FUNCTIONS OF RETAILING

OVERVIEW OF RETAILING

RETAILING

TO DEFINE RETAILING , CONSIDER IT

FROM VARIOUS PERSPECTIVES,

DEMONSTRATE ITS IMPACT, & NOTE

ITS SPECIAL CHARACTERISTICS

RETAILERS MUST BE “CUSTOMER-FOCUSED, NOT PRODUCT-FOCUSED,”

------- CARL STEIDTMANN,

DIRECTOR & CHIEF ECONOMIST OF

PRICEWATERHOUSECOOPERS

6-step process for customer-focus

1. Create a great environment

2. Listen to your customer

3. Consider the “Lifetime Value” of your customer

4. Use direct mail

5. Employ relationship marketing principles

6. Provide rewards to your best customers

Retailing consists of…• Business activities involved in selling goods &

services to consumers for their personal, family, or household use

• In contrast, wholesaling is an intermediate stage in the distribution process

Impact on economy

• Retailing is a major part of world commerce

• Retail sales & employment are key economic contributors

• Retail trends often mirror trends in a nation’s overall economy

• Out of global retail sales of $6.6 trillion U.S. retail accounts for over $3 trillion

Retail in modern format Country Modern format(%) Total($)India 3 200 bnChina 15 325 bnIndonesia 30 75 bnThailand 40 32 bnMalaysia 45 20 bnTaiwan 81 40 bn

-------------------------------------------------------Source: Operations Research Group

Top 10 retailers worldwideRank Retailers No. of stores Sales

2000 owned (US $

Mill.)1 Wal-Mart (USA) 4178 100,0002 Carrefour (France) 8130 61,0473 The Kroger Co. (USA) 3445 49,0004 Home Depot (USA) 1134 45,7385 Royal Ahold (USA) 7150 45,7296 Metro AG (Germany) 2169 44,1897 Kmart Corporation (USA) 2105 37,0288 Sears Roebuck (USA) 2231 36,8239 Albertson’s Inc. (USA) 2512 36,36210 Target Corporation (USA) 1307 36,362

Source: Price Waterhouse Coopers

Sector-wise sales – world estimates

Sector Sales (US $ Trillion)

Retail 6.6Financial services 5.1Construction engineering 3.2Packaged goods 2.0Chemicals 1.4Energy 1.2Electronics 1.1Automotive 1.0Telecom 0.8Pharmaceuticals, diagnostics 0.3

Source: ICRIER, working Paper No.80

Share of retailing in total employment in select countries

Country Share of retail intotal employment (%)

USA 17Brazil 15Poland 12China 6India 6-7

Source: CSO India: M.G.Study, 2000

Retail function in distribution

Manufacturer Wholesaler Retailer Final

consumer

Relationships among retailers & their suppliers• Complex relationships among retailers & their

suppliers must be understood:1. Retailers are part of the distribution channel;

2. Retailers are also major customers of goods & services for resale, store fixtures, computer equipment, management consulting & insurance

• Retailers & their suppliers may have divergent viewpoints that need to be reconciled

Comparing exclusive, intensive, & selective distribution

Exclusive Intensive Selective

No. of retailers L H M

Potential for conflict L H M

Support from supplier (retailer) H L M

Supplier’s sales L H M

Retailer’s assortment L H M

Product (retailer) image H L M

Competition among retailers L H M

Exclusive distribution:

• Generally smoothest

• Stimulates both parties to work together

• Yet, also requires retailers to limit its assortment in product categories

• From manufacturers’ perspective, may limit their long-run total sales potential

Intensive distribution:

• Sell through as many retailers as possible

• Often maximizes suppliers’ sales & lets retailers offer many brands & product versions

• Consequently competition among retailers selling same items is high

Selective distribution:• Sell thru’ moderate no. of retailers, combines

aspects of both exclusive & intensive distribution• Allows suppliers’ to have higher sales than in

exclusive distribution & lets retailers carry some competing brands

• Encourages suppliers to provide marketing support & retailers to give adequate shelf space

• Yet, this approach does not have the channel cooperation of exclusive distribution or the sales potential of intensive distribution

Special characteristics of retailing

Small average sales Impulse purchases

Retailer’s

strategy

Popularity of stores

2. Importance of developing & applying a retail strategy

Any retailer should apply these 6 steps:1. Define the type of business in terms of the goods or service

category & the company’s specific orientation 2. Set long-run & short-run objectives for sales & profit, market

share, image,…3. Determine the customer market to which to appeal on the

basis of its characteristics & needs4. Devise an overall, long-run plan that gives general direction to

a firm & its employees5. Implement an integrated strategy that combines such factors

as store location, product assortment, pricing, & advertising & displays to achieve objectives

6. Regularly evaluate performance & correct weaknesses or problems as they are observed

3. Marketing concepts applied to retailing

customer orientation

Retailing Retail

Coordinated effort concept strategy

Value-driven

Goal orientation

1. Customer orientation: retailer determines the attributes & needs of its customers & endeavours to satisfy these needs to the fullest

2. Coordinated effort: retailer integrates all plans & activities to maximize efficiency

3. Value driven: retailer offers good value to customers, whether it be a discounter or upscale; i.e. prices appropriate for level of products & customer service

4. Goal orientation: retailer sets goals & then uses its strategy to attain them

Unfortunately, this concept is not grasped by all retailers:

• Some indifferent to customer needs, plan haphazardly, , have prices that do not offer value, & have unclear goals

• Retailing concept is easy to adopt• 3 issues that relate to a retailer’s performance

in terms of retailing concept:1.Total retail experience2.Customer service3.Relationship retailing

Total retail experience• Irrespective of the type of outlet, shoppers encounter a

total retail experience in making a purchase

– No. of sales people– Displays, Prices– Brands carried, Inventory on hand

• If some part of the total experience is unsatisfactory, consumers may not buy a given good or service

• One of the biggest challenges for today’s retailers is generating customer “excitement”

Customer service

• Customer service has a strong impact on total retail experience

• Among customer service strategy are:– Store hours– Parking access– Shopper- friendliness of store layout– Credit acceptance– Level & caliber of salespeople– Amenities such as gift wrapping– Rest room availability– Employee politeness– Handling special orders – Delivery policies– Time spent at check-out lines– Customer follow-up

• Leading retailer in customer service is Nordstrom

Relationship retailing

• Seek to establish & maintain long-term bonds with customers

• Retailers must thus concentrate on total retail

experience: – monitor satisfaction with customer service– stay in touch with the customers

• To ‘win’ in the long run customer must also ‘win’ in the long run

• Due to advances in computer technology, it is now much easier to build database