BA 336 Retail Operations

Four Characteristics of Services Retailing

• Intangibility• Inseparability• Perishability• Variability

Characteristics of Service Retailing

Intangibility

• No patent protection possible• Difficult to display/communicate service benefits• Quality judgment is subjective• Some services involve performances/experiences

Characteristics of Service Retailing

Inseparability

• Consumer may be involved in service production• Centralized mass production difficult• Consumer loyalty may rest with employees

Characteristics of Service Retailing

Perishability

• Services cannot be inventoried• Lost revenues from unsold services are lost forever• Effects of seasonality can be severe• Planning employee schedules can be complex• Need to balance supply and demand (yield management pricing)

Characteristics of Service Retailing

Variability

• Standardization and quality control hard to achieve• Customers may perceive variability even when it does not actually occur• Need to industrialize/mechanize/service blueprint services to factor out variability

Elements of a Retail StrategyRetail Strategy

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Components of Internal Analysis

Figure 3.2

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Resources, Capabilities and Core Competencies

• Resources– Are a firm’s assets,

including people and the value of its brand name

– Represent inputs into a firm’s production process, such as:

• Capital equipment• Skills of employees• Brand names• Financial resources• Talented managers

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Resources, Capabilities and Core Competencies

• Resources– Tangible resources

• Financial resources• Physical resources• Technological resources• Organizational resources

– Intangible resources• Human resources• innovation resources• Reputation resources

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Tangible ResourcesFinancial Resources • The firm’s borrowing capacity

• The firm’s ability to generate internal funds

Organizational Resources • The firm’s formal reporting structure and its formal planning, controlling,and coordinating systems

Physical Resources • Sophistication and location of a firm’s plant and equipment• Access to raw materials

Technological Resources • Stock of technology, such as patents, trade-marks, copyrights, and trade

secrets

SOURCES: Adapted from J. B. Barney, 1991, Firm resources and sustained competitive advantage, Journal of Management, 17: 101; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 100–102. Table 3.1

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Intangible ResourcesHuman Resources • Knowledge

• Trust• Managerial capabilities• Organizational routines

Innovation Resources • Ideas

• Scientific capabilities • Capacity to innovate

Reputational Resources • Reputation with customers

• Brand name • Perceptions of product quality,

durability, and reliability • Reputation with suppliers • For efficient, effective, supportive, and mutually beneficial interactions and

relationshipsSOURCES: Adapted from R. Hall, 1992, The strategic analysis of intangible resources, Strategic Management Journal, 13: 136–139; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 101–104.

Table 3.2

Applying the Retailing Concept

Customer Orientation

Coordinated Effort

Value-driven

Goal Orientation

RetailingConcept

RetailStrategy

Components of Strategic Planning

• Strategic planning - Adapting the resources of the firm to the opportunities and threats of an ever-changing retail environment.

• Through the proper use of strategic planning, retailers hope to achieve and maintain a balance between resources available and opportunities ahead.

LO 1

Components of Strategic Planning

• Strategic planning consists of four components:– Development of a mission (or purpose) statement for

the firm.– Definition of specific goals and objectives for the firm.– S(strengths)W(weaknesses)O(opportunities)T(threats)

analysis.– Development of basic strategies that will enable the

firm to reach its objectives and fulfill its mission.

LO 1

Mission Statement

• It is a basic description of the fundamental nature, rationale, and direction of the firm.

• Elements of a mission statement are:– How the retailer uses or intends to use its

resources.– How it expects to relate to the ever-changing

environment.– The kinds of values it intends to provide in order

to serve the needs and wants of the consumer.

LO 1

Statement of Goals and Objectives

• Provide:– Specific direction and guidance to the firm in the

formulation of its strategy.– A control mechanism by establishing a standard

against which the firm can measure and evaluate its performance.

LO 1

Retail Objectives

LO 1

Statement of Goals and Objectives

• Market performance objectives– Establish the amount of dominance the retailer

seeks in the marketplace.– Market share - The retailer’s total sales divided by

total market sales.

LO 1

Statement of Goals and Objectives

• Financial objectives– Profit-based objectives - Deal directly with the

monetary return a retailer desires from its business.– Profit is the aggregate total of net profit after taxes

— that is, the bottom line of the income statement.– Profit can be expressed as a percentage of net sales.– It can also be defined in terms of return on

investment (ROI), which can be defined by—Return on assets (ROA) and Return on net worth (RONW).

LO 1

Strategic Profit Model

LO 1

Statement of Goals and Objectives

• Financial objectives– Stockouts - Products that are out of stock and

therefore unavailable to customers when they want them.

LO 1

Statement of Goals and Objectives

• Financial objectives– Productivity objectives - State the sales objectives

that the retailer desires for each unit of resource input.

• Space productivity - Net sales divided by the total square feet of retail floor space.

• Labor productivity - Net sales divided by the number of full-time–equivalent employees.

• Merchandise productivity - Net sales divided by the average dollar investment in inventory.

– Productivity objectives are vehicles by which a retailer can program its business for high-profit results.

LO 1

• Open or acquire on store over the next four years

• Remodel one existing store every three years• Increase operating profit margin in each story

by .25 percent for each six-month period• Increase clothing sales in existing stores by 10

percent over the preceding year

Strategies

• Are a carefully designed plan for achieving the retailer’s goals and objectives.

• Retailers can operate with three strategies:– Get shoppers into your store.– Convert these shoppers into customers by having

them purchase merchandise.– Implement the above two strategies at the lowest

operating cost possible that is consistent with the level of service that your customers expect.

LO 1

SWOT Analysis

• Strengths:– What major competitive advantage(s) do we

have?– What are we good at? – What do customers perceive as our strong points?

– Ikea– Target– McDonald's

LO 1

SWOT Analysis

• Weaknesses– What major competitive advantage(s) do

competitors have over us?– What are competitors better at than we are?– What are our major internal weaknesses?

– Ikea– Target– McDonald's

LO 1

SWOT Analysis

• Opportunities– What favorable environmental trends may benefit

our firm?– What is the competition doing in our market?– What areas of business that are closely related to

ours are undeveloped?

– Ikea– Target– McDonald's

LO 1

SWOT Analysis

• Threats– What unfortunate environmental trends may hurt

our future performance?– What technology is on the horizon that may soon

have an impact on our firm?

LO 1

Building competitive advantage

• Physical differentiation• The selling process• After-purchase satisfaction• Location• Never being out of stock

Strategies

• The retailer must develop a retail marketing strategy with strong financial elements.

• A fully developed marketing strategy should address the following considerations: the specific target market, location, the specific retail mix that the retailer intends to use, and the retailer’s value proposition.

LO 1

Strategies

• Target market - Group of customers that the retailer is seeking to serve.

• Location - Geographic space or cyberspace where the retailer conducts business.

• Retail mix - Combination of merchandise, price, advertising and promotion, location, customer service and selling, and store layout and design.

LO 1

Strategies

• Value proposition - A clear statement of the tangible and/or intangible results a receives from shopping at and using the retailer’s products or services.

LO 1

What is Value? (cont.)

Channel

Perspective• Value is a series

of activities and processes (the “value chain”) that provide a certain value for the consumer.

Customer

Perspective• Value is a perception

that the shopper has of the value chain.

• It is the view of all the benefits from a purchase versus the price paid.

Value and value chain…

Value Chain (Porter,1985)

Role: disaggregates a firm into its strategically relevant activities in order to identify and understand sources of competitive advantages

The value chain is unique to each business

…Competing in a business involves performing a set of discrete activities, in which competitive advantage resides

The Value Chain• An analytical tool that describes all

activities that make up the economic performance and capabilities of the firm.

• It is used to analyze and examine activities that create value for a given firm.

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The Basic Value Chain

Inbound Logistics

Operations

Outbound Logistics

Marketing and Sales

Service

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Hum

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Tech

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Identifying the Value ChainValue

What buyers are willing to pay

Su

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Primary Activities

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Value Chain Analysis

• Allows the firm to understand the parts of its operations that create value and those that do not

• A template that firms use to:– Understand their cost position

– Identify multiple means that might be used to facilitate implementation of a chosen business-level strategy

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Value Chain Analysis (cont’d)

• Primary activities involved with: – A product’s physical creation

– A product’s sale and distribution to buyers

– The product’s service after the sale

• Support activities– Provide the support necessary for the primary

activities to take place

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Value Chain Analysis (cont’d)

• Value chain– Shows how a product moves from raw-material

stage to the final customer

• To be a source of competitive advantage, a resource or capability must allow the firm:– To perform an activity in a manner that is superior

to the way competitors perform it, or

– To perform a value-creating activity that competitors cannot complete

Retail Value Chain

• Represents the total bundle of benefits offered to consumers through a channel of distribution• Store location and parking, retailer ambience,

customer service, brands/products carried, product quality, retailer’s in-stock position, shipping, prices, image, and other elements

Retail Value Chain

• Represents the total bundle of benefits offered to consumers through a channel of distribution• Store location and parking, retailer ambience,

customer service, brands/products carried, product quality, retailer’s in-stock position, shipping, prices, image, and other elements

A Value-Oriented Retailing Checklist• Is value defined from a consumer perspective?• Does the retailer have a clear value/price point?• Is the retailer’s value position competitively defensible?• Are channel partners capable of value-enhancing

services?• Does the retailer distinguish between expected and

augmented value chain elements?• Has the retailer identified potential value chain elements?• Is the retailer’s value-oriented approach aimed at a

distinct market?• Is the retailer’s value-oriented approach consistent?

Potential Pitfalls to Avoid in Planning a Value-Oriented Retail Strategy

• Planning value solely from a price perspective• Providing value-enhanced services that

customers do not want or will not pay extra for• Competing in the wrong value/price segment• Believing augmented elements alone create

value• Paying lip service to customer service

Retail Strategic Planning and Operations Management Model

LO 2

The Retail Strategic Planning and Operations Management Model

• Operations management - Deals with activities directed at maximizing the efficiency of the retailer’s use of resources. It is frequently referred to as day-to-day management.

• The need to strive for a high profit is tied to the extremely competitive nature of retailing.

LO 2

Merchandising

Types of Merchandise

• Staple Goods – items that are constantly in demand by customers. Examples are toothpaste, milk, or bread.– Used consistently and replaced on a regular basis– Sales are easily predictable because they are bought on a consistent

basis.

• Convenience Goods – small, inexpensive items that customers purchase frequently. Examples are gum, bottled water, or magazines. – Found in convenience stores, grocery stores or gas stations.

• Fashion Goods – items that are popular at a certain time. An example is clothing.– Includes any item that comes in or out of style– Retailer will maximize sales by acquiring the

product as it is gaining popularity• Seasonal Goods – products that are popular

only at a certain time of year. Examples are swimsuits, boxed chocolates, or snow skis.

The Merchandise Mix

• Businesses must pay close attention to their target market and must obtain, develop, maintain, and continually improve upon their merchandise mix.– Components of the Mix

• Merchandise Mix – made up of all the products that a business sells

• Product Line – a group of closely related products that a business sells

• Product Items – the products that make up a product line. A specific model or brand

• Merchandise Mix Strategies – Development – develop new products to bolster the

company’s image or to expand their market share. – Expansion – businesses can choose to add either new

product items or new product lines.– Modification – altering a company’s existing product.– Deletion – may occur when a product is no longer

useful, obsolete, not fashionable, or room is needed for another product.

Any questions???