Lecture Sales and distribution management: Chapter 10 - Krishna K Havaldar, Vasant M Cavale

Chapter 10, channel institutions - Retailing. After studying this chapter you will be able: Understand what retailing is all about; global retail scene and trends; indian retail scene and trends; types of retailers; trade and retail formats, trading area; retail management strategies and operations; measuring retail performance; franchising and e-tailing; FDI in retail in India.

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Learning Objectives

• Understand what retailing is all about

• Global retail scene and trends

• Indian retail scene and trends

• Types of retailers

• Trade and retail formats, trading area

• Retail management strategies and operations

• Franchising and e-tailing

• FDI in retail in India

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What is Retailing?

• Any business entity selling to consumers

directly is retailing – in a shop, in person, by mail, on the internet, telephone or a vending machine

• Retail also has a life cycle – newer forms of retail come to replace the older ones – the

corner grocer may change to a supermarket

• Includes all activities involved in selling or

renting products or services to consumers for their home or personal consumption

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Retailing

• Term retail derived from French word

‘retaillier’ meaning ‘to break bulk’

• Characteristics:

– Order sizes tend to be small but many

– Caters to a wide variety of customers Keeps a

large assortment of goods

– Lot of buying in the outlet is ‘impulse’ - inventory management is critical

– Selling personnel and displays are important

elements of the selling process

– Strengths in ‘availability’ and ‘visibility’

– Targeted customer mix decides the marketing mix

of the retailer

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Retailing

• Retail stores are independent of the

producers – not attached to any of them

• A survey shows that only 35% of

supermarket purchases are

pre-planned The rest are ‘impulse’- greatly influenced by quality of the

merchandising efforts

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Functions of Retailers

• Marketing functions to provide

consumers a wide variety

• Helps create time, place and

possession utilities

• May add form utility (alteration of a

trouser bought by a customer)

• Helps create an ‘image’ for the products

he sells

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Functions of Retailers

• Add value through:

– Additional services – extended store

timings, credit, home delivery

– Personnel to identify and solve customer problems

– Location in a bazaar to facilitate

comparison shopping

• Friendly sales people

• Specialized services provided

Supermarket Large, low-cost, low-margin, high volume, self-service

operation with a wide offering

Convenience

store

Small stores in residential areas, open long hours all days of the week – limited variety of fast moving

products like groceries, food

Discount store Standard merchandise sold at lower prices for low

margins - Subhiksha

Retailer co-ops Independent retailers with centralized buying operations

and common promotions

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Retailing Scene - Global

• Well organised in most developing countries

• Global biz worth about $ 6.6 trillion

• Retail market size is $2325 bln in the US and

$ 280 bln in India

• Organised retail is 85% in the US and about

5% in India China 20% Taiwan 80%

• Retail sector is part of the service sector and

if organised, is a major contributor to a

country’s GDP

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Retailing Scene - Global

• High potential for generating employment – 2 mln retail outlets in the US employ about 22 mln people

• Retail sector contributes significantly to the

growth of the economy

• Organised retail is becoming powerful over its suppliers (who may also be big corporates)

• Producers of goods taking action to protect

their turf

penalty if products do not do well

• New developments in IT help them run

operations optimally and keep track of loyal customers Also helps them identify profitable store locations

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The Indian Retail Scene

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Salient Features

most of them in the unorganized sector

• 10 outlets per 1000 population

• Average per capita space – 2 sq ft

compared to 15 sq ft in the US

• Organized retail is estimated between 4

to 7% but growing fast

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Organized Retail

• Growing trends attracting global players

• Some of them like Wal Mart and Tesco have already created buying hubs here

in single brand retail outlets

• Well known brands like Marks & Spencer,

Reebok, Levis, Adidas, Nike, Reebok,

McDonalds, KFC, Swarowski are already in India

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Organized Retail - Features

• Sponsored by companies or corporate groups

• Large formats like supermarkets, department stores and now hypermarkets

• Use latest technology for customer care and supply chain management

• Large employment potential

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Retailing Trends - India

additional costs

• Rising income levels – cheap no longer

works, but ‘value for money’

influences choices of products

conscious of his bargaining power

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Retailing Trends - India

• Influence of retailer increasing – assortment plus other facilities offered

• Rural consumers want the same things and

as their urban counterparts and are willing to pay for it

• Better organized supply chains to cater to a large number of outlets in different locations

• Improved infrastructure helping the

consumers

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FDI in Retail in India

• MNC players showing interest to operate in India

• Resistance from the existing players

• So far only cash-and-carry permitted

• Franchisees also allowed – KFC, Tag Heuer, Swatch, McDonalds

businesses:

– All products should be under the same brand

name

– Same brands should be sold internationally

– Branding at the time of manufacturing itself

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Trade / Retail Format

• Range of goods and customer service

dimensions determine the ‘format’ Elements distinguish between stores and include:

– Store ambience (Kemp Fort)

– Saving in time for shopping – interiors of practical design – reduce time for search and pick-up of goods

– Location

– Physical characteristics – external appearance, arrangement of goods

• All these are parts of the positioning strategy

and influence the ‘footfalls’ to the store

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Categories of Shoppers (1)

• Identified by Cook & Walters

• Task focused shopper – visits the store to buy specific things he has planned for

– Convenience , minimum time, easily accessible

goods, pleasing store format

– Grocery shopping is an example

• Leisure shopper – more interested in the

ambience and environment

– Has plenty of time, wants to have a good time

while shopping

– Lifestyle stores are examples

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Category of Shoppers (2)

• Convenience goods (low value): probable

gain from shopping and making comparisons

is small compared to the time, effort and

mental discomfort required in the search

-toothpaste

• Shopping goods (high value): gain is large - refrigerator

• Specialty goods: clearly distinguished by

brand preferences – Maruti Zen car or Heuer watch

Tag-Trading area…

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Trading Area

customers of a retail store come

– Corner grocery store caters to the locality in which

it is situated

– Discount stores have a wider area Subhiksha

locations for consumers in 2 km radius

– Specialty stores have a much wider trading area – MTR, Shoppers’ Stop etc

• Trading area increases with the size of the

store and the variety it offers

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Positioning Strategy

• Wide range with a high value add –

Lifestyle brand of stores

• Limited range but a high value add –

Tanishque jewelry store

• Limited range with a limited value add – Bata stores

• Wide range of goods but a limited value add – a Food World outlet

• The most critical function in retail

• Directly effects the revenue and profitability of the store

• Also takes into account the assortment of

goods and their quality

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Customer Service Strategy

• Developed to create ‘stickiness’ in customers

• Personal data collected using IT – including purchasing practices and preferences

• Create ‘customer’ delight

• Location strategy to give competitive

advantage

• Understanding the buying profile of the

customers

Communication …

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Customer Communication

himself known to his customers Has two parts to it:

– The messages which the retailer sends to his customers and prospects

– The word of mouth support which satisfied

customers give to the retailer by talking to others

• Retailer communicates about:

– Announcing the opening of a store

– Promotions running in the store

– Additional facilities introduced by the stores

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Pricing Strategy

• Premium and indicating high value

• Reasonable pricing with good value

• Low pricing but high value for money

• All strategies are focused on giving

value to the customer

Product differentiation….

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Product Differentiation

• Feature exclusive national brands not

available in competing retailers – unlikely

• Exclusivity of products – specialty stores

• Mostly private labels – Westside

• Feature, big, specially planned merchandising events – Kemp Fashion sows

• Introduce new products before competition - -again unlikely

Performance measures…

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Retail Performance Measures

• Gross margin return on inventory

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Franchising

• Franchisor is the firm which wants to

sell its goods or services

• Franchisee is the firm or group that are willing to sell the products or services

on behalf of the franchisor

– The first party gives advice and help to the second to find good locations, blue prints for a store, financial, marketing and

management assistance

Franchisor benefits…

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Benefits to Franchisee

• Management training provided by principal

• Principal may buy ingredients and supplies

and sell to franchisee at lower prices

• Financial assistance

• Promotional aids, in-store displays etc

Electronic channels…

• No product touch or feel

• More info makes the customer a better

shopper

• Comparison shopping possible

on-line

• Shopping is 24X7

• Customer product returns

• Conflicts with Brick &Mortar – overcome

by selling separate products

FDI in retail….

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Key Learnings

• Any business selling / renting a product or

service to a consumer is retailing

• A consumer selects a retailer based on price, location, merchandise selection, fairness in dealings, helpful sales people and other

services

• Organized retail is growing strong and

negotiating better terms from producer

suppliers

• In India, upto 51% foreign investment is

permitted in single brand businesses

• Trading area is the catchment area from

where the customers of store come from

• Retail strategy is built on positioning, product offerings, merchandising and communication

• Retail performance is measured by utilisation

of space, inventory and manpower

• E-tailing is buying goods on the Internet