. Retail luxury strategy: assembling charisma through art and magic. Journal of Retailing, 87(4), pp.502-520.

Eutostat, 2015. Internet use, frequency of use and online purchases, 2015 (% of individuals). [online] Available at: <http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Internet_use,_frequency_of_use_and_online_purchases,_2015_(%25_of_individuals).png> [Accessed 21 May 2016]

Fernie, J. and Sparks, L., 2014. Logistics and retail management: emerging issues and new challenges in the retail supply chain. London: Kogan Page Publishers.

Fernie, J., Sparks, L. and McKinnon, A.C., 2010. Retail logistics in the UK: past, present and future. International Journal of Retail & Distribution Management, 38(11), pp.894-914.

Gong, W., Stump, R.L. and Maddox, L.M., 2013. Factors influencing consumers' online shopping in China. Journal of Asia Business Studies, 7(3), pp.214-230.

Gounaris, S., Dimitriadis, S. and Stathakopoulos, V., 2010. An examination of the effects of service quality and satisfaction on customers' behavioral intentions in e-shopping. Journal of services marketing, 24(2), pp.142-156.

Kim, M., Kim, J.H. and Lennon, S.J., 2011. E-service attributes available on men's and women's apparel web sites. Managing Service Quality: An International Journal, 21(1), pp.25-45.

Lu, Y., Karpova, E.E. and Fiore, A.M., 2011. Factors influencing international fashion retailers' entry mode choice. Journal of Fashion Marketing and Management: An International Journal, 15(1), pp.58-75.

Lynn-Childs, M. and Jin, B., 2014. Is Uppsala model valid to fashion retailers? An analysis from internationalisation patterns of fast fashion retailers. Journal of Fashion Marketing and Management, 18(1), pp.36-51.

McKinsey, 2013. China’s e-tail revolution. [online] Available at: <http://www.mckinsey.com/global-themes/asia-pacific/china-e-tailing> [Accessed 21 May 2016]

Moore, C., Bruce, M. and Birtwistle, G., 2007. International Retail Marketing. London: Routledge.

Moore, C.M., Doherty, A.M. and Doyle, S.A., 2010. Flagship stores as a market entry method: the perspective of luxury fashion retailing. European Journal of Marketing, 44(1), pp.139-161.

Pareles, M., 2013. Chinese “E-tailing” Emerging as Exciting New Channel for U.S. Meat. [online] Available at: <http://nationalhogfarmer.com/business/chinese-e-tailing-emerging-exciting-new-channel-us-meat> [Accessed 21 May 2016]

Xu, J. and Quaddus, M., 2010. E-business in the 21st Century: Realities, Challenges and Outlook. Singapore: World Scientific Publishing Co., Inc.

Yu, W. and Ramanathan, R., 2012. Effects of business environment on international retail operations: case study evidence from China.International Journal of Retail & Distribution Management, 40(3), pp.218-234.