Chapter One:

The Nature of
Retailing
1.1. Introducti
on
It is often stated that the only constant in retailing is change and it is
certainly true that the pace of development within retailing is accelerating.
More than at any other period we are witnessing the emergence of new
forms of retailing, in part as a response to demand from increasingly
sophisticated consumers. The market is becoming more segmented with
retail formats focusing on the needs of particular consumer groups. The
result of this is the development of a more complex retail environment. The
increasing size of retailers and intensifying rates of competition in the
markets in which they are operating has led retailers to search for new ways
in which to grow their businesses. the impact of e-retailing has received
considerable attention – however, after the initial hype, the success model
for most retail sectors now seems established as one of multi-channel
retailing.
1.2. Concepts and definition of retailing
According Kottler and Keller, A retailer or retail store is any business
enterprise whose sales volume comes primarily from retailing. Any
organization selling to final consumers— whether it is a manufacturer,
wholesaler, or retailer—is doing retailing. It does not matter how the goods
or services are sold (by person, mail, telephone, vending machine, or
Internet) or where they are sold (in a store, on the street, or in the
consumer's home).

Retailing includes all the activities involved in selling goods or services

directly to final consumers for personal, nonbusiness use. There are many
approaches to understanding and defining retailing; most emphasize
retailing as the business activity of selling goods or services to the final
consumer. We have defined retail as: any business that directs its marketing
efforts towards satisfying the final consumer based upon the organization of
selling goods and services as a means of distribution. David Gilbert 2003 The
concepts assumed within this definition are quite important.
 The final consumer within the distribution chain is a key concept here
as retailers are at the end of the chain and are involved in a direct
interface with the customer. However, the emphasis on final consumer
is intentionally different from that on customer: a consumer is the final
user of a purchase whereas a customer may have bought for his or her
own use, as a present or as part of an own business activity. Purchases
for business or industrial use are normally not retail transactions.
 Additionally, retailing includes more than the sale of tangible products,
as it involves services such as financial services, hair cutting or dry
cleaning.

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  Retailers are often referred to as ‘middlemen’ or ‘intermediaries’. This
suggests they occupy a middle position, receiving and passing on
products from producers and wholesalers to customers. This is
accomplished by the addition of service and the provision of the store
in a convenient location to provide a successful channel of distribution.
 The key objective for any successful channel is to ensure availability of
the right product, in the right quantity, at the right time via the right
channel. All marketing channel decisions need to be related to
ensuring the customer is a focal point for the

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 selection and display of stock so as to make the sales operation as
effective as possible.

1.3. Characteristics of Retail Marketing:

Retail marketing or organized business of retailing has following characteristics:
 Sale to Ultimate Customer: Goods or service in a retail transaction
are sold to final customer for consumption. There is no further re-sale
of the product or service. Goods and service sold for consumption, may
be for domestic or household use or industrial use are classified as
retail transaction. Even sale of spare parts, equipment, machineries
etc., to industrial house or business is organized are classified under
retail transaction. Once the goods are sold, there should not be further
sale of the product or service. It is consumed by the customer or the
person for whose benefit he has purchased.
 Convenient Form (Quantity): The word retail means cut size ‘small
piece’ or break the bulk. Retailers buy in large quantity from
middleman or manufactures, he breaks the bulk and sells in small
quantities to match the need of customers. Goods may be repacked or
delivered in small packs in convenient form which an individual can
carry to his home.
 Convenient Place and Location: Retailers deliver goods from a
location that is convenient to the customers. In case of physical
location. It may be a small store, a shop and multiplex. It may also be
over the internet, through mobile or mail order business. Goods/or
service are offered to the convenience and comfort of the consumer.
Online shopping through internet, mobile is becoming popular with the
growth of I-T and courier service. (Ex- the advertisement of pizza, on
the TV is shown delivering within half hour of its order).
 Last Link in Chain of Distribution: A retailer is the last link in the
chain of distribution. He sells goods to final customer. He connects
between middlemen and consumer acting as link between them. He is
described as merchandising arm or neck, in the bottle of distribution.
He acts as communicator between manufacturer and consumer.
Benefits both of them by sharing necessary information that gives
profit to manufacturer by manufacturing goods that are liked by the
people.
 Organized Sale: Retail marketing is organized business of selling to
the customer by application of principles and functions of marketing.
Un-organized retail like street vendor a Paanwala may not be typically
classified under retail marketing.
 Marketing not Just Sale: Organized retailing or retailing is not an
activity of just a sale. It is a marketing activity. Consumer is offered
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 comfort and convenience and concession in buying goods of his
choice. Marketing functions like transportation banking insurance,
ware housing are undertaken to create and deliver goods to
satisfaction of people. Goods are designed and delivered to match the
taste of people

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 and satisfy their desire and thereby ensuring customer delight. Every
marketing effort is undertaken in the sale or delivery of goods.
 Goods and also Service: Retail marketing is not only connected with
delivery of physical goods or merchandise like Grocery Vegetable,
Electronic goods etc., it is also engaged in providing services. Now a
days marketing of services is becoming an important areas like
Insurance, Tourism, Hotel, Investment etc. With Globalization process,
entry of MNC’s, development in the field of I-T sector has made
marketing of services more popular and developing.
 Creation of Utility: Retail marketing creates Form, Place and Time,
utility. It breaks the large bulk size into small size and changes the
form of product. Place utility is created by bringing goods from place of
manufacturer to the place of consumer. Goods are stored in advance
and delivered when demanded by the customer. A retailer creates
these utilities and their by increases value and utility of goods.
 Customer Delight: Retail marketing not only satisfies customers’
wants, it ensures their delight. It provides more satisfaction than what
is expected through its retail network. Retail marketing collects
information regarding type of product decide by them, Communicates
such information to manufacturer. Product is designed to match the
changing taste of customer. Retailer stores and presents such product
to the people in size, style, price and other services through his store
that increases satisfaction levels of people.
1.4. Basic retailing terms
Here are some commonly used terms in Retail Management:
Consumption Using a product or a service for one’s benefit in particular time;
not for resale.
Custome It is the degree at which the customer is pleased after purchasing
r and using a
Satisfacti product or availing a service, and going to the same retailer or
on service provider.
Distribution It is movement of products or services from manufacturer to end
consumer through a channel.
Logistics It is planning, executing and controlling of the procurement and
movement of material and resources on some beneficial purpose.
Procurement It is the process of buying a product or a service.

Retail Sale of products or services to end customer for

consumption rather than resale.
Supply-Chain It is the management of material and information flow in a
Management chain from
manufacturer to consumer for providing highest level of
customer satisfaction at lowest possible price.
Switching Costs The costs incurred by a consumer for switching from one
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 supplier or marketplace to another.
Wholesale The business of selling products of large quantity at lesser
price to retailers or consumers.
Consumer

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1.5. Functions of Retailing

Retailers are crucial players in the emerging market scenario. Retailers

perform various functions like providing assortments, sorting, breaking the
bulk, rendering services, bearing risk, serve as a channel of communication,
transportation, advertising and holdinginventory. They significantly
contribute towards increasing the product value and satisfyingthe
consumers. Following are the functions of a retailer/retailing:
 Providing assortments: Offering an assortment enables customers
to choose from a wide selection of brands, designs, sizes, colors, and
prices in one location. Manufacturers specialize in producing specific
types of products. If each manufacturer had its own stores that only
sold its own products, consumers would have to go to many different
stores to buy groceries to prepare a single meal. Retailers offer
assortment of multiple products and brands for consumer
convenience.
 Breaking Bulk: Retailers offer the products in smaller quantities
tailored to individual consumers and household consumption patterns.
This reduces transportation costs, warehouse costs and inventory
costs. This is called breaking bulk.
 Rendering Services: Retailers render services that make it easier for
customers to buy and use products.
 They display products, which attract the customers.
 They provide services by which the ownership can be transferred
from manufacturer to the end consumers with convenience.
 They also provide product guarantee from owner’s side, after
sales service and also deal with consumer complaints.
 Retailers also offer credit to consumers and develop hire
purchase facilities to enable them to buy a product immediately
and pay the price at their ease.
 Retailers also fill orders, promptly process, deliver and install the
product at customer point.
 Retail sales people answer the customer complaints and
demonstrate the product for the customer to evaluate before
making a choice.
 They also help in completing a transaction and realizing the sale.
 Risk Bearing: Retailers bear a different kind of risk to the
manufacturers and wholesalers. Even the customers can come back to
the retail point and return the product. In that case, the risk of product
ownership many times rests with the retailers. Many companies have
buy back schemes and return schemes whereby the retailers can
always return the unsold items to the manufacturer.
 Holding Inventory: A major function of retailers is to keep inventory
so that products will be available for consumers. Thus, consumers can
keep a much smaller inventory of products at home because they can
easily access more from the nearby retailers. Retailer’s inventory
allows customers instant availability of the products and services.

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  Channel of Communication: Retailers are the bridge between the
manufacturer or his Notes representative and the end customers. They
serve as a two-way channel of communication.

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  The manufacturer collects customer choice and preference data
and provides information about existing and new products
through the retailers.
 The point of purchase displays provide serve as advertisements
that provide information about new products and many times
retailers inform the consumers about likely date of availability of
a product or entry of variants into the market.
 The shoppers get a chance to learn about products and
servicesfrom the stores and even acquire trial habits by seeing
others buying a product or service in the store. The
manufacturer too collects customer data, data on gaps in
demand and supply cycles and customer satisfaction from retail
points.
 Transportation: Retailers also help in transport and advertising
function. The larger assortments are transported from wholesaler’s
point to retailers point by retailer’s own arrangements and many
times, the retailer delivers the goods at final consumer’s point. So,
retailers provide assistance in storage, transportation and pre-
payment merchandise.
 The retailer anticipates the wants of the consumers and then supplies
them the right kind of goods at reasonable price. His job is to
make the consumers buying as easy and convenient as possible i.e. he
acts as a consumers' agent.

1.6. Theory of retailing

Retail development can also be looked at from the theoretical perspective.
No single theory can be universally applicable or acceptable. The application
of each theory varies from market to market, depending on the level of
maturity and the socio-economic conditions in that market. The theories
developed to explain the process of retail development revolve around the
importance of competitive pressures, the investments in organizational
capabilities and the creation of a sustainable competitive advantage, which
requires the implementation of strategic planning by retail organizations
Growth in retail is a result of understand in market signals and responding,
to the opportunities that arise in a dynamic manner. Theories of retail
development can broadly be classified as:

In retail management, theories can be broadly classified as follows:

 Environmental Theory (Natural Selection) It is based on Darwin’s
theory of survival: “The fittest would survive the longest”. The retail
sector comprises consumers, manufacturers, marketers, suppliers, and
changing technology. Those retailers that adapt to changes in
demography, technology, consumer preferences, and legal changes
are more likely to survive for long and prosper.
 Cyclical Theory McNair represents this theory by Wheel of Retailing
that explains the changes taking place in retailing. According to him,
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 the new entrant retailers are often into low cost, low profit margin, low
structure retail business, which offers some unique, real benefit to the
consumers. Over some time they establish themselves well, prosper,
and expand their products with more expensive facilities, without
losing focus on their core values. This creates a place for yet new
entrants in the market thereby creating threat of competition,
substitution, and rivalry.

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  Conflict Theories (Evolution through Dialectic Process) Within a
broad retail category, there is always a conflict between the retailing
of similar formats, which leads to the development of new formats.
Thus, the new retail formats are evolved through dialectic process of
blending two formats. Say, Thesis is a single retailer around the corner
of the residential area. Antithesis is a large departmental store nearby
the same residential area, which develops over some time in
opposition to Thesis. Antithesis poses a challenge to Thesis. When
there is conflict between Thesis and Antithesis, a new format of retail
is born.

1.7. The retail life cycle

Attributes and strategies change as institutions mature. The retail life cycle
is the theory about the changes through time of the retiling outlets. This
window of opportunity is useful for executives who plan their market-specific
strategies; the four stages or the lifecycle of this industry is as follows:
Introduction, Growth, Maturity and Decline

 Introduction An introduction is the opening phase of a market and is

one that is just entering. At this stage, retailers should monitor and
performing high-level assessments, they should plan for their entry
strategies. Strategy suggested: A rapid penetration strategy is
suggested at this stage i.e., low price and high promotion.
 Growth In growth stage, the market is developing quickly and also
ready for modern retailing. Retailers at this stage should enter through
local Notes representations, sourcing offices and new stores.
Strategy suggested: The strategy of adopting quality and styled
products with new models and shift of advertising from product
awareness to product preference.
 Maturity In this stage the market is still big and growing, but the
space for new entrants will become tighter and retailers should act
quickly at this stage because retailers at this stage have limited time
to explore, and also their margin for error is thin. In general, they
should act according to the established rules and should be open to
face the competition from international retailers. This stage generally
lasts longer than the previous two stages. Strategy suggested:
Enter new market segments that are either enter new geographic
areas
 Decline The window of opportunity is closing fast and modern retail
share is reaching 40 to 60 percent. Though the opportunity is closing
the existing retailers can enter with new formats such as discount
models or non-food formats such as consumer electronics and apparel.
Window of opportunity ends for about 5 to 10 years before a market
enters the closing phase and reaches saturation level.

1.8. importance of retailing

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The retail sector is changing at ever increasing rate and this is leading to
greater competitor activity. Such activity leads to a need to improve the way
companies approach retail marketing. Retailing is not only an integral part of
our economic structure but also shapes and is shaped by, our way of life.

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Factors illustrating the growing importance of the retail sector
 Large and Increasing Contribution of GDP The increasing
importance of the retail sector is reflected in its contribution to GDP.
Organized and developed retail system creates better demand for
goods and services. It provides convenient outlet for sales. Increased
sales necessitate more production that in turn increases employment
of more resources in economic activities. These factors result in a
higher GDP growth that is essential for economic development of a
nation.
 Major Employer A significant historical reason underlying the
perceived increasing importance of retailing isthat its contribution to
the economy is much more visible in the modern era than it was in
thepast. Due to the Cobble income of couple, they likely to make their
purchases at retail stores. Allproducts are available under one roof.
There by you can save the time, efforts, save money andenjoy the
[Link] retail can provide direct job opportunities in retail
store. Indirect job opportunities are created in logistics that is
warehousing, transportation, banking that support retail marketing.
 Retailers as Gatekeepers. Health and Longevity depends on
consumption style. Quality food and life style will lead to quality,
healthy and long [Link] are becoming less important in their role
as gatekeepers within the channel of distribution. In the past, when
suppliers were dominant, retailer supplied the merchandise that was
on offer and consumers selected from this. However, as retailer have
become significantly more powerful they are more able to exert their
power over supplier and stock only the brands they wish to sell,
depending on their overall retail strategy and supplier relationship.
 Retailers Diversifying their Activities Large retail multiple chains
are increasingly looking for new opportunities – new area in which to
grow their business. This is especially the case in markets with highly
developed retail structures where competition is fierce and regulation
after restricts the development of further stores. The strategy of
expansion has been for retailers to move away from their core
business and into broader retail activities. Moving from the food sector
to clothing or diversifying financial services. It is in part of a reflection
of the high esteem in which retailer are held that many of the personal
banking services are providing to be a success. Customers seem to be
displaying increasing loyalty to the retailer fascia or brand rather than
manufacturer brands.
 Organizations Growing on an International Scale Increasingly
retailers are also expanding their business by moving internationally.
Although there have long been examples of international retailers,
they have focused mainly on the luxury goods markets; it was not until
the late 1980s that the process of retail internationalization occurred
on any significant scale.
 Grow on Cost Perspective From a cost perspective, retailing is a
significant field of study. Cost includes rent, display, wages, ads and

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 maintenance. Only a small part of each dollar is profit. Benefits of a
Specialist or Expert in Distribution Network: Retailer is an expert and
experienced person in distribution network. He understands the pulse
of people, there likes and dislikes due to his proximity and contact with
the people. He stores those products and services that people want
and delivers them in size and style which the people expect Dye to
his expertise and

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 knowledge about the product and market he helps the customers to
make right choice in their purchase.
 Increase in Productivity: Retailer ensures productivity and
efficiency in distribution of goods. He shares market information with
manufactures and ensures production of those goods that have
demand. His policies of promotion and placement create demand for
product and ensure fast turnover through quick sale. Proper logistics
like transportation, warehousing will reduce damage and loss of value
to the commodity. These initiatives will minimize wastage, cut down
cost of operation and there by ensure efficiency and productivity.
Retail marketing ensures efficient and economical use of resources
and inputs. Organized management and optimum capital ensures that
there is no wastage of stocks and materials. Facility of storage ensures
that products are not damaged. Application of inventory control
techniques ensures that optimum level of stock is maintained.
Marketing tactics like Discount Sale, Offers, ensure that dead stock is
cleared through clearance sale.

 Increase in Standard of Living: Standard of living is measured by

consumption of comforts and luxury goods. Retailer ensures a higher
standard of living by making available variety of goods and service to
the people at reasonable price. Facility, of credit and shopping within
reach of common man will increase standard of living.
 Retail as a Separate Branch of Study: Growing demand for
organized retail and revolutionary changes in the retail trade has
resulted in retail management and market as a separate branch of
study. Universities are offering courses in retail business. These further
creating new opportunities in retail education and development
 Exposure to Different Cultures and Globalization: People are
exposed to enjoy wide variety of goods that are manufactured
worldwide. Along with this there is sharing of consumption habits
between people living in different corners of the world.
1.9. Distinction between Wholesaler and Retailer

The actual term ‘retailing’ is thought to be derived from the old French word
‘retailler’ which means ‘a piece of’ or ‘to cut up’ (Brown, 1992). This implies
the breaking-of-bulk function of the retailer – that is, the acquiring of large
amounts of the products they sell and dividing them up into smaller amounts
to be sold to individual consumers.

Thus a retailer carries out a specific service and this should not be confused
with the wholesaler. Retailers and wholesalers are different in nature and
perform distinct functions. Some specific differences that characterize a
retailer are listed below:

You have studied about wholesaler and retailer. You might have noticed that
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both of them differ in their style and function. The retailer’s interface with
the customer is predominately service based, often withsocial interaction
and interpersonal sales techniques masking the sophistication ofcomputer-
based ordering, stocking and transaction systems. Let us find out these
differences.

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Wholesaler Retailer
 Restrict the general  Set up in business to trade with
public from purchasing the general public
from their warehouses.  Buys goods in small quantities.
 Buys goods in large  Generally buys goods from the
quantities. wholesalers.
 Buys goods directly  Deals with wide range of products.
from producers  Requires less capital to start
 Deals with limited and run the business.
variety of goods.  Sell goods for consumption
 Requires more capital  Direct contact with consumer.
to start and run the  In order to attract the attention of
business. customers retailers give more
 Sell goods for resale attention to decoration of shop
purpose.  sell small quantities of items on a
 No direct contact frequent basis
with consumers.  Offer selection – an assortment
 No special attention is of merchandise related to the
given to decoration of target market in order to provide
shop. choice.
 Sell in bulk but on a less  Charge higher unit prices than
frequent basis. would a wholesaler.
 .  provide convenience in terms of
location, payment and
creditfacilities, range of
merchandise, after-sales service, etc

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 Chapter Two

Retail

2. Chapter Institution
overview

The term retail institution refers to the basic format or structure of a

business. An institutional discussion shows the relative sizes and diversity of
different kinds of retailing and indicates how various retailers are affected by
the external environment. Classification for Retail institutions is necessary to
enable firms to better understand and enact their own strategies: selecting
an organizational mission, choosing an ownership alternative, defining the
goods/ service category and setting objectives. This chapter describes the
different types of retailers depending up on the format of ownership, the
store location strategy mix, and the merchandise categories and show how
they compete against one another by offering different benefits to
consumers.
2.1. channel of distribution
A distribution channel (also called a marketing channel ) is the path or route
decided by the company to deliver its good or service to the customers. The
route can be as short as a direct interaction between the company and the
customer or can include several interconnected intermediaries like
wholesalers, distributors, retailers, etc. Hence, a distribution channel can
also be referred to as a set of interdependent intermediaries (middle men)
that help make a product available to the end customer.
Functions of Distribution Channels

In order to understand the importance of distribution channels, you need to

understand that it doesn’t just bridge the gap between the producer of a
product and its user.
 Distribution channels provide time, place, and ownership utility.
 Logistics and Physical Distribution: (assembly, storage, sorting, and
transportation of goods from manufacturers to customers).
 Facilitation: (pre-sale and post-purchase services like financing,
maintenance, information dissemination and channel coordination).
 Creating Efficiencies: (bulk breaking and creating assortments) .
 Sharing Risks: (buy and sell).
 Marketing: (direct contact with the end customers and help the
manufacturers in propagating the brand message and product benefits and
other benefits to the customers).

Types of Distribution Channels

Channels of distribution can be divided into the direct channel and the
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indirect channels. Indirect channels can further be divided into one-level,
two-level, and three-level channels based on the number of intermediaries
between manufacturers and customers.

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  Direct Channel or Zero-level Channel (Manufacturer to Customer)
Direct selling is one of the oldest forms of selling products. It doesn’t
involve the inclusion of an intermediary and the manufacturer gets in
direct contact with the customer at the point of sale. Direct channels
are usually used by manufacturers selling perishable goods, expensive
goods, and whose target audience is geographically concentrated. For
example, bakers, jewellers, etc.

 Indirect Channels (Selling Through Intermediaries) When a

manufacturer involves a middleman/intermediary to sell its product to
the end customer, it is said to be using an indirect channel. Indirect
channels can be classified into three types:
 One-level Channel (Manufacturer to Retailer to Customer):
Retailers buy the product from the manufacturer and then sell it
to the customers. One level channel of distribution works best for
manufacturers dealing in shopping goods like clothes, shoes,
furniture, toys, etc.
 Two-Level Channel (Manufacturer to Wholesaler to Retailer to
Customer): Wholesalers buy the bulk from the manufacturers,
breaks it down into small packages and sells them to retailers
who eventually sell it to the end customers. Goods which are
durable, standardised and somewhat inexpensive and whose
target audience isn’t limited to a confined area use two-level
channel of distribution.
 Three-Level Channel (Manufacturer to Agent to Wholesaler to
Retailer to Customer): Three level channel of distribution
involves an agent besides the wholesaler and retailer who assists
in selling goods. These agents come handy when goods need to
move quickly into the market soon after the order is placed.
They are given the duty to handle the product distribution of a
specified area or district in return of a certain percentage
commission. The agents can be categorised into super stockists
and carrying and forwarding agents. Both these agents keep the
stock on behalf of the company. Super stockists buy the stock
from manufacturers and sell them to wholesalers and retailers of
their area. Whereas, carrying and forwarding agents work on a
commission basis and provide their warehouses and shipment
expertise for order processing and last mile deliveries.
Manufacturers opt for three-level marketing channel when the
userbase is spread all over the country and the demand of the
product is very high.
 Dual Distribution When a manufacturer uses more than one
marketing channel simultaneously to reach the end user, he is said to
be using the dual distribution strategy. They may open their own
showrooms to sell the product directly while at the same time use
internet marketplaces and other retailers to attract more customers. A
perfect example of goods sold through dual distribution is
smartphones.
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Distribution Channels for Services Unlike tangible goods, services can’t
be stored. But this doesn’t mean that all the services are always delivered
using the direct channels. With the advent of the internet, online
marketplaces , the aggregator business model , and the on-demand business
model , even services now use intermediaries to reach to the final
customers.

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2.2. Bases for classification of Retiling

Different authors and institutions use somewhat different bases for

classifying retail outlets; however, the two most commonly used bases are 1)
format of ownership and 2) the retail strategy mix, or the elements retailers
use to satisfy their customers’ needs. Some elements of the retail mix
particularly useful for the classification purpose are:
 The store location: the store vs non-store format is the most
important retail mix used for the classification purpose
 The type of merchandise and/or services offered: generally can
be categorized as food, general merchandise and or services.
 The variety and assortment of merchandise offered: Variety
often referred to as the breadth/width of merchandise is the number of
merchandise categories a retailer offers. Assortment is the number of
different items offered in a merchandise category (depth of
merchandise). Each different item of merchandise is called a stock-
keeping unit (SKU).
 The level of customer service offered: Retailers also differ in the
services they offer customers. Self-service, assorted service and full
service retailers can be identified.
 The price of the merchandise. To make a profit, retailers that offer
broader variety, deeper assortments, and/or additional services need
to charge higher prices.
In this chapter we will classifying the different retail outlets based on 1), the
type of ownership format and 2) based on store location: broadly as store
based and non-store based retailers. Depending up on the type of
merchandise used, the store based retailers will be classified in to two broad
categories as food vs general merchandise retailers. Again using the other
retail mixes-the variety and assortments, price and services offered, the food
and general merchandise retailers will further be classified in to different
types. At the end we will discuss the different types of non-store and service
retailers
One should note that the classification however, is not mutually exclusive;
that is, a retail outlet may be correctly placed in more than one category. For
example, a department store unit (variety and assortment) may be part of a
chain (ownership), have a store-based strategy (location), accept mail order
sales, and have a Web site.

2.2.1 Classification of retailers based on ownership type

Retail firms may be independently owned, chain owned, franchisee

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operated, leased departments, owned by manufacturers or wholesalers,
consumer owned. From a positioning and operating perspective, each
ownership format delivers unique value. Each ownership format serves a
marketplace niche, if the strategy is executed well, hence, retail

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executives must work on the strengths and weaknesses inherent in each of
these formats to be successful.
I. Independents: Single-Store Establishments
An Independent retailer owns a single retail unit. Majority of
independents are run entirely by the owners and/or their families and
have no paid workers (no payroll). The high number of independent
retailers is associated with the ease of entry into the marketplace,
owing to low capital requirement, no or relatively simple licensing
procedures. The ease of entry into retailing is reflected in the low
market shares of the leading firms in many goods/service categories
as a percentage of total category sales. Due to relative ease of entry
into retailing, there is a great deal of competition resulting in the high
rate of retail business failures among new firms.
Competitive Advantages of Independents
 Have a great deal of flexibility in choosing retail
formats and locations, and devising strategy. Since only one
store location is involved, detailed specifications can be set for
determining best location, product assortments, prices, store
hours, and other factors consistent with their target segment.
 small segments may be selected rather than the mass market.
They often act as specialists and acquire skills in a niche for a
particular goods/service category.
 They have low investments in terms of lease, fixtures, workers
and merchandise.
 Decision-making in these stores is usually centralized as the
owner operator is typically on the premises.
 Can easily sustain consistency in their efforts because only one
store is operated.
 Independents have “independence.” They do not have to fret
about stockholders, board of directors meetings, and labor
unrest. They are often free from unions and seniority rules.
Disadvantages of independent retailing
 They have limited bargaining power with suppliers as they often
buy in small quantities. To overcome this problem, a number of
independents form buying groups.
 Due to low economies in buying and maintaining inventory, the
transportation, ordering, and handling costs are higher.
 Ordering, taking inventory, marking items, ringing up sales and
bookkeeping may be done manually as most independents tend
to find investment in technology and training not worthy. This
makes them less efficient.

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  Due to the relatively high costs of TV ads and the broad
geographic coverage of magazines and some newspapers (too
large for firms with one outlet), independents are limited in their
access to certain media.

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  A crucial problem for family-run independents is
overdependence on the owner.
 A limited amount of time is allotted to long-run planning, since
the owner is intimately involved in daily operations of the firm.
To offset the disadvantage of economies, these retailers offer
complementary merchandise and services. Often while all stores in the
chain offer the same merchandise, independents can provide
merchandise compatible with local market needs.
II. Chain Stores or Multiple Shops
A chain store system consists of four or more stores which carry the
same kind of merchandise are centrally owned and managed and
usually are supplied from one or more central warehouses. A chain
store is one of the retail units in chain store system. Retail chains can
range in size from a drugstore with two stores to retailers with
thousands of stores, such as Safeway, Walmart, Target, and so forth.
Some retail chains are divisions of larger corporations or holding
companies.
Competitive Advantages of Chains
 They enjoy strong bargaining power with suppliers due to the
volumes of purchases. They generally bypass wholesalers. Many
of them buy directly from the manufacturers. Suppliers service
the orders from chains promptly and extend a higher level of
proper service and selling support.
 Large chains may also gain exclusive rights to certain items and
have goods produced under the chains’ brands.
 Chains achieve efficiency due to the centralization of purchasing
and warehousing and computerization.
 Wider geographic coverage of markets allows chains to utilize all
forms of media. Most of the chains invest considerable time and
resources in long term planning, monitoring opportunities and
threats.
Draw-backs of chain retailers
 Chain retailers suffer from limited flexibility, as they need to be
consistent throughout all stores in terms of prices, promotions,
and product assortments. It may be difficult to adopt to local
diverse markets
 Chain retailers have high investments in multiple leases,
fixtures, product assortments and employees.
 Due to their spread, these retailers have reduced control, lack of
communication and time delays. Thus, such retailers focus on
managing a specific retail format for a better strategic

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 advantage and increased profitability. Some chain retailers
capitalise on their widely known image and adopt flexibility to
market changes.
III. Franchising

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 Franchising involves a contractual arrangement between a franchisor
(a manufacturer, wholesaler, or service sponsor) and a retail
franchisee, which allows the franchisee to conduct business under an
established name and according to a given pattern of business. The
franchisee typically pays an initial fee and a monthly percentage of
gross sales in exchange for the exclusive rights to sell goods and
services in an area. Small businesses benefit by being part of a large,
chain-type retail institution.
Competitive Advantages and Disadvantages of Franchising
Franchisees receive several benefits by investing in successful franchise
operations:
 They own a retail enterprise with a relatively small capital investment.
 They acquire well-known names and goods/service lines.
 Standard operating procedures and management skills may be
taught to them.
 Cooperative marketing efforts (such as national advertising) are
facilitated.
 Their purchases may be less costly per unit due to the volume of
the overall franchise.
Some potential problems do exist for franchisees:
 Oversaturation could occur if too many franchisees are in one
geographic area.
 Due to overzealous selling by some franchisors, franchisees’
income potential, required managerial ability, and investment
may be incorrectly stated.
 They may be locked into contracts requiring purchases from
franchisors or cancellation clauses may give franchisors the right
to void agreements if provisions are not satisfied.
 In some industries, franchise agreements are of short duration.
 Royalties are often a percentage of gross sales, regardless of
franchisee profits.
Franchisors accrue lots of benefits by having franchise arrangements:
 A national or global presence is developed more quickly and with
less franchisor investment.
 Money is obtained when goods are delivered rather than when they are
sold.
 Because franchisees are owners and not employees, they have a
greater incentive to work hard.
 Franchisors receive royalties and may sell products to the
individual proprietors.
Franchisors also face potential problems:

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  Franchisees harm the overall reputation if they do not adhere to
company standards.

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  A lack of uniformity among outlets adversely affects customer loyalty.
 Intrafranchise competition is not desirable.
 The resale value of individual units is injured if franchisees
perform poorly. Ineffective franchised units directly injure
franchisors’ profitability that results from selling services, materials,
or products to the franchisees and from royalty fees.
IV. Consumer Cooperative
A Consumer cooperative is a retail firm in which a group of consumers
invest in the enterprise. The officers are elected. Consumer-members
share the profits or savings that accrue. Such retailers are many in
number but small in size and are most popular in food retailing. They
are started mainly to guard against the malpractice that many retailers
indulge in and either charge higher prices or offer inconsistent quality
of merchandise. The consumer co-operatives are limited because
consumers are usually not expert in buying, handling and selling goods
and services and the cost savings and low selling prices have not been
as expected in many cases

2.2.2. Store base Retailing

Retail stores come in all shapes and sizes. They can be classified by one or
more several characteristics like amount of service, product line, relative
prices, and store cluster.

I. Retailers Classified by Amount of Service

Different products require different amount of service and customer
service, and customer service preference vary.
A. Self-service retailers: in such retailer stores, customers are
willing to perform their own "locate-compare-select" process to
save money. Self-service is the basis of discount operations and
typically is used by sellers of convenience goods (such as
supermarkets) and nationally branded, fast moving shopping goods
(such as catalog show rooms).
B. Limited service retailers: These types of retailers provide more
sales assistance because they carry more shopping goods about
which customers need information. Their operating costs are higher
resulting from higher process.
C. Full service retailers: sales people assist customers in every
phase of the shopping process. They carry usually more specialty
goods for which customers like to be "waited on". They provide
more liberal return policies, various credit plans, free delivery,
home serving, and extras such as lounges and restaurants. More
services result in much higher operating costs, which are passed
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 along to customers as premium price.

II. Retailers Classified by Product Line

Retailers can also be classified by the length and breadth of their
product assortment.

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 A. Specialty stores: these retail stores carry a narrow product line
with deep assortment within that line (i.e., a number of product
items). Specialty stores should not be confused with specialty
goods. In a sense, specialty stores may carry any category of
consumer goods, not just specialty goods. Specialty stores can be
classified further by the narrowness of their product lines. For
example: a clothing store is a single line store, men's clothing
store is a limited line store, men's custom shirt store is a super
specialty store.
B. Department stores: department stores are retailers that carry a
wide variety and deep assortment, offer considerable customer
services, and are organized into separate departments for
displaying merchandize. A department store is organized into
departments selling men's, women's, and children's clothing and
accessories; home furnishings and furniture; toys and games,
consumer electronics such as TVs, VCRs, and stereos; and kitchen
ware and small appliances. Each department within the store has
a specific selling space allocated to it, a cash register to transact
and record sales, and sales people to assist customers. The
department store often resembles a collection of specialty shops.
Department stores are often looked to as the retailing leaders.
They usually lead in customer services – including credit,
merchandise return, delivery, fashion shows and Christmas
displays. They also are leaders because of their size.
C. Supermarkets: they are large stores specialized in groceries with
self-service and wide assortments. Supermarkets introduced self-
service, provided a very broad product assortment in large stores,
and emphasized low price by reducing high cost services. Profits
came from large volume of sales and not from high markups.
Supermarkets offer few customer services. Most of them
emphasize prices. However, nowadays, they are improving their
facilities and services to attract more customers. Typical
improvements are better locations, improved décor, longer store
hours, check cashing, delivery and even child care centers.
[Link] stores: provide a limited assortment of
merchandise at a convenient location and time in a neighborhood.
Convenience stores provide an opportunity for consumers to make
fill-in purchases quickly, without having to search through a large
store and wait in long checkout lines. Due to their small size and
high turnover, convenience stores typically receive deliveries
every day. Since the principal benefit provided by convenience

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 stores is convenience, they only have to offer a limited assortment
and variety and can charge higher prices than supermarkets.
E. Service retailing: service businesses are those businesses
whose "product line" is actually a service. There is considerable
growth in service retailing. Many organizations that offer services
to consumers – such as banks, hospitals,

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 health spas, doctors, legal clinics, and universities – traditionally
have not considered themselves as retailers. Due to increased
competition, these organizations are adopting retailing principles
to attract customers and satisfy their needs. Some service
retailers provide services in the customer's home, while others
provide services in an office, often located in a strip shopping
center.
III. Retailers Classified by Relative Prices
Retailers also can be classified according to the prices they charge. Most
retailers charge regular prices and normal quality goods and customer
service. Some offer higher quality goods and services at higher prices.
I. Discount stores: discount stores sell standard merchandise at
lower prices by accepting lower margins and selling higher
volume. A true discount store regularly sells its merchandise at
lower prices, offering mostly national brands, not inferior goods.
II. Off-price retailers: off-price retailers buy less than regular
wholesale prices and sell at less than retail. They tend to carry a
changing and unstable collection of higher-quality merchandise,
often-leftover goods, overruns, and irregulars obtained at reduced
price from manufacturers or other retailers. There are three main
types of off-price retailers. Namely: factory outlets, independents
and warehouse clubs.
Factory outlets: are off-price operations that are owned and
operated by manufacturers and they normally carry the
manufacturer's surplus, discontinued, or irregular goods.
Independents: are either owned and run by entrepreneurs or are
divisions of large retail corporations.
Warehouse clubs (wholesale clubs): sell a limited selection of
brand name grocery items, appliances, clothing and other goods
at deep discounts to members who pay annual membership fees.
III. Catalog showrooms: catalog showrooms sell a wide selection
of high-mark up, fast moving, brand name goods at discount
prices by placing a complete catalog and a number of sample
items in a showroom and the remaining inventory in an attached
[Link] offer a broad but shallow assortment of
merchandise, low prices, and few customer services. They stress
selected product lines, such as cameras, consumer electronics,
jewelry, sporting goods, and gift items. Shoppers examine the
samples and catalogs available in the showroom or they may have
already received a catalog in the mail.

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 2.2.3. Non-Store Retailers
Non-store retailing is a form of retailing in which sales are made to
consumers without using physical stores. The non-store retailers are known
by medium they use to communicate with their customers, such as direct
marketing, direct selling and vending machines or e-tailing. Non store
retailing is patronized to time conscious consumers and consumers who
can’t easily go to stores, or compulsive buyers. Most non-store retailers offer
consumers the convenience of buying 24 hours a day and delivery at
location and time of their choice. More convenience, safety, more timely
information, and personalized messages are some of the advantages of non-
store retailing over store based retailing.

I. Direct Marketing
In direct marketing, a customer is first exposed to a good or service
through a no personal medium (direct mail, TV, radio, magazine,
newspaper, or computer) and then orders by mail, phone, or fax—and
increasingly by computer.
Direct marketing has a number of strategic business advantages:
 Many costs are reduced—low start-up costs are possible;
inventories are reduced; no displays are needed; a prime location
is unnecessary; regularly staffed store hours are not important; a
sales force may not be needed; and business may be run out of a
garage or basement.
 It is possible for direct marketers to have lower prices (due to
reduced costs) than store-based retailers with the same items.
 A huge geographic area can be covered inexpensively and efficiently.
 Customers shop conveniently—without crowds, parking
congestion, or checkout lines. And they do not have safety
concerns about shopping late at night.
 Specific consumer segments are pinpointed through targeted mailings.
 A store-based firm can supplement its regular business and
expand its trading area (even becoming national or global)
without adding outlets.
Direct marketing also has its limits, but they are not as critical as
those for direct selling:
 Products cannot be examined before purchase. Thus, the range of
items purchased is more limited than in stores, and firms need
liberal return policies to attract and keep customers.
 Prospective firms may underestimate costs. Catalogs can be
expensive. A computer system is required to track shipments,
monitor purchases and returns, and keep mailing lists current. A
24-hour phone staff may be needed.
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  Even successful catalogs often draw purchases from less than 10
percent of recipients.
 Clutter exists. Billions of catalogs are mailed to individuals.

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  Printed catalogs are prepared well in advance, causing difficulties
in price and style planning.
 Some firms have given the industry a bad name due to delivery
delays and shoddy goods.
Despite its limitations, good long-run growth for direct marketing is
projected. Consumer interest in convenience and the difficulty in
setting aside shopping time will continue. More direct marketers will
offer 24-hour ordering and improve their efficiency. Greater product
standardization and the prominence of well-known brands will reduce
consumer perceptions of risk when buying from a catalog or the Web.
Technological breakthroughs, such as purchases on the Web, will
attract more consumers shopping.
II. Electronic Retailing: The Emergence Of The World Wide Web
Electronic retailing also called as online selling/e-tailing is also another
form of direct marketing retail channel in which the offering of
products and services for sale is communicated to customers over the
Internet. Rather than using catalogues, it uses the internet as a
platform for communicating and selling its products and services
From the Advantage point of the retailer, the World Wide Web can
serve one or more roles:
 Project a retail presence and enhance the retailer’s image.
 Generate sales as the major source of revenue for an online
retailer or as a complementary source of revenue for a store-
based retailer.
 Reach geographically dispersed consumers, including foreign ones.
 Provide information to consumers about products carried, store
locations, usage information, answers to common questions,
customer loyalty programs, and so on.
 Promote new products and fully explain and demonstrate their features.
 Furnish customer service in the form of E-mail, “hot links,” and
other communications.
 Examples of e-tailing are: [Link], [Link], eBay, [Link]
III. Direct Selling
Direct selling also called door to door selling includes both personal
contact (face- to-face contacts) with consumers in their homes (and
other nonstore locations such as offices) and phone solicitations
initiated by a retailer. Cosmetics, jewelry, vitamins, household goods
and services (such as carpet cleaning), vacuum cleaners, and
magazines and newspapers are among the items sometimes sold in
this way. The direct selling strategy mix emphasizes convenient
shopping and a personal touch, and detailed demonstrations can be

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 made. Consumers often relax more in their homes than in stores. They
are also likely to be attentive and are not exposed to competing
brands (as they are in stores). For some shoppers, such as older

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 consumers and those with young children, in-store shopping is hard
due to limited mobility. For the retailer, direct selling has lower
overhead costs because stores and fixtures are not necessary.
Despite its advantages, direct selling has its own drawbacks:
 A firm’s market coverage is limited by the size of its sales force.
 Sales productivity is low since the average transaction is small
and most consumers are unreceptive—many will not open their
doors to salespeople or talk to telemarketers.
 High Sales force turnover
 To stimulate sales personnel, compensation is usually 25 to 50
percent of the revenues they generate. This means average to
above-average prices.

IV. Automated Retailing/ Vending Machines

A vending machine is a cash- or card-operated retailing format that
dispenses goods (such as hot and cold beverages and food items) and
services (such as electronic arcade games). It eliminates the use of
sales personnel and allows 24-hour sales. Machines can be placed
wherever convenient for consumers—inside or outside stores, in motel
corridors, at train stations, or on street corners. Popular brands and
standardized non-food items are best suited to increasing sales via
vending machines. However, operators must still deal with theft,
vandalism, stock outs, above-average prices, and the perception that
vending machines should be patronized only when a fill-in convenience
item is needed.
2.2.4 Services Retailing
Services retailers, or firms that primarily sell services rather than
merchandise, are a large and growing part of the retail industry. Some
examples of service retailers are: companies providing auto-repair services,
cafeteria services, laundry services, home cleaning services, beauty aid
services, fitness centres, health care services, movie and entertainment
houses, DVD rental services and some library services. These companies are
retailers because they sell goods and services to consumers.

Organizations such as banks, hospitals, health spas, legal clinics,

entertainment firms, and universities that offer services to consumers
traditionally have not considered themselves retailers. Yet due to increased
competition, these organizations are adopting retailing principles to attract
customers and satisfy their needs.

Four important differences in the nature of the offerings provided by

services and merchandise retailers are (1) intangibility, (2) simultaneous
production and consumption,
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(3) perishability, and (4) inconsistency of the offering to customers.

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2.2. Retailers Marketing Decisions
With this new retail environment as a backdrop, we will examine retailers'
marketing decisions in the areas of target market, product assortment and
procurement, prices, services and store atmosphere, store activities and
experiences, communications, and location.

 TARGET MARKET Until it defines and profiles the target market, the
retailer cannot make consistent decisions about product assortment,
store decor, advertising messages and media, price, and service
levels. To better hit their targets, retailers are slicing the market into
finer and finer segments and introducing new lines of stores to provide
a more relevant set of offerings to exploit niche markets:
 PWODUCT ASSORTMENT. The retailer's product assortment must
match the target market's shopping expectations. The retailer must
decide on product-assortment breadth and depth. A restaurant can
offer a narrow and shallow assortment (small lunch counters), a
narrow and deep assortment (delicatessen), a broad and shallow
assortment (cafeteria), or a broad and deep assortment (large
restaurant). roduct assortment can be especially challenging in fast-
moving industries such as tech· nology or fashion.
 PROCUREMENT After deciding on the product-assortment strategy,
the retailer must establish merchandise sources, policies, and
practices. In the corporate headquarters of a supermarket chain,
specialist buyers (sometimes called merchandise managers) are
responsible for developing brand assortments and listening to
salespersons' presentations. In some chains, buyers have the authority
to accept or reject new items. In other chains, they are limited to
screening "obvious rejects" and "obvious accepts"; they bring other
items to the buying committee for approval. Even when an item is
accepted by a chain-store buying committee, individual stores in the
chain may not carry it. About one-third ofthe items must be stocked,
and about two-thirds are stocked at the discretion of each store
manager. Manufacturers face a major challenge trying to get new
items onto store shelves. They offer the nation's supermarkets
between 150 and 250 new items each week, of which store buyers
reject over 70%. Manufacturers need to know the acceptance criteria
used by buyers, buying committees, and store managers. A. C. Nielsen
Company interviewed store managers and found they are most
influenced by (in order of importance) strong evidence of consumer
acceptance, a well-designed advertising and sales promotion plan, and
generous financial incentives to the trade.

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  PRICES Prices are a key positioning factor and must be decided in
relation to the target market, the product-and-service assortment mix,
and the competition. All retailers would like high turns x earns (high
volumes and high gross margins), but the two don't usually go
together. Most retailers fall into the high-markup, lower-

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 volume group (fine specialty stores) or the low-markup, higher-volume
group (mass merchandisers and discount stores). Within each of these
groups are further gradations. Retailers must also pay attention to
pricing tactics. Most retailers will put low prices on some items to serve
as traffic builders or loss leaders or to signal their pricing policies They
will run storewide sales. They will plan markdowns on slower-moving
merchandise.
 SERVICES The services mix is a key tool for differentiating one store
from another. Retailers must decide on the services mix to offer
customers:
Prepurchase services include accepting telephone and mail
orders, advertising, window and interior display, fitting rooms,
shopping hours, fashion shows, and trade-ins.
Postpurchase services include shipping and delivery, gift
wrapping, adjustments and returns, alterations and tailoring,
installations, and engraving.
Ancillary services include general information, check cashing,
parking, restaurants, reo pairs, interior decorating, credit, rest
rooms, and baby- attendant service.
Retailers also need to consider differentiation based on unerringly
reliable customer service, whether it is face-to-face, across phone
lines, or even via a technological innovation. Frontline employees can
be a means of differentiating and positioning a retailer's brand. Barnes
& Noble hires clean-cut people with a passion for customer service and
a general love of books. Borders employees are likely to be tattooed or
have multiple body piercings. The company prides itself on the
diversity of its employees and hires people who radiate excitement
about particular books and music, rather than simply finding a book for
a customer.
 STORE ATMOSPHERE Atmosphere is another element in the store
arsenal. Every store has a look, and a physical layout that makes it
hard or easy to move around.. Designed to convey customers
smoothly past all the merchandise in the store, the eight-foot-wide
main aisle moves them in a circle around the store. The design also
includes a middle aisle that hurried shoppers can use as a shortcut.
The racetrack loop yields higher spending levels than many
competitors. Retailers must consider all the senses in shaping the
customer's experience. Supermarkets have found that varying the
tempo of music affects average time spent in the store and average
expenditures. Retailers are adding fragrances to stimulate certain
moods.

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  STORE ACTIVITIES AND EXPERIENCES The growth of e-commerce
has forced traditional brick-and-mortar retailers to respond. In addition
to their natural advantages, such as products that shoppers can
actually see, touch, and test, real-life customer service, and no
delivery lag time for small or medium-sized purchases, they also
provide a shopping experience as a strong differentiator. Brick-and-
mortar retailers are adopting practices as simple as calling each
shopper a "guest" and as

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 grandiose as building an indoor amusement park. The store
atmosphere should match the basic motivations of the shopper-if
target consumers are more likely to be in a task-oriented and
functional mindset, then a simpler, more restrained in-store
environment may be better
 COMMUNICATIONS Retailers use a wide range of communication
tools to generate traffic and purchases. They place ads, run special
sales, issue money-saving coupons, and run frequent-shopper-reward
programs, in-store food sampling, and coupons on shelves or at
checkout points. They will also work with manufacturers to design
point-of sale materials that reflect the retailer's image as well as that
of the manufacturer's brand. Fine stores will place tasteful, full-page
ads in magazines and carefully train salespeople to greet customers,
interpret their needs, and handle complaints. Off-price retailers will
arrange their merchandise to promote bargains and savings, while
conserving on service and sales assistance.
 LOCATION DECISION The three keys to retail success are "location,lo
cation, and location." Department store chains, oil companies, and
fastıfood franchisers exercise great care in which to open outlets, then
particular cities, and then particular sites.

2. 3. The Future of Retailing

 New Retail Forms: Shortening Retail Lifecycles new retail forms

continue to emerge to meet new situations and consumer needs but
the lifecycle of new retail forms is getting [Link] retailing
innovations are partially explained by the wheel of retailing concept.
According to this concept many new types of retailing forms begin as
low margin, low price, low status operations. They challenge
established retailers that have become "fat" by letting their costs and
margins increase. The new retailers’ loss increases forcing them to
increase their price. The wheel of retailing concept seems to explain
the initial success and the later troubles of department stores,
supermarkets, discount stores and the recent success of the price
retailers.
 Growth of Non Store Retailing: although most retailing still takes
place the old fashioned way across countries in store. Consumers now
have an array of alternative including mail order, television, phone and
on line shopping. Such advance may threaten some traditional
retailers. They offer exciting opportunities for others. Most store
retailers are now actively exploring direct retailing channels.
 Increasing Inter- Competition: today's retailers increasingly face
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 competition from many different forms of retailers. The competition
between chain superstores and small independently owned store has
become particularly heated. Because of their bulk buying power and
high sales volume, chains can buy margins. The arrival of super stores
can quickly force near by independents out of business.

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  The Risk of Mega Retailers: the rise of huge mass merchandisers
and specialty super stores, the formation of vertical marketing
systems and buying alliances and a rash of retail mergers and
acquisitions have created a core of super power mega retailers.
Through their superior information systems and buying power, these
giant retailers are able to offer better merchandise selection goods
and services and strong price savings to customers. The mega retailers
also are shifting the balance of power between retailers and
producers. A relative handful of retailers now control access to
enormous numbers of consumers giving them the upper hand in their
dealing with manufacturers.
 Growing importance of retail technology: retail technologies
are becoming critically important as competitive tools. Progressive
retailers are using computer to produce better forecasts, control
inventory costs, order electronically from suppliers, and send e-mail
between stores and even sell to customers within a store.
 Global Expansion of Major Retailers: retailers with unique formats
and strong brand positioning are increasingly moving into other
countries. Many are expanding internationally to escape mature and
saturated home markets.
 Retail Stores as "Communist" or "Hangouts": with the rise in
the number of people living alone, working at home or living in
isolated, there has been resurgence of establishments that regardless
of the product or service they offer also provide a place for people to
get together.

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 Chapter THREE:
The Competitive Behavior Of
Retail Institutions

3.1. The nature of retail competition

Michael Porter, a professor from Harvard Business School, designed a

framework named Five Forces Analysis for structured analysis of industries.
This framework helps to understand the degree of competition in the
industry. Let us see according to his framework, what are the five
fundamental forces of competition in the retail industry:

 Threat of New Competitors

The easier it is for a new company to enter the industry, fiercer is the
competition. Any new entrant poses a threat to the existing players as
it can decrease the profit share of existing players. The factors that
limit new entrants are:
 How loyal are end consumers in the industry?
 How difficult it is for the consumer to switch to the new product?
 How large is the amount of capital required to enter into the industry?
 How difficult it is to access distribution channel?
 How hard it is to acquire new skills for the staff?

Threat is high when… Threat is low when…

Products of the retail company Products of the retail
are not differentiated. company are differentiated.
Consumer perception is not good Consumer perception is healthy for
for existing product and switching
existing product and switching cost is high.
cost is low.
Retail brand is not well-known. Retail brand is well-known.
Accessing distribution channels is Accessing distribution
easy. channels is remote.
Proprietary technology and Proprietary technology and
material, government policies, material, government policies,
and location are and location are
not troublesome issues. troublesome issues.
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 The number of buyers of The number of buyers for
existing product is low. existing product is high.

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  Threat of Substitutes

Substitutes are the products or services that provide the same

functionality. A successful product leads to creating other similar
products. While entering into retail, one should think of:
 How many near substitutes are available in the market?
 What is the price of the substitute?
 What is the consumer perception about those substitutes?

By advertising, marketing, and investing in R&D for the product or

service, a retail business can elevate its position in the industry.

Substitute threat is high when… Substitute threat is low

when…
Products of the retail company Products of the retail
are not differentiated. company are differentiated.
Products are costly. Products are inexpensive.
Consumer’s brand loyalty is low. Consumer’s loyalty is high.
Cheaper parallel products of No cheaper parallel
the same category are products are available.
available.

 Bargaining Power of Buyers

It is the position of buyers and likelihood of their ability to gain benefit

while buying. If there are many suppliers and few buyers, the buyers
are at advantageous position while pricing and they generally have the
last word. The retail managers need to think of the following:
 How large market share the retail company has?
 What size of consumers is the company depending upon for its sales?
 Are buyers buying in large volumes?
 How many other retail competitors are in the same product line?

 Bargaining Power of Suppliers

It is the ability of the supplier to control the cost and supply of the
products in the market. If the suppliers are at a dominating position
over the company while product pricing, threatening to raise price or
reduce supply, then that retail industry is said to be less attractive.
The retail managers need to find out answers for the following:
 What are the substitute products other than what the supplier provides?
 Is the supplier providing goods to multiple industries?
 Is the supplier-switching cost high?
 If the supplier and the company are capable of entering into
one another’s business?

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  Intensity of Rivalry among Existing Competitors

The rivalry is intense when there are more or less equal sized
competitors in the market and there is no unparalleled market
leader.

Intensity of Rivalry is high when… Intensity of Rivalry is low

when…
There is no or very less product The product or service
or service differentiation. is in differentiation.
There are less competitors. There are more competitors.
Availability of product in a The product is widely
particular area is less. available in a particular area.

3.2. The competitive strategies of retailers

retailers are required to follow a step-by-step procedure or planning process.

The planning process involves the present stage of business, the
formulation, lists of available strategic options, and the implementation of
the selected strategies. Considering the importance of strategic decisions for
the future success of the business, a systematic approach is essential.
Strategic retail planning process divided into the following four steps:

1. Deciding the Store’s Mission and Objectives:

The retail strategic planning process starts with the identification of a

store’s mission for its existence, and hence the scope of the retail
store. The mission of a store is identifying the goods and services that
will be offered to customers. It also deals with the issue of how the
resources and capabilities of a store will be used to provide
satisfaction to customers and how the store can compete in the target
market vis-à-vis its competitors. The mission also involves the way of
the store’s functioning. How a store will work and accomplish its day-
to-day operations. What is the emergency planning? All these
questions are answered in the store’s mission [Link]: Big
Bazaar, they have philosophy of customer satisfaction through
‘manufacturing retailing’.This reflect not only the way it tends to treat
its customers but discuss secret of its competitive advantage, i.e. the
profit saved from absence of intermediaries like agents and brokers,
the profit saved is thus, distributed to the customers by way of low
price items. Once the organization mission has been determined, its
objectives the desired future positions that it wishes to reach, should
be identified. A store’s objectives are defined as ends that the store
seeks to achieve by its USP and [Link] store’s objectives may
be classified into two parts:(a) External store objectives: are those
objectives that define the impact of store on its environment. Example:
To develop high degree of customer confidence by providing quality

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 goods at affordable price.(b) Internal store objectives: Are those
objectives that define how much is expected to be achieved with the
available resources. Example: To raise the store turnover by 20% in
the coming year.

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 2. Situational Analysis:

The objective of doing store’s situation analysis is to determine Notes

where the store is at present and to forecast where it will be if the
formulated strategies are implemented. The difference between
current and future position is known as [Link] the objective of
conducting store’s situation analysis, normally study in the context of
external environment and internal environment.

External analysis

The purpose of examining the store’s external environment is to study

the opportunities and threats in the retailing environment. The
external analysis studies factors that affect the macro-environment of
the retailing industry and the task environment. Under external
analysis retailer studies these parameters:

Economic environment Political/Legal Socio-cultural

of retailing environment of environment of
_ Inflation retailing retailing
_ Employment _ Monopolies legislation _ Demographics
_ Disposal income _ Environmental protection _ Distribution of
_ Business cycle laws income
_ Energy availability and _ Taxation policy _ Social mobility
cost _ Employment laws _ Lifestyle changes
_ Others _ Government policy _ Consumerism
_ Legislation _ Levels of education
_ Others _ Others
Technological environment of retailing International
_ New discoveries and innovations environment of
retailing
_ Speed of technology transfer _ Growth
_ Rates of obsolescence _ Opportunities
_ Internet _ Others
_ Information technology
_ Others

Internal analysis

The objective of studying the internal environment of its own store is

to identify the store’s capabilities and weakness. The store will try to
increase its capabilities, and overcome the weaknesses that deter the
business profit. While doing the internal analysis, the store examines
the quality and quantity of its available resources and critically
analysis how effectively these resources are used. These resources for
the purpose of examining are normally grouped into human resource,
financial resources, physical resources and intangible [Link]
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 questions may arise under these resources:

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 Intangible resources Notes
_ What are the present capabilities of the company’s management?
_ How effective is the R&D cell?
_ How good is the competitor’s intelligence system?
_ How effective are the store’s loyalty programmes?
_ What is the capability of a retail store manager?
_ Are customers loyal towards the company’s products?
Financial Resource
_ What is the total cash flow from the store’s present activities?
_ What is the ability of the retail store to collect money at the time of
requirement/emergency?
_ How effective and stable are the financial policies?
_ What is the ratio between fixed and current assets?
_ What are the contingency plans in case of negative cash flow?
Human Resource
_ Is the present strength of employees at various levels sufficient for
future action?
_ Are the employees trained and capable to perform the tasks assigned
to them?
_ Are the employees loyal to the store?
_ Are the employees punctual and regular?
_ Are the employees skilled matched to their assigned tasks?
Physical Resources
_ What is the contribution of fixed assets?
_ What is the position of abandoned/unused assets?
_ How effective and updated are the store’s information systems?

3. Formulation of Retail Strategy:

After analyzing the store’s capabilities in terms of HR, finance, physical

and intangible resources, a store manager formulates a retail strategy
with regards to marketing retail positioning and retail mix. Retail
positioning is a plan of the store’s action for how the retailer will enter
the target market and will compete with its main competitors. Retail
positioning from a retail store’s point of view, is a step-by- step plan to
create and maintain a unique and everlasting image of the store in the
consumers mind. This process reveals the fact that understanding‘
what the customer wants’ is the success key to retail positioning in the
market. Under retail positioning, a retailer conveys the message that
its products are totally different and as per customer’s requirement.
The reason is that its products are attracted towards items that are
new for them with the perception that if it is new, it will have some
extra/added features.
Retail strategic alternatives: After determining the strengths and weaknesses
vis-à-
vis one environment retailer needs to consider various alternatives
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 available to tap a particular market. Igor Ansoff presented a matrix
which looked at growth opportunities. He focused on firm’s present
and potential products in the existing

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 and new markets. Ansoff’s matrix also helps to understand the options
available to a retailer.
The alternatives available to a retailer are: Market Penetration, Market
Development, Retail Format Development and Diversification.

 Market penetration strategy may focus either on:

Increasing the number of customers; Increasing the quantity
purchased by customers (basket size); Increasing the frequency
of purchase; Increasing the number of customers can be
achieved by adding new stores and by modifying the product
mix. Another approach is to encourage salespeople to cross sell.
Market penetration strategy is the least risky one, since it
controls many of the firm’s resources and capabilities. However,
market penetration has limits. Once the market approaches
saturation, a new strategy needs to be pursued if the firm is to
continue growth.

 In Market expansion/development, When a retailer is said to

reach out to new market segments or completely changes his
customer base. This strategy involves: Tapping new
geographical markets; Introducing new products to the existing
range that appeal to a wider audience; Expansion by adding new
retail stores to existing network is an example of geographical
expansion; Introducing a pharmacy in a supermarket (e.g. the
medicine Shoppe at the Haiko Supermarket in Mumbai) is an
example of a retailer introducing new products, appealing to a
different audience. Another example is McDonald’s who
introduced ice creams for ` 7. This not only created add on sales,
but also brought in customers who had the perception that
McDonald’s is an expensive fast food restaurant.

 Retail format development and diversification: When a

retailer is said to introduce new retail format to customers.
Example: Fast food retailers like McDonald’s and Subway offer
limited menus inside large department stores. Another example
is bookstore chain Crosswords, opening smaller format stores by
the name Crossword Corner at Shopper’s Stop Strategy may be
appropriate if the retailer’s strengths are related to specific
customers, rather than to specific products. In this situation,
retailer can leverage its strengths by developing a new product
targeted to his existing customers.
Retail positioning is made possible under these circumstances:
 By differentiation of the store’s merchandise from that its competitors.
 By offering a high level of service after sales at nominal cost
 By adopting low pricing policies.
4. Determine Retail mix

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 The retail mix is the blend of various retail activities that in totally
present the whole concept of retailing. The retail marketing and retail
positioning strategies are put into effect by this retail mix, the set of
controllable elements that a retailer can use to satisfy customer’s
needs and to influence their buying behavior and compete

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 effectively in the target market. Utmost care is required on the part of
retail manager to select the various elements for a perfect retail mix.
Caution The main elements of a retail store mix are:
 The store’s location
 Merchandise assortment
 Pricing policy
 Customer service mechanism
 Visual merchandising
 Personal selling efforts
 Advertising efforts
 The store’s internal and external environments.

5. Strategy Implementation and Control:

It is concerned with the designing and management of retail system to

achieve the best possible combination of human, financial, physical
and service resources of a retail store; to achieve the formulated
objectives, without timely and effective implementation also requires
scheduling and coordination of various retail activities. Further, the
spirit of teamwork is an essential part for the success of strategy
implementation. If the retail store’s strategies are competitive,
marketing efforts are as per demand, but the sales promotion
employees are not taking it seriously or are ineffective, the result will
not be up to the mark. The implementation of new retailing strategies
sometimes requires changes in the way of functioning and duties that
can lead to resistance from employees. Therefore, stores should take
positive steps to reduce this resistance to change and to convince the
employees that it in the long term will be beneficial for both the store
and the employees.
Strategy control deals in three basic concepts Inspection, Detection
AND Correction It means after implementing the retail strategies, a
retailer should assess how effectively the strategies are being
implemented, how far the strategic objectives are being achieved and
what has been left to be achieved in the store’s objectives list.
Therefore, retailers inspect the implemented strategies from time to
time and detect any fault in the implementation of various retail
elements. If any deficiency is found during the inspection process that
has to be corrected with immediate effect without any further loss to
the store.

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 Chapter F0UR:

The Buying Behavior Of

Consumers
4. Introducti
on
The retail buying process, and those involved, play an important role in the
value chain as they ultimately determine which products and brands are
made available to the [Link] role of retail buying has been to
make decisions about which products to buy and which suppliers to buy
from, but now the retail buying process is also increasingly involved in
generating revenue from these purchases. The “modern” retail buyer is now
involved in activities previously undertaken by the commercial, operational
and sales functions eg product development, market analysis, sales
forecasting and range, assortment, and brand management.

4.1. Buying Process

A customer goes through a number of stages as shown in the following
figure before actually deciding to buy the product. However, customers get
to know about a product from each other. Smart retail managers therefore
insist on recording customers’ feedback upon using the product. They can
use this information while interacting with the manufacturer on how to
upgrade the product.
Customer Buying Process Identifying one’s need is the stimulating factor in
buying decision. Here, the customer recognizes his need of buying a product.
As far as satisfying a basic need such as hunger, thirst goes, the customer
tends to decide quickly. But this step is important when the customer is
buying consumer durables. In the next step, the customer tries to find out as
much information as he can about the product. Further, the customer tries to
seek the alternative products. Then, the customer selects the best product
available as per choice and budget, and decides to buy the same.

There are three fundamental patterns which a consumer can follow

and they could be:
(i) Brand first, retail outlet second (ii) Retail outlet first, brand
second and (iii) Brand and retail outlet simultaneously. A consumer
wanting to buy a car may collect information on brands and purchase it
from a retail outlet based on his perception of price offered or after-sales
service provided by the outlet (typically, search for information on brands is
followed by retail outlet selection in durables). In certain product categories,
especially where ‘category killers’ exist, consumers may think of the retail
outlet initially and then the brands. One more dimension may be to compare
brands in the evoked set at retail outlets which also exist in an evoked set of
their own. This is highly possible, especially in the Indian context where
dealers develop a social relationship with consumers, especially in semi-
urban and rural areas. Primary research could be used to discover the
specific sequence involved in a situation of this kind. A ‘brand first’
dimension may need feature-based advertising and a ‘retail outlet first’
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dimension may require a set of point-of-purchase (POP) materials and special
training to sales personnel to recognize the needs of consumers. Caution
Further, if it is known that a number of consumers may be oriented to visit
their favourite retailer (before obtaining information on brands) in a
geographical area, there would have to be more emphasis on regional/local
advertising which highlights the retail shop rather than regular brand-based
national advertising.

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  Retail outlet first and brand second

When a number of consumers follow this sequence of decision-making,

display of point-of purchase material and building the image of the
outlet becomes important. The manufacturer of the brand may have to
ensure that the brand (and the variants demanded) will be available at
the key outlets in a locality. Point-of-purchase materials which are to
be used at the retail outlet may require primary research - should
visuals be used, should product features be used, should the POP
material be in the regional language. There may also be a need to
monitor competition from other retail outlets to ensure that consumers
are kept satisfied in terms of service, price, promotional deals and
ambience. This is especially applicable to durables retailing in India (in
cities). Retailers attempt to increase consumer traffic by providing a
number of ‘add-ons’.

 Brand first and outlet second

The brand was probably thought of by the consumers because (i) the
consumers may not have developed a relationship with any retailer
which is strong enough to get into the ‘evoked retail set’ or (ii) the
brand has got into the evoked set because of advertising or positive
word of mouth. Local advertising with the mention of brand names
which have already got into the evoked set would enable consumers to
be ‘pulled’ to the outlet. Primary research may be required to identify
the brands in the evoked set. This feedback may have to be provided
by the manufacturers of a brand to retailers in various regions
(especially if it is a brand with a major chunk of the market and one
which is nationally advertised). Even multinational outlets could make
use of this approach and mention the brands in the evoked set (in a
given geographical area). This is likely to improve traffic to the outlet.
Besides, the evoked set could also change from time to time
depending on the strategies of brands.

 Brand and retail outlet simultaneously

When consumers think of the brand and retail outlet together, it means
that they have a certain preference for the outlet and would like to
check the evoked set of brands there. The marketer would have to
carry out primary research to find out specific markets where
consumers have a very positive relationship with retailers. This is
important because of the influence of retailers over the purchase
behavior of consumers in the Indian context. It may also be worthwhile
to check if the evoked brands are carried by the retailers who have a
positive relationship with the target segments. This is to ensure that
the retailers who have a favorable perception among the target
segment carry the desired brands. Failing this, consumers may turn to

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 a different retailer, which would be to the disadvantage of a retailer
who has already won the confidence of consumers. Retail sales
personnel also become important in this situation. The prospective
consumers are “carried over” to the purchase stage by the store
personnel and hence there should be incentive programmers for the
store personnel.

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4.2. Buying Situations

One of the most common themes in the retail buying literature is the
exploration of the role of the retail buyer and the tasks involved in the retail
buying process. The general assumption is that the decision making process
entails a series of clearly defined stages or “buy-phases” involving a range
of tasks which lead to an eventual decision. These stages are typically
regarded as part of a linear, sequential process and comprise various forms
of:
• problem recognition (through internal or external stimuli);• product
specification;• supplier search;• supplier choice;• supplier evaluation;•
supplier selection;• order specification;• and performance review.
The number and nature of these stages varies with the buying situation or
‘buy-class’. All of the stages will feature in the case of a ‘new-task’ buy,
(i.e. when both the product being purchased is new and the potential
supplier is not known), but when products are re- bought some of the stages
in the sequence are un-necessary. For example, in the case of a ‘modified
re-buy’, when the same item is required but a new supplier is sought, or in
the case of a ‘straight re-buy’, where the same product is bought from the
same supplier.

4.3. Buying Centers

Webster and Wind call the decision-making unit of a buying organization the
buying center. It consists of "all those individuals and groups who participate
in the purchasing decision making process, who share some common goals
and the risks arising from the decisions."!7 The buying center includes all
members of the organization who play any of seven roles in the purchase
decision process.

 Initiators-Users or others in the organization who request that

something be purchased.
 Users-Those who will use the product or service. In many cases, the
users initiate the buying proposal and help define the product
requirements.
 Influencers-People who influence the buying decision, often by helping
define specifications and providing information for evaluating
alternatives. Technical personnel are particularly important
influencers.
 Deciders-People who decide on product requirements or on suppliers.
 Approuers-People who authorize the proposed actions of deciders or buyers.
 Buyers-People who have formal authority to select the supplier and
arrange the purchase terms. Buyers may help shape product
specifications, but they play their major role in selecting vendors and
negotiating. In more complex purchases, buyers might include high-
level managers.
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  Gatekeepers-People who have the power to prevent sellers or
information from reaching members of the buying center. For example,
purchasing agents, receptionists, and telephone operators may
prevent salespersons from contacting users or deciders.
Several people can occupy a given role such as user or influencer, and one
person may occupy multiple roles. lo A purchasing manager, for example,
often occupies the roles of

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buyer, influencer, and gatekeeper simultaneously: She can determine which
sales reps can call on other people in the organization; what budget and
other constraints to place on the purchase; and which firm will actually get
the business, even though others (deciders) might select two or more
potential vendors that can meet the company's requirements.
The typical buying center has a minimum of five or six members and often
has dozens. Some may be outside the organization, such as government
officials, consultants, technical advisors, and other members of the
marketing channel. One study found that 3.5 more people on average were
involved in making a purchase decision in 2005 than in 2001.

4.4. Buying Influences

Understanding consumer behavior is critical for a retail business in order to

create and develop effective marketing strategies and employ four Ps of
marketing mix (Product, Price, Place, and Promotion) to generate high
revenue in the long run. Here are some factors which directly influence
consumer buying behavior:

 Market Conditions/Recession In a well-performing market,

customers don’t mind spending on comfort and luxuries. In contrast,
during an economic crisis they tend to prioritize their requirements
from basic needs to luxuries, in that order and focus only on what is
absolutely essential to survive.

 Cultural Background Every child (a would-be-customer) acquires a

personality, thought process, and attitude while growing up by
learning, observing, and forming opinions, likes, and dislikes from its
surrounding. Buying behavior differs in people depending on the
various cultures they are brought up in and different demographics
they come from.

 Social Status Social status is nothing but a position of the customer

in the society. Generally, people form groups while interacting with
each other for the satisfaction of their social needs. These groups have
prominent effects on the buying behavior. When customers buy with
family members or friends, the chances are more that their choice is
altered or biased under peer pressure for the purpose of trying
something new. Dominating people in the family can alter the choice
or decision making of a submissive customer.

 Income Levels Consumers with high income has high self-respect and
expects everything best when it comes to buying products or availing
services. Consumers of this class don’t generally think twice on cost if
he is buying a good quality product. On the other hand, low-income
group consumers would prefer a low-cost substitute of the same
product. For example, a professional earning handsome pay package
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 would not hesitate to buy an iPhone6 but a taxi driver in India would
buy a low-cost mobile.

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  Personal Elements Here is how the personal elements change buying
behavior:

 Gender: Men and women differ in their perspective, objective,

and habits while deciding what to buy and actually buying it.
Researchers at Wharton’s Jay H. Baker Retail Initiative and the
Verde Group, studied men and women on shopping and found
that men buy, while women shop. Women have an emotional
attachment to shopping and for men it is a mission. Hence, men
shop fast and women stay in the shop for a longer time. Men
make faster decisions, women prefer to look for better deals
even if they have decided on buying a particular product. Wise
retail managers set their marketing policies such that the four Ps
are appealing to both the genders.

 Age: People belonging to different ages or stages of life cycles

make different purchase decisions.

 Occupation: The occupational status changes the requirement

of the products or services. For example, a person working as a
small-scale farmer may not require a high-priced electronic
gadget but an IT professional would need it.

 Lifestyle: Customers of different lifestyles choose different

products within the same culture.

 Nature: Customers with high personal awareness, confidence,

adaptability, and dominance are too choosy and take time while
selecting a product butare quick in making a buying decision.

 Psychological Elements Psychological factors are a major influence

in customer’s buying behavior. Some of them are:

 Motivation: Customers often make purchase decisions by

particular motives such as natural force of hunger, thirst, need of
safety, to name a few.

 Perception: Customers form different perceptions about

various products or services of the same category after using it.
Hence perceptions of customer leads to biased buying decisions.

 Learning: Customers learn about new products or services in

the market from various resources such as peers,
advertisements, and Internet. Hence, learning largely affects
their buying decisions. For example, today’s IT-age customer
finds out the difference between two products’ specifications,
costs, durability, expected life, looks, etc., and then decides
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 which one to buy.

 Beliefs and Attitudes: Beliefs and attitudes are important

drivers of customer’s buying decision.

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Factors that influence retail shoppers

 Low Price Most of the Indian consumers are price conscious. In

present scenario the consumer look for value or value for money.
Bundle of benefits with affordable price. Price reductions; cost savings,
promotional offers like buy one get one free can persuade an
unintended purchase. Before step into the shop consumer decides his
budget to spend on purchases. If he gets more products within the
budgets, he feels very happy. Present day unorganized market is
playing a vital role. Due to the private labeled brands the customer
can get it with low price. In most cases the attitude of the consumer
remains towards the price and not towards the quality.

 Mass Distribution The product can be available as convenient to the

customer, thus the easy accessibility to the consumer is preferred by
the marketer. It refers to making the item availability in as many
locations as possible. Example: Shampoo, Hair oils, babul gums

 Self-service Self- service leads to impulse purchases in traditional

stores. It facilitates consumer to gather, evaluate and take decision. In
self-service, the consumer has the opportunity to pick the items as per
his intentions. He could not depend on the clerk or counter salesman.
In this process, consumer can shop more quickly with more freedom to
look at. Language can be a problem to some of the non-regional
people. Self-service is beneficial to such type of people.

 Prominent Store Display The store display must be prominent and

eye-catching. So the consumer notices the product.

 Low-marginal Need for an Item It refers to the degree that the

consumer requires or needs the item. Example: Milk, Eggs, and Corn
flakes as morning break fast.

 Small Size and Light-weight Smaller or lighter items that can be

easily added to existing purchases are more appropriate impulse
items.

 Ease of Storage If the consumer does not have the space for the
item, the potential impulse purchase could be eliminated. If the
storage efforts outweigh the benefit or advantage of the item, the
impulse to purchase the item will be discarded.

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