Retail Strategy of the UK - Essay Example

RETAIL STRATEGY Introduction At the beginning of the 21st century, retail industry is influenced by economic and cultural factors affected both national and international retailers. The urban sprawl around major metropolitan areas has grown so dense that it is all but impossible to tell where the city ends and suburbs begin, blurring the distinction between urban and suburban retailing According to experts, deliberate residential relocation decisions have been rendered both desirable and feasible by a quiet conspiracy of factors: rapid transportation, advances in communication and computer technology, rural modernization, and urban concentrations so large, expensive, and anonymous they overwhelm the advantages of city life. In the face of economic growth and radical economic volatility at home, the most attractive retailing options may lie in Asia. Although few domestic retailers are positioned to capitalize on international opportunities, virtually all retailers will be affected by the emergence of the one-world marketplace. As the international borders and barriers come down and the free flow of products goes up, even the smallest mom-and-pop store will be swept up in change. Fragmentation, Specialization and Differentiation The main trends in the retail industry include fragmentation, specialization and differentiation. Increasing cultural diversity and ethnic insulation lead to market fragmentation. Certainly a number of established retailers are poised to capitalize on the one common denominator that cuts across racial and ethnic diversity--the persistent emphasis on bang-for-the- buck, or value. However, currently most retailers are ill equipped to capitalize on the new opportunities promised by market fragmentation because they do not have access to the expertise required to understand the behavioral manifestations of cultural heritage and ethnic identification (Levy and Weitz 2004). The leading retailers of the 1990s will be those that shore up the knowledge gap by recruiting, hiring, training, and promoting people or by employing outside consultants from cultural and ethnic backgrounds corresponding to those market fragments that promise the greatest profit potential (The Committee for the History of Retailing and Distribution 2009). Although the UK market has grown in absolute terms, the 1990s promise smaller targets of opportunity, both in sheer size and in duration. The factors fueling population growth are conspiring to produce what some have termed "the death of the mass market--and mass marketing" (Levy and Weitz 2004). Although birthrates continue their downward trend, immigration and longer life expectancy are more than sufficient to make up the difference (Interactive Media in Retail Group 2009). The unprecedented emergence of the "gray market" and the rebirth of "ethnic markets" have fractured the mass market--not beyond recognition, but certainly into fragments. Retailers are generally the first to sense significant change in the marketplace; they are like front-line shock troops on a battlefield. Overall, the decipherable threads of demographic, psychographic, and life-style change in the market signal growing market fragmentation (British Retail Consortium 2009). Income and wealth-holding patterns are evolving rapidly. The middle class is shrinking, whereas both the upper and lower classes are growing. As a result, the financial resources available to households are very different now than in the past. A much larger percentage of households than ever before is now considered wealthy and possesses the buying power to satisfy a great many desires. The sale of high-end products (e.g., $3500 television sets) has been facilitated by this trend. On the other hand, a large percentage of households is considered poor in an economic sense (Levy and Weitz 2004). These households are constrained in the merchandise that they can afford; even the purchase of bare necessities can be problematical. The numerical increase at the high end of the income distribution is due, in part, to the increase of dual income households. As more and more women enter the workforce, this tendency is likely to continue over the next decade. Along with a high level of financial resources, these households face major time constraints because both adults am working. Consequently, less time is available for traditional shopping activities, and members of such households should be willing (and able) to pay for value-added services within channels of distribution that conserve their time. The number of families headed by a single adult has also increased significantly, leading to major time pressures hem as well, although their ability to pay for convenience will be less than that of dual-income households (British Retail Consortium 2009). Specialization means that more and more customers prefer to buy low-cost but high quality goods at a particular geographic area. The increased time constraint means that increasingly consumers are seeking value not only from goods, but also from the transaction itself. Hence retailers need to be aware that consumers am likely to consider the price of the goods plus transaction and acquisition costs when deciding what and where to buy. Aside from making certain product categories more germane (e.g., pharmaceuticals), this trend has resulted in greater demand for hassle-free, convenient shopping. Mobility is the primary constraint in shopping for the aged, not the amount of time available during the day or week to shop. While a good deal of the wealth in this nation is held by households headed by elderly individuals, a large percentage of elderly households face serious financial difficulties (Levy and Weitz 2004). This increased fragmentation and differentiation is a primary reason for the increased use of multiple channels by manufacturers and retailers. Distribution channels provide the means by which merchandise is made available to consumers. What functions am performed in the channel and at what level are largely dependent on the value that particular groups of consumers place on them. If a firm sells a product line to one very homogeneous segment of customers placing similar value on convenience, price, and all other product and channel attributes, a single channel of distribution may be sufficient. However, in the more likely case where a firm is attempting to sell a product line to each of several distinct segments that vary in the product-channel attributes they are seeking, a single channel will be insufficient (British Retail Consortium 2009). Information Availability and the Internet Marketing Rapid advances in technology have also been taking place over the past few years. New technologies include 800 and 900 telephone services, interactive television, computer bulletin boards, cellular telephones, various manifestations of personal computers, on-line information services, shopping networks, videocassette recorders, and fax machines. Moreover, new methods have been developed to conduct business in conjunction with these new technologies (McGoldrick 2002). For example, increasing proportions of catalog orders are placed by phone on 800 numbers, and a majority of the deliveries are made through private parcel services (Walters and Hanrahan 2000). These advances in technology and methods have helped to promote the use of multiple channels in two distinct ways. First, they provide firms with additional distribution options. No longer must traditional means of distribution be utilized, as customers can now shop by telephone, mail, television, computer, fax, and surrogate (Newman and Cullen 2001). These new technologies and methods have helped to make in-home shopping feasible. Second, they can provide firms with cost-efficient means to contact prospective customers. For example, manufacturers who were primarily communicating with customers through nonintegrated channels are now finding it is possible to reach them also through telemarketing efforts at a substantially lower cost than other integrated channel alternatives. In this case, manufacturers increase their channel control by adding an additional in-house channel (telemarketing) while keeping cost efficiency high through the application of information technology. At the same time, firms must move with caution as the increase in integration is likely to result in less flexibility. However, the net result is that new technologies allow firms to enter customer segments much more easily than before. In other words, market entry barriers are no longer so high, as new technologies enable firms to enhance market coverage while containing costs (McGoldrick 2002). Multiple Channel Structure Firms that are highly dependent on any one distribution channel are competitively vulnerable. In such situations, the firm could possess a serious power disadvantage relative to associated channel members and/or major competitors. As a result, control is likely to be low if the single channel is nonintegrated. Moreover, should the channel become mature or start declining in its performance relative to other channels, the firms own performance will suffer as well. If the channel in question is integrated, the firm has low flexibility because of sunk costs (Newman and Cullen 2001). The use of multiple channels provides a means of reducing its dependency on the idiosyncrasies of one specific channel while simultaneously insulating itself from environmental volatility. Despite their benefits, the use of multiple distribution channels has several potential limitations. Although certain of these limitations are common across firms, many are unique to manufacturers and to retailers. While multiple channels offer a good deal of promise, manufacturers of consumer products must think carefully before adopting a multiple channel strategy (Walters and Hanrahan 2000). Such caution is based, in part, on the fact that considerable intrabrand competition can accompany the use of multiple channels to the extent members of the manufacturers various channels compete vigorously with one another. If intrabrand competition gets out of hand, lower channel control is likely to result. Intrabrand competition in a multiple channel context is based in large part on the ability of consumers to shop for the product through a variety of means. For example, if a brand of personal computer is sold through specialty stores, mass merchandisers, and mail-order houses, consumers can collect information from and shop each channel. A certain proportion of customers will identify the store-channel that offers the personal computer and associated services at the lowest price. Other channel members selling the brand will become aware of such behavior and develop and/or adjust their behavior to promote their own success. The greater the degree of cross-shopping by consumers, the more intense the intrabrand competition will be (British Retail Consortium 2009). High intrabrand competition in a multiple channel context is likely to lead to tremendous pressure on the retail price of the brand, as members of any one channel will be sensitive to the prices offered by members of other channels. In order to effectively compete and win business from others, prices will tend to be lowered. Such pressure on the retail price can seriously reduce the gross margins attained by members of the various channels from selling the brand. Channel members that provide significant value-added services are especially vulnerable in this context. Providing value-added services (e.g., advice on the best camera for a particular use) takes considerable resources (e.g., hiring, training, and retaining experts on cameras) (Newman and Cullen 2001). Value-added resellers normally have a disadvantage in cost structure compared to channel members that compete mainly on the basis of price or convenience, such as discount stores or mail-order firms. This means that the value-added reseller in a diverse multiple channel context must either (1) charge a higher price than other channel members based on the provision of valued services or (2) live with a relatively small gross margin. When the use of multiple channels by the manufacturer leads to intense intrabrand competition and greatly lowered prices and gross margins among members of its various channels, at least two other negative effects can occur. First, considerable ill will can arise among channel members toward the manufacturer. The manufacturer may be seen as possessing no loyalty and little concern about the welfare of its channel members. Key among them is that the manufacturer is likely to be less important to any single channel member under a multiple channel approach, as sales and profit dollars am spread across many channel members. This means that the manufacturers power may be relatively low in many of its channel relationships (Walters and Hanrahan 2000). Data Collection and Detailed Market Analysis These changes, the principal driving forces that will cause the shift from fixed-location to direct/database marketing, include changes in consumers, changes in manufacturing, changes in manufacturer-retailer relationships, and changes in the economics of fixed-location and database marketing. Database marketing, which will change the methods of retailing in the future, not only in the United States but around the world, is defined as a strategic and concept ional extension and refinement of traditional direct marketing (Newman and Cullen 2001). In database marketing, the marketer collects or purchases behavioral, demographic, psychological, sociological, attitudinal and other bits and pieces of information, background, and history on individual customers or households that it either already serves or would like to serve. This information is captured and stored in an electronic database that can be instantaneously updated and amended. This information can then be used by the marketer to develop more specific, effective, and efficient marketing programs. Generally, database information is used to help identify, classify, and profile individual customers. This enables the marketer to develop more effective product offerings, pricing strategies, and communication programs and improves its skill at product timing and delivery. With the database information, the marketer can develop forms of two-way communication with each individual customer (Walters and Hanrahan 2000). Database marketing as defined can be used by traditional direct marketers, by fixed-location retailers, and by other newer retail marketing systems that will be discussed later. Although it might be possible for some present fixed-location retailers to move to direct/database marketing, most traditional direct marketers and fixed-location retailers are so wedded to their systems that they will have great difficulty, both physical and philosophical, in converting to database marketing systems (Newman and Cullen 2001). Therefore, direct/database marketers will largely replace traditional retailers and become the dominant force in the marketplace. Currently most direct marketers use the same approaches as fixed-location retailers, that is, they attempt to have a fairly wide range of products, although the products may be in a specialized category. They then attempt to sell these products through catalog, direct mail, or telemarketing systems to a broad audience. They rely on common offers through catalogs or mailings and seek an essentially immediate response in the form of a purchase. Alternatively, database marketers tend to offer a more specialized type of product selected on the database characteristics of the customers they hope to serve. The offers are more targeted, that is, they are personalized based on information that the marketer has collected or that the customer has provided (Reynolds & Cuthbertson 2004). Although there is an interest in achieving an immediate sale, the database marketer is more interested in developing a lasting business relationship with the customer rather than simply achieving a one-time-only sale. While database marketers can use direct marketing, classical direct marketers generally make very little use of database marketing. Database marketing, as the extension and replacement of traditional direct marketing, is the key element in the changes that are predicted to occur in the next ten years. The functions of retailers in the channel have been to assemble merchandise, maintain an inventory, price, promote, advertise, sell, and account for the merchandise, again as a service to the manufacturer and the ultimate consumer. The channel systems that have developed and, granted, have been improved over the years, have been built on some very basic beliefs about consumers, their needs and wants, and what they are willing to accept from channel members. It is these basic marketplace assumptions that are being challenged by direct and database marketers (British Retail Consortium 2009). Retail formats emerge and evolve as a result of economies of scale, pricing, and margin adjustments, plus location and amenities offered. As competition increases, these retail formats evolve upward and more efficient forms develop (Walters and Hanrahan 2000). Information gives these institutions power over the consumer in the marketplace. Marketplace information and thus control are now in the hands of the consumer. Today, because of technology, consumers have access to massive amounts of information that allow them to make their own decisions more effectively and efficiently than when they relied on the manufacturer or retailer (Centre for Retail Research 2009). As consumers gain information, they become aware of more and more marketplace and product alternatives. The resultant demand for more specialized and personalized products erodes the traditional mass market. It is this change in information availability and access that is at the root of many of the changes that are coming in retailing. They argue that social and environmental changes in consumers drive the changes in retailing, rather than the activities and adaptations of the institutions (Sullivan and Adcock 2002). Certainly the information power shift just described would support their view. Technology is obviously part of the environment and will increasingly be so in the future. Once this basic concept of customers as assets is adopted, it becomes apparent that, in the traditional economic sense, mass marketing and mass retailing will probably no longer be viable commercial enterprises. With these distinctions between present day fixed-location retailing, classical direct marketing, and the emerging direct/database approaches to retailing in mind, the case can then be built for the rather dramatic structural changes that will occur in retailing, first in the next ten years and more extensively in the next twenty (Reynolds and Cuthbertson 2004). A second major trend is that time is becoming more important than money to many consumers. For the most part, this trend is fueled by the increasing numbers of two-income households where both the man and wife work full time outside the home. As a result of this full-time employment situation, convenience, rather than price, will dominate consumer purchasing processes. With the multitude of methods and ways in which direct/database marketers can serve the consumer, often at the convenience of the consumer, they will have major marketplace advantages over fixed-location retailers. The oversupply situation has resulted in almost saturation levels for many products and even product categories. Long-term economic prosperity, Western Europe, and the Asia-Pacific Rim, along with the prevailing discounting tendency of retailers, declining real costs of many products due to technological innovation, and the availability of easy credit have persuaded consumers to purchase almost up to their capacity. In fact, many consumers simply cannot consume more in some product categories. The traditional demand curve can even be questioned in certain instances (Sullivan and Adcock 2002). Conclusion The recent major trends in retail marketing are fragmentation, specialization and differentiation, information availability and the Internet marketing and increased data collection. This has put even more power in the hands of consumers. Thus, consumer demand truly is driving and will continue to drive the marketplace in the years ahead. Manufacturers and channel members will have less and less control over their businesses and will be forced to respond more effectively and quickly to consumer demands. Direct and database marketers will have major advantages over fixed-location retailers in this type of marketplace. n an effort to control their own futures, as retailers become more powerful and more demanding in the marketplace, manufacturers will form alliances or consolidate and concentrate to protect themselves in an attempt to develop some sort of market balance. Bibliography British Retail Consortium. 2009. Retrieved 20 January 2009 from http://www.brc.org.uk Centre for Retail Research2009. Retrieved 20 January 2009 from http://www.retailresearch.org/home/index.php The Committee for the History of Retailing and Distribution 2009. Retrieved 20 January 2009 from http://www.wlv.ac.uk/shass/chord.html Interactive Media in Retail Group 2009. Retrieved 20 January 2009 from http://www.imrg.org/ Institute for Retail Studies 2009. Retrieved 20 January 2009 from http://www.marketing.stir.ac.uk/irs/ Levy M. & Weitz B.A. 2004, Retailing Management 5th edition Irwin McGoldrick P. 2002, Retail Marketing 2nd edition McGraw-Hill Newman A. & Cullen P. 2001, Retailing: Environment and Operations Thomson Learning Reynolds J. & Cuthbertson C. 2004, Retail Strategy Elsevier Butterworth- Heinemann Sullivan M. & Adcock D. 2002, Retail Marketing Thomson Walters D. & Hanrahan J. 2000. Retail Strategy Planning and Control MacMilllan Business. Read More