not displayed or advertised in the proper manner. Retailer links himself with suppliers and middlemen, so that he can efficiently supply appropriate products and services to its target market. 4. COMPETITIRORS: The competition in retail markets is affected by barriers to entry, the bargaining power of vendors, and competitive rivalry. Retail markets are more attractive when competitive entry is costly. Markets dominated by large competitors with scale economies are too unattractive because the cost advantages of the dominant firms. However, markets are less attractive when few vendors control the merchandise sold in the market and thus have better bargaining power. In case of high competitive rivalry, price wars erupt, and advertising and promotion expenses increase, and profit potential falls. Therefore, a retailer should re-examine its strategy, including its target market and merchandising focus, to ensure that it holds a competitive edge. Further, retailers should define competition broadly. For example, a supermarket may face competitive threats not just from other supermarkets but also from traditional Kirana stores, online grocers, street vendors, neighborhood stores and so on. These competitors have to be identified carefully and monitored continuously to maintain customer loyalty. 9.4 FACTORS IN THE MICRO ENVIRONMENT The external environment of retail marketing includes larger societal forces that are uncontrollable by the retailer. These variables not only affect the functioning of the retail organization but also affect many factors of micro environment. Therefore, tracking and analyzing macro environment is more crucial. Following are some of the important macro environmental factors: 1. DEMOGRAPHIC ENVIRONMENT - The first environmental fact of interest to retailers is population because people make up markets. Demographics involve the study of age, sex, marital status, household size, education and geographic location and social ethnic and religious structure. These changes not only influence the size and attractiveness of markets for many different goods and services but also influence the behaviour of consumers. The ripples of these changes will reach the organization forcing it to alter or amend the existing marketing practices in vogue. In short, Retail firms, will have to continuously measure the changes qualitative as well as quantitative - that are taking place in the population structure. To avoid negative consequences brought on by active consumer groups, a retailer must communicate with consumers, anticipate problems, respond to complaints and make sure that the firm operates properly. 151 CU IDOL SELF LEARNING MATERIAL (SLM)
2. POLITICAL / LEGAL ENVIRONMENT - Retail marketing decisions are substantially impacted by developments in the political / legal environment. This environment is composed of laws, government agencies and pressure groups that influence and constrain various organizations and individuals in society. Legislation affecting retail business has steadily increased over the years. At the state and local levels, retailers have to deal with many restrictions. The purpose of Government regulation is to protect consumers from unfair retail practices such as deceptive advertising, improper packages and unfair prices. Unfair consumer practices have been defined and are enforced by various agencies. Another purpose of Government Regulation is to protect the larger interest of society against unethical business behaviour. 3. SOCIAL/ CULTURAL ENVIRONMENT - The society that people grow up in shapes their basic beliefs, values and norms. People live in different parts of the country may have different cultural values - which has to be analyzed by retail business. This will help them to reorient their strategy to fulfil the demands of their consumers. Retail marketers have a keen interest in anticipating cultural shifts in order to spot new marketing opportunities and threats. For example, marketers of foods, exercise equipment and so on will want to cater to this trend with appropriate products and communication appeals. 4. ECONOMIC ENVIRONMENT - Retail markets consist of purchasing power as well as people. Total purchasing power is a function of current income, prices, savings and credit availability. The changes in economic conditions can have destructive impacts on business. Economic forecasters are likely to find the recurrent themes of shortages, rising costs and up and down business cycles. These changes in economic conditions provide marketers with new challenges and threats. Retail marketing firms are susceptible to economic conditions, both directly and through the medium of market place. For example, cost of all inputs positively responds to upward swing of economic condition - which will affect the output price and consequently affect the sales. Similarly, in the event of increase in prices, consumers often curtail or postpone their expenditures. Conversely, during time of fall in prices, consumers are much less conscious of small price differences and would buy luxury and shopping products. 5. TECHNOLOGICAL ENVIRONMENT - The most dramatic force shaping the retail business in this decade is the technology. The technology has disrupted the way goods and services are bought and sold. It should be remembered that technological progress creates new opportunities and also poses threat for many retail firms. In the long run, retail marketers need to understand the changing technological environment and how new technologies can 152 CU IDOL SELF LEARNING MATERIAL (SLM)
serve human needs. Today there is growing dependence on technology in almost all functions of retail such as market research, supply chain management and operations management. 9.5 ENVIRONMENTAL ISSUES There is a growing awareness today on sustainability and more and more consumers are turning environmentally conscious. They are increasingly patronizing businesses who advocate for social and environmental responsibility. In fact many are boycotting businesses who behave in ways contrary to this. Issues such as climate change, excess waste and unethical labor practices are much more salient now. Due to this, more corporate take on Corporate Social Responsibility (CSR) initiatives as a way to lessen their environmental impact and more and more businesses are taking a stance when it comes to environmentalism. Sustainability involves developing an economy that is based on triple bottom-line values: people, planet, and profit. The retail industry needs to develop policies that embrace the values in a way the retail industry does business. Retailers today are seeking ways to improve their policies and practices that are responding to consumer demands for more environmentally products and packages. Sustainability in the retail industry focuses on the following areas: Natural Resources Energy and Greenhouse Gases Waste Management Supply Chain/Transportation Impacts Handing of Chemicals Natural Resources - The use of natural resources is always at the top of sustainability concerns. The two main issues are the environmental impacts of using raw materials and the risk of supply chain disruption. Energy and Greenhouse Gases - For retailers, energy can have a significant impact on the environment. These are both direct impacts dealing with the level of energy consumption and indirect impacts associated with the greenhouse gases generated from energy production. For example, many retailers switching from florescent to LED lighting can have a significant impact. Waste Management - Waste management involves the handling of solid waste. Solid waste is generated from disposal of shipping packaging, shopping bag use, and end- of-product life disposal. Many retailers are looking toward a zero-waste concept, 100 percent recycling of 153 CU IDOL SELF LEARNING MATERIAL (SLM)
all solid waste. However, online retailing has significantly resulted in more waste in terms of packaging. Supply Chain/Transportation Impacts - Within the retail industry another sustainability concern is with supply chain purchasing and supply chain transportation and logistics. With respect to supply chain transportation/logistics, how a retailer imports and distributes its goods can have a significant impact on the generation of greenhouse gases. Fewer miles travelled by ship, airplane, truck or rail means less greenhouse gas emissions. Chemical free products - Many retailer products contain chemicals as a result of the manufacturing process. Because most retailers do not manufacture the goods they sell, in order to have an impact on the chemicals being used they must deal with their suppliers and manufacturers to ensure that the chemicals being used and the emissions generated during the manufacturing process meet all applicable environmental standards. Although laws related to the environment restrict the nature of retail developments, many new developments go beyond these legal requirements to address sustainability and energy- efficiency issues. New retail developments are using energy-efficient building materials, heating and cooling systems, water-efficient landscaping, and natural lighting. While many efforts are underway within the retail industry, more efforts are needed and new and innovative ways of addressing sustainability need to be developed. A continued emphasis on sustainability by the retail industry and the sharing of new ideas will go a long way to address consumers’ concerns over climate change and sustaining the planet for future generations. 9.6 SUMMARY Retail environment includes a set of external forces that affect the retailer’s ability to develop and maintain successful transactions and relationships with its target customers. Retail environment is broadly classified into Micro and Macro environment. Micro environment is the immediate environment including suppliers, customers, competitors, and other stakeholders. Macro environment is more uncontrollable and includes factors such as demographic, legal, social, economic and technological variables. The environmental analysis helps is assessing strengths and weaknesses and the opportunities and threats to the organisation and thereby plays an important role in strategic planning process. By analysing the changes that are occurring in the Environment, organisations can adapt themselves to changes, prepare long-term plans, forecast potential demand and sales, and compete with the intense competition. 154 CU IDOL SELF LEARNING MATERIAL (SLM)
Growing concerns over climate change and sustainability, more efforts are needed and new and innovative ways of addressing sustainability need to be developed by the retail industry. 9.7 KEY WORDS Marketing environment: The marketing environment refers to all internal and external factors, which directly or indirectly influence the organization’s decisions related to marketing activities. Opportunities: Opportunities are marketplace openings that exist because other retailers have not yet capitalized on them. Threats – Threats are environmental and marketplace factors that can adversely affect retailers if they do not react to them. Sustainability: The quality of causing little or no damage to the environment and therefore able to continue for a long time. 9.8 LEARNING ACTIVITY 1. Discuss the sustainable marketing practices of any Retailer. (Refer Website) ___________________________________________________________________________ ___________________________________________________________________________ 9.9 UNIT END QUESTIONS A. Descriptive Questions 155 Short Questions 1. Define retailing marketing environment. 2. What do you mean by sustainability? 3. What are the advantages of environmental analysis? Long Questions 1. Explain the various macro environmental factors affecting retailing? 2. Describe the various micro environmental factors in retailing. 3. Describe advantages and disadvantages of technology in Retailing. B. Multiple Choice Questions 1. Insurance against——–is more important due to government rules. a. Environmental risk. b. Production risk. CU IDOL SELF LEARNING MATERIAL (SLM)
c. both 1 & 2 d. none of these 2. Which analysis compares the strengths and weaknesses of a firm against the opportunities and threats in the external environment? a. Environmental analysis. b. Business analysis. c. SWOT analysis. d. None of the above. 3. Which factor indicates the nature and direction the economy in which a firm operates? a. Economic environment. b. Gross national product. c. Competitive position d. Operating environment 4. What type of competitive structure are most retail firms involved in? a. Horizontal competition. b. Monopolistic competition. c. Vertical competition. d. Pure competition. Answers 1-a, 2-c, 3-a. 4-b 9.10 REFERENCES References book Levy, M. and Weitz, B., (2012). Retailing management. Boston: McGraw-Hill Irwin. New York. Berman, Barry; Evans, Joel R.; and Chatterjee, Patrai, \"Retail Management: A Strategic Approach\" (2018). New Delhi: Pearson India Textbook references 156 CU IDOL SELF LEARNING MATERIAL (SLM)
Anand Thakur, (2002). RETAIL MANAGEMENT (Ed), EXCEL BOOKS PRIVATE LIMITED, New Delhi. Website https://www.vendhq.com/blog/sustainability-in-retail/ https://ei1.com/2019/04/04/environmental-issues-and-sustainability-in-the-retail- industry/ https://www.slideshare.net/hemanthcrpatna/retail-marketing-6802071 157 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 10: THE RETAIL MARKETING SEGMENTATION STRUCTURE 10.0 Learning Objectives 10.1 Introduction 10.2 Importance Of Market Segmentation In Retail 10.3 Criteria For Effective Segmentation 10.4 Dimensions Of Segmentation 10.5 Target Marketing Strategy 10.6 Positioning Decisions 10.7 Limitations Of Market Segmentation 10.8 Summary 10.9 Keywords 10.10 Learning Activity 10.11 Unit End Questions 10.12 Reference 10.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Describe the importance of retail market segmentation Explain the types of market segmentation Analyse the attractiveness of market segments Describe the target marketing strategies Explain position of retail store 10.1 INTRODUCTION Retailers have realized that they can’t satisfy all consumers with a single set of retail mix and ‘one-size-fits-all’ strategy no more relevant. They develop different retail mixes for different group of customers. Even retailers, such as Wal-Mart who earlier offered similar merchandise across US, without much geographic or demographic variations, now targets and provides different offerings in stores that serve African-Americans, Hispanics, affluent customers, empty nesters, suburbanites, and rural residents. In fact, modern customers look for more than products when they shop with retailers, they actually, value companies that identify their individual needs and meet their unique expectations. Since it is not cost-efficient for retailers 158 CU IDOL SELF LEARNING MATERIAL (SLM)
to develop unique offerings for individual customers, retailers started targeting a group of customers with similar needs and buying behaviour. This process enables them to significantly cater to the unique needs of customers while keeping their operational costs under check. However, today Internet enables retailers to target individual customers efficiently and market products to them on a one-to-one basis. This is called one-to-one marketing. 10.1.1 Retail Market Segmentation Market segmentation is a process by which the total market is divided into smaller, identifiable groups based on the similarities in needs of customers. It is very useful for the retail organization to create a customized retail mix for specific groups of customers. This enables retailers to gain a clear understanding of the retail customers’ requirements and thereby developing strategies to reach out to the customers with specific needs and preferences. Market segmentation is generally, conducted based on customer’s gender, age, religion, nationality, culture, profession, and preferences. 10.1.2 Retail Market Segment A retail market segment is a group of customers whose needs are satisfied by the same retail mix because they have similar needs. For example, leisure travellers have different needs than executives who travel on business purposes. Thus, airlines usually offer different retail mix elements for each of these segments. Similarly, Marriott Hotels and Resort offer different rooms for vacationers and business conferences. 10.2 IMPORTANCE OF MARKET SEGMENTATION IN RETAIL Market segmentation helps to provide tailored promotions including merchandise and service upgrades, free shipping by online stores, and messages through cell phone apps, etc. Enables retailers to be more effective in enhancing customer engagement and loyalty. Opportunity to develop better strategy to sustain customer loyalty by offering tailored rewards, based on what particular shoppers desire. Market segmentation at the ultimate level allows retailers to peruse one-to-one marketing where retailers target individual customer with their tailor-made offerings. This is more valuable pertaining to effective customer relationship management. 159 CU IDOL SELF LEARNING MATERIAL (SLM)
10.3 CRITERIA FOR EFFECTIVE SEGMENTATION There are different methods used for segmenting retail markets such as demographic, geographic, psychographic and behavioral variables. However, there is no simple way to determine which method is best. The fundamental criteria for evaluating a retail market segment are that customers in the segment must have similar needs, and must differ from the needs of customers in other segments. Retailers generally use four criteria for evaluating whether a retail segment is a viable target market or not. These criteria are: actionable, identifiable, substantial, and reachable. Actionable - A segment should be actionable, i.e., the retailer should be able to develop a more effective marketing strategy to satisfy needs of the consumers in the segment. For example, customers who wear large sizes have different needs than those who wear small sized apparels, so retailers like all are able to offer a unique merchandise mix for plus size customers. However, it wouldn’t make sense for a supermarket to segment its market on the basis of customer size where segmentation based on locality, household income and ethnicity would be more actionable. Identifiable - Identifiable means that the retailer is able to determine the various characteristics of customers who are in the market segment. When customers are identifiable, the retailer can determine the size of the segment, identify growth trends and develop communications and promotions program. For example, online retailers use demographics to identify their more profitable segment such as young, middle class, educated, urbanites with higher incomes. Similarly, instant and prepared foods targets working women and single men with higher average incomes. It is equally important to ensure that the segments are distinct from one another. Too much overlap or similarity between segments makes market segmentation redundant. Substantial - If a market is too small or low buying power, then it cannot generate sufficient profits to support the tailored retailing mix activities. For example, the market for pet pharmaceuticals is probably not large enough to serve as a target market segment for a store retailer, but could be served through the Internet channel. Reachable - Reachable means that the retailer can target promotions and other elements of the retail mix to consumers in the segment. For example, rural market in India is ignored by many retailers in spite of its large size, is due to difficulty in reaching them with communication and distribution networks. With higher rate of illiteracy, and more dependence on regional language, this segment is quite difficult to access with very few media options for retailers. 160 CU IDOL SELF LEARNING MATERIAL (SLM)
10.4 DIMENSIONS OF SEGMENTATION Retailers explore various factors that affect customer buying behavior and determine which factors are most important for them while segmenting their markets. A wide variety of approaches are available for segmenting retail markets. 1. Geographic Segmentation Geographic segmentation attempts to group customers according to geographical locations of customers. A retail market can be segmented by countries, states, cities, and neighborhoods. For example, Amazon segments based on countries and have different websites for each major country it serves. Similarly, organic food retailers target on the basis of cities. Because most customers wish to shop at stores convenient to them, individual retail outlets usually target the customer segment that live close by. Segments based on geography can be easily identifiable, substantial, and reachable. Geographic segmentation based on states is more sensible in a country like India due to significant regional differences. 1. Demographic Segmentation Demographic segmentation groups consumers on the basis of characteristics such as age, gender, income, and education and so on. These variables are the most common bases of defining segments, because consumers in these segments can be easily identified, their size can be determined, and the degree to which they can be reached by and are responsive to media can be easily assessed. Most of the apparel retailers segment on the basis of age and gender. However, demographics may not be useful in understanding buying motivations. For example, demographics are poor predictors of users of jogging shoes, yoga classes or gyms. 2. Geo-demographic Segmentation Some retailers use both geographic and demographic characteristics to better define their consumers. This segmentation is called geo-demographic segmentation. This is based on the information that consumers in the same neighborhoods tend to buy the same types of cars, appliances, and apparel and shop at the same types of retailers. Geo-demographic segmentation is particularly appealing to store-based retailers, as they select locations and tailor the assortment to the preferences of the local community. In fact, this segmentation is more useful in making store location decisions. 3. Lifestyle Segmentation Lifestyle or psychographics refers to the way people live, how they spend their time and money, what activities they pursue, and their attitudes and opinions. For example, a person may have a strong need for adventure. This motivates the person to buy products compatible with that lifestyle. For example, adventure sports, mountain treks, sea surfing, etc. are targeted on the basis of customer lifestyle. As these variables are not readily identifiable retailers use consumer surveys to define a target segment. One of the most widely used tools 161 CU IDOL SELF LEARNING MATERIAL (SLM)
for lifestyle segmentation is VALS framework. VALS survey classifies consumers into eight segments such as Innovators, Thinker, Achievers, Experiences, Believers, Strivers, Makers, and Survivors based on degree of innovativeness and resources available to an individual. However, with lifestyles alone it is harder to identify potential customers. Therefore, firms like Nike identify its lifestyle customers using demographic variables. 4. Buying Situation Segmentation Customers with the same demographics or lifestyle can differ in their buying behaviour based on their buying situation. Thus, retailers may use different buying situations, such as fill-in versus weekly shopping, to segment a market. For example, a customer would probably go to the convenience store if need milk urgently than visiting a supermarket. However, prefer to go to a supermarket for weekly grocery shopping. Similarly, an executive might stay at a convention hotel on a business trip and a resort during a family vacation. 5. Benefit Segmentation Under benefit segmentation retailers define a target segment on the basis of similar benefits sought by customers. For example, customers who seek fashion and style form a profitable segment for fashion apparel retailers such as Zara, whereas customers who seek low price would form a price segment. Benefit segments are very actionable as benefits sought clearly indicate how to design offerings. But customers in benefit segments aren’t easily identifiable or accessible. 6. Composite Segmentation Approaches As it is observed that no segmentation approach meets all the criteria, most retailers use composite segmentation which uses multiple variables to identify customers in the target segment such as benefits sought, lifestyles, and demographics. 10.5 TARGET MARKETING STRATEGY After segmenting the market based on appropriate variables, the retailer selects the target market or markets to which it wants to appeal. Retailer identifies the characteristics, needs, and attitudes of the target markets, understand how these target customers make purchase decisions and acts accordingly. There are many ways a retailer can choose its target markets. In deciding on a target market approach, a retailer considers its goods/service category and goals, competitors’ actions, the size of various segments, the efficiency of each target market alternative, the resources required, and other factors. There are three basic targeting strategies available to retailers: mass marketing, concentrated marketing, and differentiated marketing. Mass Marketing Strategies - Here, retailers such as a supermarket or a drugstore sells to a broad array of consumers. It does not really focus efforts on any one kind of customer and ignores the differences among customers. For example, Apollo Pharmacy chain 162 CU IDOL SELF LEARNING MATERIAL (SLM)
engages in mass marketing. To attract a broad customer base, these retailers must have convenient store locations, offers a broad array of goods in addition to pharmacy and health care needs, and has online access. Concentrated Marketing – under this, a retailer focus its strategy to the needs of one distinct consumer group, such as young working women. It does not attempt to satisfy people outside that segment. For example, Johnson and Johnson use this strategy of focussing on baby market, worldwide. Differentiated Marketing - Here, a retailer aims at two or more distinct consumer groups, such as men and boys, with a different strategy mix for each. It can do this by operating more than one kind of outlet or by having distinct departments grouped by market segment in a single store as in case of Footwear chains. 10.6 POSITIONING DECISIONS Retail positioning refers to how a firm devises its strategy to project an image relative to its retail category and its competitors, and to elicit a positive consumer response. To succeed, a retailer must communicate a distinctive, clear, and consistent image. Once its image is established in consumers’ minds, a retailer is placed in a niche relative to competitors. For global retailers, it can be challenging to convey a consistent image worldwide, given the different backgrounds of consumers. 10.6.1 Components of a Retail Image Image refers to how a retailer is perceived by customers in relative to their competitors. Many factors contribute to a retailer’s image such as retail atmosphere, storefronts, store layouts, and displays. It is the totality of them that forms an overall image. These principles apply to non-store retailers as well. For a mail-order retailer, the catalog cover, pages devoted to product categories and the individual items within them and print quality are important. For a Web retailer, the home page, links within the site, ease of navigation, download speed, etc. play a critical role in image building. Retailers can build their image positioning based their leadership on six dimensions such as price, location, store interior, product quality, selection, and service. Price leaders: These retailers focus on low prices and offer self-service with a functional store environment. Examples: Walmart, Big Bazaar, D-Mart. Location leaders: These retailers are situated at convenient locations; they make their merchandise and services available where customers need most. Examples are Kamath chain of hotel on Highways. 163 CU IDOL SELF LEARNING MATERIAL (SLM)
Atmospherics leaders: These retailers offer an outstanding in-store experience. These retailers carry a narrowly defined product lines, but prices are higher, to go with their image. Examples are Tiffany and Zara. Product quality leaders: These retailers offer unique, high-quality merchandise and attractive, appealing displays. Examples are IKEA and Hallmark. Selection leaders: These retailers offer good value on the wide range of items they sell and are an interesting place to shop. However, they are not atmosphere leaders. Examples are Decathlon, Sapna. Service leaders: These retailers are conveniently located and offer shoppers good customer service. This type of retailer does not have a very exciting in-store environment. Examples are Eureka Forbes. 10.7 LIMITATIONS OF MARKET SEGMENTATION Limited production and therefore no economies of scale advantages like mass retailer. Expensive promotion due to targeted approach Complex management decisions Issues related to customer grouping and profiling 10.8 SUMMARY To develop cost-effective retail programs, retailers group customers into segments. This process of grouping customers based on similarities in needs is called market segmentation. Some approaches for segmenting markets are based on geography, demographics, geo-demographics, lifestyles, usage situations, and benefits sought. Because each approach has its advantages and disadvantages, retailers typically define their target segment by several characteristics. In deciding on a target market approach, a retailer considers its goods/service category and goals, competitors’ actions, the size of various segments, the efficiency of each target market alternative, the resources required, and other factors Important segmentation dimensions are geographic, demographic and behavioural segmentation. Most retailers use composite segmentation which uses multiple variables to identify customers in the target segment such as benefits sought, lifestyles, and demographics. Retail Image refers to how a retailer is perceived by customers in relative to their competitors. Many factors contribute to a retailer’s image such as retail atmosphere, 164 CU IDOL SELF LEARNING MATERIAL (SLM)
storefronts, store layouts, and displays. It is the totality of them that forms an overall image. Retailers can build their image positioning based their leadership on six dimensions such as price, location, store interior, product quality, selection, and service. 10.9 KEYWORDS Mass Merchandising - Positioning approach whereby retailers offer a discount or value-oriented image, a wide and/ or deep merchandise selection, and large store facilities Niche retailing - Retailing by targeting a certain segment of the market is called niche retailing. Retail market - A group of consumers with similar needs (a market segment) and a group of retailers using a similar retail format to satisfy those consumer needs. Retail market segment - A group of customers whose needs will be satisfied by the same retail offering because they have similar needs and go through similar buying processes. Target market - The market segment(s) toward which the retailer plans to focus its resources and retail mix. 10.10 LEARNING ACTIVITY 1. Identify the bases for segmenting by a fashion apparel retailer. ___________________________________________________________________________ _______________________________________________________________________ 2. Compare and contrast the Young and Old customers with respect to online store. ___________________________________________________________________________ _______________________________________________________________________ 10.11 UNIT END QUESTIONS A. Descriptive Questions Short Questions: 1. What is meant by market segmentation? 2. What do you mean by retail image? 3. What are the advantages of geographic segmentation? 165 CU IDOL SELF LEARNING MATERIAL (SLM)
4. What do you mean by lifestyle segmentation? 5. What is geo-demographic segmentation? Long Questions: 1. Explain the bases of market segmentation? 2. Explain the various target marketing strategies. 3. Discuss the pros and cons of market segmentation. 4. Elaborate the retail position strategies. 5. Explain the criteria for evaluating market segment. B. Multiple Choice Questions 1. A form of target marketing in which companies tailor their marketing programs to the needs and wants of narrowly defined geographic, demographic, psychographic or benefit segments is called. a. Macro marketing b. Micromarketing. c. Horizontal marketing. d. Mass marketing. 2. What is the term used if a market is divided into distinct groups of buyers who might require separate products or marketing mixes. a. Market targeting. b. Market positioning. c. Market segmentation d. Market coordination. 3. Market positioning is a combination of marketing actions that management takes, to meet the needs and wants of each target market. It includes. a. Understanding consumer perceptions. b. Position products in the mind of consumer. c. Design appropriate marketing mix. d. All of these 166 CU IDOL SELF LEARNING MATERIAL (SLM)
4. Which type of segmentation is commonly used for climate because of its broad impact on consumer behaviour and product needs? a. Geographical segmentation. b. Demographic segmentation. c. Geo-demographic segmentation. d. Psychographic segmentation. 5. ‘Lifestyle’, ‘Westside’ and ‘Shoppers stop’ have located their departmental shops in the areas frequently visited by upper-income people is an example of. a. Psychographic segmentation. b. Demographic segmentation. c. Geographic segmentation. d. Geo-demographic segmentation. Answers 1-b, 2-c, 3-d. 4-a, 5-d 10.12 REFERENCES References book Levy, M. and Weitz, B., (2012). Retailing management. Boston: McGraw-Hill Irwin. New York. Berman, Barry; Evans, Joel R.; and Chatterjee, Patrali, \"Retail Management: A Strategic Approach\" (2018). New Delhi: Pearson India Textbook references Anand Thakur, (2002). RETAIL MANAGEMENT (Ed), EXCEL BOOKS PRIVATE LIMITED, New Delhi. Website https://www.tutorialspoint.com/retail_management/retail_market_segmentation_strate gies.htm https://www.marketing91.com/importance-of-retailing/ 167 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 11: STORE LOCATION AND LAYOUT STRUCTURE 11.0. Learning Objectives 11.1. Introduction 11.2. Types Of Retail Stores Location 11.3. Other Location Opportunities 11.4. Factors Affecting Retail Location Decisions 11.5. Country/Region Analysis 11.6. Trade Area Analysis 11.7. Site Evaluation 11.8. Location Based Retail Strategies 11.9. Summary 11.10. Keywords 11.11. Learning Activity 11.12. Unit End Questions 11.13. Reference 11.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Describe the location and retail strategy Explain the trade area characteristics Analyse different retail locations Estimate potential sales for a store site Explain factors affecting retail location 11.1 INTRODUCTION The three important factors in retailing, leading to a firm’s success or failure are that “location, location, location” as per of the oldest retailing adages. Location decisions are complex, costs are quite high, there is little flexibility once a site is chosen, and locational attributes have a big impact on retail strategy. Store location is such an important decision for a retailer for many reasons. First, location is the most influential considerations in a customer’s store-choice decision. Most consumers shop at the supermarket closest to them, and nearest car wash. Second, location decisions have strategic importance because it helps to develop a sustainable competitive advantage. If a retailer has the best location, competitors can’t easily copy this advantage. Third, location decisions are risky as retailers either make a 168 CU IDOL SELF LEARNING MATERIAL (SLM)
substantial investment to buy and develop the real estate or commit to a long-term lease with developers and it is hard to change locations. Fourth, the choice of a location requires extensive decision making due to the number of criteria considered, including population size and traits, the competition, transportation access, parking availability, the nature of nearby stores, property costs, and the length of the agreement, legal restrictions, and other factors. Further, in Western Europe and Asia with higher population densities have lesser space is available for retailing, and is costly. 11.2 TYPES OF RETAIL STORES LOCATION Many types of locations are available for retail stores, each type with its own strengths and weaknesses. Retailers have three basic types of locations to choose from: freestanding, city or town business district, or shopping center. Freestanding Sites - Freestanding sites or isolated store are an individual, isolated store unconnected to other retailers. However, they might be near other freestanding retailers or a shopping center. The advantages of freestanding locations are their convenience for customers in terms of easy access and parking, high vehicular traffic and visibility to attract customers, modest occupancy costs, and fewer restrictions on signs, hours, or merchandise. These locations are popular for fast-food restaurants, such as McDonald’s or banks. However, freestanding locations have a limited trade area. Customers who are interested in shopping at multiple outlets on one trip may not be attracted. In addition, freestanding locations have do not offer to share the cost of outside lighting, parking lot maintenance, or trash collection. Finally, freestanding locations generally have little pedestrian traffic, limiting the number of customers who might drop in because they are walking by. Central Business District - The central business district (CBD) is the traditional downtown business area in a city or town. This is an unplanned business district where two or more stores situate together in such a way that the total mix of stores is not due to prior long-range planning. The central business district has at least one major department store and a number of specialty and convenience stores. Due to its daily activity, it draws many people and employees into the area during business hours. The CBD is also the hub for public transportation, and there is a high level of pedestrian traffic. Finally, many CBDs have a large number of residents living in the area. Shoppers are drawn from the whole urban area and include all ethnic groups and all classes of people. However, limited parking and longer driving times can discourage suburban shoppers from patronizing stores in a CBD. Shopping flow in the evening and on weekends is also slow in many CBDs. Finally, unlike shopping centers, CBDs tend to suffer from a lack of planning. Because of this a number of CBDs are 169 CU IDOL SELF LEARNING MATERIAL (SLM)
experiencing declined popularity and some are striving to return to their prior stature by modernizing. Main Street refers to the traditional shopping area in smaller towns or to a secondary business district in a suburb of a larger city. Main Streets share most of the characteristics of a primary CBD, but their occupancy costs are generally lower. Main Street locations do not draw as many people as the primary CBD because fewer people work in the area and the fewer stores generally mean a smaller overall selection. In addition, Main Streets typically don’t offer the range of entertainment and recreational activities available in the more successful primary CBDs. Similarly, Inner City refers to a high density urban area that has higher unemployment and lower median income than the surrounding metropolitan area. It is riskier and achieves lower returns than other areas. Although income levels are lower in inner cities, these retailers achieve a higher sales volume and higher margins, resulting in higher profits. The offerings at inner-city grocery stores have traditionally been unattractive. Shopping Centers A shopping center is a group of retail and other commercial establishments that are planned, developed, owned, and managed as a single property. A shopping center consists of a group of architecturally unified commercial establishments, based on balanced tenancy, and accompanied by parking facilities. By combining many stores at one location, the development attracts more consumers than free standing locations. The developer carefully selects a set of retailers that are complementary to provide consumers with a comprehensive shopping experience, including a well-thought-out assortment of retailers. The shopping center management maintains the common facilities such as the parking area, security, common area lighting, outdoor signage, advertising and special events to attract consumers, and so on. The shopping center management can also place restrictions on the operating hours, signage, and even the type of merchandise sold in the stores. Most shopping centers have one or two major retailers, referred to as anchor stores such as supermarkets or department stores because they attract a significant number of consumers and consequently make the center more appealing. Anchor retailers get special deals, such as reduced lease costs, to locate in shopping centers. Neighborhood and Community Shopping Centers also called strip shopping centers are attached rows of non-enclosed stores, with on-site parking usually located in front of the stores. These smaller Neighborhood centers are typically anchored by a supermarket or a drugstore and designed for day-to-day convenience shopping. The larger community centers are anchored by at least one discount department store, an off- price retailer, or a category specialist. The anchors are supported by smaller specialty stores offering hardware, flowers, and a variety of personal services, such as barber shops and dry cleaners. The primary advantages of these centers are that they offer customers convenient locations and easy parking and they have relatively low occupancy costs. The primary disadvantage is that smaller centers have a limited trade area due to their size, and they lack entertainment and restaurants. In addition, there is no protection from the weather. 170 CU IDOL SELF LEARNING MATERIAL (SLM)
Shopping Malls - Shopping malls are enclosed, climate-controlled, lighted shopping centers with retail stores on one or both sides of an enclosed walkway. Parking is usually provided around the perimeter of the mall. Shopping malls are classified as either regional malls (less than 800,000 sq. ft.) or super malls (more than 800,000 sq. ft.)). Because of their larger size, they have more anchors, specialty stores, and recreational opportunities and draw from a larger geographic area. They often are considered tourist attractions. Shopping malls have several advantages over alternative locations. First, shopping malls attract many shoppers and have a large trade area because of the number of stores and the opportunity to combine shopping with entertainment. They provide an inexpensive form of entertainment. Malls generate significant pedestrian traffic inside the mall. Second, customers don’t have to worry about the weather, and are appealing places to shop during cold winters and hot summers. Third, mall management ensures a level of consistency that benefits all the tenants. However, malls also have some disadvantages. First, mall occupancy costs are higher than those of strip centers, freestanding sites, and most central business districts. Second, mall managements control operations, such as window displays and signage. Third, competition within shopping centers can be intense. Fourth, freestanding locations, strip centers, lifestyle centers, and power centers are more convenient because customers can park in front of a store. Furthermore, few older malls are located in areas with unfavorable demographics, because the population has shifted from the near suburbs to outer suburbs. Finally, decreased number of potential anchor tenants has diminished the drawing power of enclosed malls. 11.3 OTHER LOCATION OPPORTUNITIES Pop-up stores, stores within a store, kiosks, and airports are other location alternatives for many retailers. Pop-Up Stores - Pop-up stores are stores in temporary locations that focus on new products or a limited group of products. Retailers and manufacturers are using these spaces to create buzz, test new concepts, or even evaluate a new neighbourhood or city. Pop-up stores are even popping-up on college campuses. Other retailers, open temporary stores to take advantage of the holiday season or to get visibility and additional sales, such as, crafts fairs, or farmers’ markets. Store within a Store - Another non-traditional location for retailers is within other, larger stores. Retailers, particularly department stores, have traditionally leased extra space to other retailers, such as sellers of fine jewellery, or high-end designer brands. Grocery stores for years share space with service providers like coffee bars, banks, and medical clinics. Merchandise Kiosks - Merchandise kiosks are small selling spaces, typically located in the walkways of enclosed malls, airports, college campuses, or office building lobbies. 171 CU IDOL SELF LEARNING MATERIAL (SLM)
Some are staffed and resemble a miniature store or cart that could be easily moved. Others are vending machines, such as the Apple kiosks that sell iPods and other high- volume Apple products. For mall operators, kiosks generate rental income in otherwise vacant space and offer a broad assortment of merchandise for visitors. Moreover, mall kiosks can be changed quickly to match seasonal demand. Airports – With a high-pedestrian area, airports have become popular with national retail chains. Passengers have more time to shop due to time gaps between connecting flights or longer check in times. In addition, a cutback in airline food service has more people seeking sustenance in the airport. However, rents are higher too. Also, hours are longer, and because the location is inconvenient for workers, they have to pay higher wages. The bestselling products are gifts, necessities, and easy-to-pack items. Home-based – These days more retail businesses are getting a start at home. Some may move to a commercial store location later, while others remain in the owner’s spare room. More suitable for small scale retailers, handmade crafts or highly customized products. This type of location is an inexpensive option, but growth may be limited. It is harder to separate business and personal life in this setup. 11.4 FACTORS AFFECTING RETAIL LOCATION DECISIONS The best areas for locating stores are those that generate the highest long-term profits for a retailer. Some factors affecting the long-term profit generated by stores include (1) the economic conditions, (2) competition, (3) the strategic fit of the area’s population with the retailer’s target market, and (4) the costs of operating stores. Economic Conditions - Because locations involve a commitment of resources over a long time, it is important to examine the level and growth of population and employment. A large, fully employed population means high purchasing power and high levels of retail sales. But how long such growth will continue and how it will affect demand for merchandise sold in the stores is also important. Areas where the population is large and growing are preferable to those with declining populations. Competition - The level of competition in an area clearly affects the demand for a retailer’s merchandise. Walmart’searly success was based on a location strategy of opening stores in small towns with little competition. Similarly, inner-city neighbourhoods today host many full-service restaurant chains. These markets are attractive because of the lack of competition, the relatively high level of disposable income of the residents, and the large, untapped labour force. Strategic Fit - The area needs to have consumers who are in the retailer’s target market and who are attracted to the retailer’s offerings and interested in patronizing stores. Thus, the area must have the right demographic and lifestyle profile. The size and composition of households in an area can be an important determinant of success. Finally, lifestyle 172 CU IDOL SELF LEARNING MATERIAL (SLM)
characteristics of the population may be relevant, depending on the target market that a particular retailer is pursuing. Operating Costs - The cost of operating stores can vary across areas. For example, store rental and advertising costs vary from one area to other. Operating costs are also affected by the proximity of the area in which the retailer operates stores. For example, if a store is located near other stores and distribution centres, the cost of shipping merchandise to the store is lower. The local and state legal and regulatory environment can have a significant effect on operating costs too. 11.5 COUNTRY/REGION ANALYSIS Three elements affecting in country/region trading-area selection are: population factors, economic base characteristics, and competition and saturation. It is important to examine an area’s level and growth of population and employment. A large, fully employed population means high purchasing power and high levels of retail sales. But population and employment growth alone aren’t enough but retail location analysts must determine how long such growth will continue and how it will affect demand for merchandise sold by a retailer. Knowledge about population attributes can be gained from secondary sources such as the Census of Population. They offer data on population size, households, income distribution, education, age distribution, and more. Data are organized geographically, starting with blocks and continuing to cities, counties, states, and regions. The economic base reflects a community’s commercial and industrial infrastructure and residents’ sources of income. A firm seeking stability normally prefers an area with a diversified economic. In assessing a trading area’s economic base, a retailer should investigate the percentage of the labor force in each industry, transportation, banking facilities, the impact of economic fluctuations, and the future of individual industries. A trading area with a small population and a narrow economic base may be a good place if competition is less. Over the past 30 years, more U.S. retailers have entered foreign markets due to not as much competition. Finally, because any trading area can support only a given number of stores or square feet of selling space the saturation level becomes important consideration. The saturation level in a trading area can be measured against a goal or compared with other trading areas. On the basis of this calculation, the owner could then decide to expand into a nearby locale with a lower saturation rather than to add another store in its present trading area. 11.6 TRADE AREA ANALYSIS The next step after choosing a site location is to collect information about the trade area that can be used to forecast sales for a store located at the site. The retailer first needs to define the trade area for the site to develop a detailed understanding of the nature of consumers in the site. 173 CU IDOL SELF LEARNING MATERIAL (SLM)
A trading area is a geographical area containing the customers and potential customers of a particular retailer or group of retailers for specific goods and services. The size of a trading area reflects the boundaries within which it is profitable to sell or deliver products. Trade areas can be divided into three zones: The 5-minute drive-time zone which constitutes the primary trading area from which the shopping center or store site derives 50 to 70 percent of its customers. The 10-minute zone or the secondary trading area is the secondary importance in terms of customer sales, generating about 20 to 30 percent of the customers. The 15- minute zone is the tertiary trading area or fringe includes the remaining customers who shop at the site but come from widely dispersed areas. However, it is much easier to collect information about the number of people and their characteristics in the different zones by geographic distance than by driving time. Thus, retailers often define the zones by distance such as 3, 5, and 10 miles from the site. The actual boundaries of a trade area are determined by the store’s accessibility, natural and physical barriers, and level of competition, and the type of shopping area and type of store. A parasite store is one that does not create its own traffic and whose trade area is determined by the dominant retailer in the shopping center or retail area. Measuring the Trade Area for a Retail Site - Retailers can determine the trade area for their existing stores by customer spotting. Customer spotting is the process of locating the residences of customers for a store on a map and displaying their positions relative to the store location. The addresses for locating the customers’ residences usually are obtained by asking the customers, recording the information from a check or Internet channel purchase, or collecting the information from customer loyalty programs. It is more challenging to estimate the trade area for a new store location than for existing locations. Retailers are using geographic information system (GIS) software, which combines digitized mapping with key locational data to graphically depict trading-area characteristics such as population demographics; data on customer purchases; and listings of current, proposed, and competitor locations. 11.7 SITE EVALUATION After deciding to locate stores in an area, the retailer’s next step is to evaluate and select a specific site. In making this decision, retailers consider three factors: (1) the characteristics of the site, (2) the characteristics of the trading area for a store at the site, and (3) the estimated potential sales that can be generated by a store at the site. Site Characteristics - Some characteristics of a site that affect store sales and thus are considered in selecting a site are: Pedestrian Traffic - The most crucial measures of a site’s value are the number and type of people passing by. A site with the most pedestrian traffic is often best. However, pedestrian traffic totals may include many non-shoppers. So it’s the count of shopping bags but not just the count of shoppers. Vehicular Traffic - The quantity and characteristics of vehicular traffic are very important for retailers that 174 CU IDOL SELF LEARNING MATERIAL (SLM)
appeal to customers who drive there. Convenience stores, outlets in regional shopping centres, and car washes are retailers that rely on heavy vehicular traffic. As with pedestrian traffic, adjustments to the raw count of vehicular traffic must be made. The accessibility of the site - is the ease with which customers can get into and out of the site. Accessibility is greater for sites located near major highways, on uncongested highways, and at streets with traffic lights and lanes that enable turns into the site. Natural barriers such as rivers or mountains, and artificial barriers, such as railroad tracks, divided or limited-access highways, or parks, may also affect accessibility. Location Characteristics - Some factors associated with specific locations that retailers consider when evaluating a site are: Parking - The amount and quality of parking facilities are critical. If there is not enough parking space or the spaces are too far from the store, customers will be discouraged from patronizing the site and the store. On the other hand, if there are too many open spaces, the shopping centre may be perceived as having unpopular stores. Retailers need to observe the shopping centre at various times of the day, week, and season. They also must consider the availability of employee parking, the proportion of shoppers using cars, parking by non-shoppers, and the typical length of a shopping trip. Too much congestion can make shopping slow, irritate customers, and generally discourage sales. Visibility refers to customer ability to see the store from the street. Good visibility is less important for stores with a well-established and loyal customer base, but most retailers still want a direct view of their store. In an area with a highly transient population, such as a tourist centre or large city, good visibility from the road is particularly important. Adjacent Tenants who are competing have the potential to build traffic. Complementary retailers target the same market segment but have a different, noncompeting merchandise offering. This grouped location approach is based on the principle ‘cumulative attraction’ state that a cluster of similar and complementary retailing activities will have greater drawing power than isolated stores that engage in the same retailing activities. Terms of Occupancy – which includes factors such as ownership versus leasing, type of lease, operations and maintenance costs, taxes, zoning restrictions and voluntary regulations must also be evaluated for each prospective site. Ownership versus Leasing - A retailer with adequate funding can either own or lease premises which are more common in small stores, or at inexpensive locations. Operations are flexible where a retailer can engage in scrambled merchandising and break down walls. It is also likely that property value will appreciate over time, resulting in a financial gain if the business is sold. However, ownership means high initial costs, long-term commitment, and inability to readily change sites. Leasing minimizes initial investment, reduces risk, and provides access to prime sites that cannot add more stores, leads to immediate occupancy and traffic, and reduces long-term commitment. Costs of operations and maintenance - The age and condition of a facility may cause a retailer to have high monthly costs, even though the rent is low. Furthermore, the costs of extensive renovations should be 175 CU IDOL SELF LEARNING MATERIAL (SLM)
calculated. Differences in sales taxes and business taxes among alternative sites must be weighed. Restrictions - Retailers may place restrictions on the type of tenants that are allowed in a shopping centre in their lease agreement. Some of these restrictions can make the shopping centre more attractive for a retailer. For example, a specialty men’s apparel retailer may prefer a lease agreement that precludes other men’s specialty apparel retailers. Retailers unfavoured a shopping centre with a sign size restriction that prevents easy visibility. Locations within a Shopping Centre - Locating within a shopping centre affects both sales and occupancy costs. In a shopping centre, the locations closest to the supermarket are more expensive because they attract greater foot traffic. The same issues apply to evaluating locations within a multilevel, enclosed shopping mall. 11.8 LOCATION BASED RETAIL STRATEGIES The selection of a location type must reinforce the retailer’s strategy. Thus, the location-type decision needs to be consistent with the shopping behaviour and size of the target market and the retailer’s positioning in its target market. Many types of locations are available for retail stores, each type with strengths and weaknesses. Retailers have three basic types of locations to choose from: freestanding, city or town business district, or shopping center. Retailers can also locate in a nontraditional location such as in an airport or within another store. Choosing a particular location type requires evaluating a series of trade-offs. These trade-offs generally involve the size of the trade area, the occupancy cost of the location, the pedestrian and vehicle customer traffic generated in association with the location, the restrictions placed on store operations by the property managers, and the convenience of the location for customers. The A critical factor affecting the type of location that consumers select to visit is the shopping situation in which they are involved. Three types of shopping situations are convenience shopping, comparison shopping, and specialty shopping. 1. Convenience Shopping - When consumers are engaged in convenience shopping situations, they are primarily concerned with minimizing their effort to get the product or service they want. They are relatively insensitive to price and indifferent about which brands to buy. Retailers targeting customers involved in convenience shopping, such as convenience stores and gas stations, usually locate their stores close to where their customers are and make it easy for them to access the location. Thus, convenience stores are generally located in neighborhood strip centers and freestanding locations. Similarly, Supermarkets, Drugstores and fast-food restaurants also cater to convenience shoppers and thus select locations with easy access, parking, and the added convenience of a drive- through window 2. Comparison Shopping - Consumers involved in comparison shopping situations have a general idea about the type of product or service they want but they do not have a well- 176 CU IDOL SELF LEARNING MATERIAL (SLM)
developed preference for a brand or model. However, the purchase decisions are more important to them, so they seek information and compare alternatives. Consumers typically engage in this type of shopping behaviour when buying furniture, appliances, apparel, consumer electronics, hand tools, and cameras. These competing retailers locate near one another because doing so facilitates comparison shopping and thus attracts customers to the locations. 3. Specialty Shopping - When consumers go specialty shopping, they know what they want and will not accept a substitute. They are brand and/or retailer loyal and will pay a premium or expend extra effort to get exactly what they want. Examples of these shopping occasions include buying organic vegetables, or buying a new, high-quality stovetop and oven. The retailers they patronize when specialty shopping also are destination stores. Thus, consumers engaged in specialty shopping are willing to travel to an inconvenient location. Having a convenient location is not as important for retailers selling unique merchandise or services. 11.9 SUMMARY Retail location decisions are particularly important because of the high-cost, long- term commitment and the impact on customer patronage. Choosing a particular location type involves evaluating a series of trade-offs. Retailers have a plethora of types of sites such as central business districts, inner-city, and main Street locations. There also are a wide variety of shopping centre types for retailers. Other non-traditional sites are pop-up store’s other temporary locations, stores within a store, and airports. Some factors retailers consider when evaluating an area to locate stores are (1) the economic conditions, (2) competition, (3) the strategic fit of the area’s population with the retailer’s target market, and (4) the costs of operating stores. Trade areas are typically divided into primary, secondary, and tertiary zones. The boundaries of a trade area are determined by how accessible it is to customers, the natural and physical barriers that exist in the area, the type of shopping area in which the store is located, the type of store, and the level of competition. while evaluating and selecting a specific site, retailers consider three factors: (1) the characteristics of the site, (2) the characteristics of the trading area for a store at the site, and (3) the estimated potential sales that can be generated by a store at the site Location decisions have great strategic importance because they have significant effects on store choice and are difficult advantages for competitors to duplicate. 177 CU IDOL SELF LEARNING MATERIAL (SLM)
11.10 KEYWORDS Trading Area - Geographical area containing the customers and potential customers of a particular retailer or group of retailers for specific goods or services. Unplanned Business District - Type of retail location where two or more stores situate together (or nearby) in such a way that the total arrangement or mix of stores is not due to prior long-range planning. Video Kiosk - Freestanding, interactive, electronic computer terminal that displays products and related information on a video screen; it often uses a touch screen for consumers to make selections. Terms of Occupancy - Consist of ownership versus leasing, the type of lease, operations and maintenance costs, taxes, zoning restrictions, and voluntary regulations. Planned Shopping Centre - Group of architecturally unified commercial facilities on a site that is centrally owned or managed, designed and operated as a unit, based on balanced tenancy, and accompanied by parking. Common area maintenance (CAM) - The common facilities maintenance that a shopping centre management is responsible for, such as the parking area, providing security, parking lot lighting, outdoor signage for the centre, advertising, and special events to attract consumers. 11.11 LEARNING ACTIVITY 1. Go to your favorite shopping mall, and analyze the tenant mix. Do the tenants appear to complement one another? Identify the anchor stores. ___________________________________________________________________________ _______________________________________________________________________ 2. Pick your favorite store. Describe the advantages and disadvantages of its current location, given its target market. ___________________________________________________________________________ _______________________________________________________________________ 11.12 UNIT END QUESTIONS A. Descriptive Questions 178 Short Questions 1. Define Trading area of a store. 2. What are the advantages of free standing sites? CU IDOL SELF LEARNING MATERIAL (SLM)
3. Differentiate between store in a store and merchandise kiosk. 4. What is a pop up store? 5. What is CBD? 6. What is a planned shopping centre? Long Questions 1. Why is store location such an important decision for retailers? 2. In many malls, quick-service food retailers are located together in an area known as a food court. What are the advantages and disadvantages of this location for the food retailers? 3. Describe advantages and disadvantages of different retail locations. 4. Explain different factors considered while choosing a site for retail store. 5. Explain trading area analysis. 6. Write a note on location based retail strategies. B. Multiple Choice Questions 1. Which type of display minimizes fixture costs? a. cut-case display b. dump bin display c. rack display d. ensemble display 2. The choice of the store ________depends on the target audiences and the kind of merchandise to be sold a. Product b. Store c. Employees d. Location 3. The ______ is the place where customers take a decision on the purchase of the products offered by the retailers. a. Retail store b. Store manager c. Customer d. Store operations 4. Choosing a particular location type requires evaluating a series of trade-offs. Below is not the part of such trade off. a. size b. employee motivation 179 CU IDOL SELF LEARNING MATERIAL (SLM)
c. cost d. customer traffic 5. this is not the advantage of freestanding locations a. high traffic b. visibility c. security d. occupancy costs, Answers 1-a, 2-d, 3-a. 4-b, 5-c 11.13 REFERENCES References book Levy, M. and Weitz, B., (2012). Retailing management. Boston: McGraw-Hill Irwin. New York. Berman, Barry; Evans, Joel R.; and Chatterjee, Patrali, \"Retail Management: A Strategic Approach\" (2018). New Delhi: Pearson India Textbook references Anand Thakur, (2002). RETAIL MANAGEMENT (Ed), EXCEL BOOKS PRIVATE LIMITED, New Delhi. Website https://www.tutorialspoint.com/retail_management/retail_market_segmentation_strate gies.htm https://www.marketing91.com/importance-of-retailing/ 180 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 12: RETAIL MERCHANDISING STRUCTURE 12.0. Learning Objectives 12.1. Introduction 12.2. Understanding Merchandising Management 12.3. Activities Of A Merchandiser 12.4. Retail Merchandising Management Process 12.5. Summary 12.6. Keywords 12.7. Learning Activity 12.8. Unit End Questions 12.9. Reference 12.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Explain the retailing Merchandise management process Describe the role and importance of retail merchandising State the role of merchandising manager Analyse retail visual merchandising techniques 12.1 INTRODUCTION Retail merchandising originally refers to selling merchandise in a physical store or brick and mortar store. It includes all marketing and promotional activities which are used to sell products to consumers in brick and mortar store. However, with the continued rise of digital merchandising, the term retail merchandising is now-a-days used to describe digital merchandising as well. Though, the definition is limited to the physical, but it can be applied to a variety of merchandising venues such as traditional brick-and-mortar malls to annual pop-up events. 12.2 UNDERSTANDING MERCHANDISING MANAGEMENT Merchandise management is the process by which a retailer attempts to offer the right quantity of the right merchandise in the right place at the right time and meet the company’s financial goals. Buyers need to be in touch with and anticipate what customers buy. The 181 CU IDOL SELF LEARNING MATERIAL (SLM)
ability to sense market trends to manage inventory and the ability to analyze sales data to make appropriate adjustments in prices and inventory levels is important. 12.2.1 Importance of Merchandising First of all, a good merchandising strategy helps in selling more items to the customer. Secondly, merchandising offers more variety in the same product from different manufacturers. As a result, the customer feels comfortable to choose from the available items. Lastly, the placement of “sale” items will improve the chances of customers buying other items around these items. 12.2.2 Merchandising Philosophy A merchandising philosophy sets the guiding principles for all the merchandise decisions. A retail merchandising philosophy can be product-based and/or consumer-focused. Product- focused merchandising involves analyzing SKU-level sales performance to find and invest in the most profitable products based on store size, volume, and sell-through for each category. Consumer-focused merchandising involves creating product assortments based on customer insights, their preferences, and their path to purchase based on an analysis of loyalty data, social network signals, shopping patterns, and other sources. To capitalize on opportunities, more retailers now use micro-merchandising and cross- merchandising. With micro-merchandising, a retailer adjusts shelf-space allocations to respond to customer and other differences among local markets. It is easier today due to the data generated from stores, Web site browsing, and transactions, mobile apps, catalogues, and third-party data. This enables the retailer to monitor, identify, and address customer trends. In cross-merchandising, a retailer carries complementary goods and services to encourage shoppers to buy more. For example, apparel stores stock accessories. It increases revenues by making it easy for consumers to buy complementary items together. Cross-merchandising leverages customer preferences for one-stop shopping and the tendency to make impulse purchases and increases the retailer’s overall revenues. 12.3 ACTIVITIES OF A MERCHANDISER A merchandise manager is responsible for selecting the merchandise to be carried by a retailer and setting a strategy to sell that merchandise. He or she devises and controls sales and profit projections for a product category; plans proper merchandise assortments, styling, sizes, and quantities; evaluates and negotiates with vendors; and often oversees in-store displays. A merchandising buyer must possess an ability to relate to customers and methodically anticipate future needs. 182 CU IDOL SELF LEARNING MATERIAL (SLM)
12.3.1 Functions of a Merchandising Manager A merchandising manager is typically responsible to − Lead the merchandising team. Ensure the merchandising process is smooth and timely. Coordinate and communicate with suppliers. Participate in budgeting, setting and meeting sales goals. Train the employees in the team. 12.4 RETAIL MERCHANDISING MANAGEMENT PROCESS Merchandise Management Process starts with buyers forecasting category sales, developing an assortment plan for merchandise in the category, and determine the amount of inventory needed to support the forecasted sales and assortment plan. Then buyers develop a plan outlining the sales expected for each month, the inventory needed to support the sales, and the money that can be spent on replenishing sold merchandise and buying new merchandise. Along with developing the plan, the buyer or planners decide what type and how much merchandise should be allocated to each store. Having developed the plan, the buyer negotiates with vendors and buys the merchandise. Finally, buyers continually monitor the sales of merchandise in the category and make adjustments. For example, if category sales are less than the forecast in the plan and the projected GMROI for the category falls below the buyer’s goal, the buyer may decide to dispose of some merchandise by putting it on sale and then use the money generated to buy merchandise with greater sales potential or to reduce the number of SKUs in the assortment to increase inventory turnover. 12.4.1 Merchandise Category—the Planning Unit The merchandise category is the basic unit of analysis for making merchandising management decisions. A merchandise category is an assortment of items that customers see as substitutes for one another. For example, a department store might offer a wide variety of girls’ dresses sizes 4 to 6 in different colors, styles, and brand names. A mother buying a dress might consider the entire set of dresses while making purchase decision. Lowering the price on one dress may increase the sales of that dress but also decrease the sales of other dresses. Thus, the buyers’ decisions about pricing and promoting specific SKUs in the category will affect the sales of other SKUs in the same category. Some retailers may define categories in terms of brands. For example, Tommy Hilfiger might be one category and Polo another category because the retailer feels that the brands are not substitutes for each other. Also, it is easier for one buyer to purchase merchandise and coordinate distribution and promotions for the merchandise. 183 CU IDOL SELF LEARNING MATERIAL (SLM)
The category management approach to managing merchandise assigns one buyer or category manager to oversee all merchandising activities for the entire category. Managing by category can help ensure that the store’s assortment includes the best combination of sizes and vendors that will get the most profit. Some retailers select a vendor to help them manage a particular category, known as the category captain. He works with the retailer to develop a better understanding of shopping behaviour, create assortments that satisfy consumer needs, and improve the profitability of the merchandise category. 12.4.2 Visual Merchandising Visual merchandising is the presentation of a store and its merchandise in ways that will attract the attention of potential customers. Some aspects of visual merchandising such as fixtures used to display merchandise and presentation techniques are given below. Fixtures The primary purposes of fixtures are to efficiently hold and display merchandise. At the same time, they define areas of a store and direct traffic flow. Fixtures work in concert with other design elements, such as floor coverings and lighting, as well as the overall image of the store. For instance, customers perceive the retailer image based on wood or plastic or metal fixtures. Apparel retailers utilize the straight-rack, rounder, and four-way fixtures, while the principal fixture for most other retailers is the gondola. The straight rack consists of a long pipe balanced between supports in the floor or attached to a wall. Although the straight rack can hold a lot of apparel, it cannot effectively feature specific styles or colors. A rounder is a round fixture that sits on a pedestal. Although smaller than the straight rack, it’s designed to hold a maximum amount of merchandise. A four-way fixture has two crossbars that sit perpendicular on a pedestal. This fixture holds a large amount of merchandise and allows the customer to view the entire garment. Gondolas are extremely versatile and are used extensively, in grocery and discount stores to display everything from canned foods to baseball gloves. Presentation Techniques Some presentation techniques are idea-oriented, item and size, color, price lining, vertical merchandising, tonnage merchandising, and frontage presentation. Some retailers use an idea-oriented presentation which is a method of presenting merchandise based on a specific idea or the image of the store. Individual items are grouped to show customers how the items could be used and combined. Arranging items by size is a common method of organizing many types of merchandise, from nuts and bolts to apparel. A bold merchandising technique is organizing by color. For instance, women’s apparel stores may display all white wear together to let customers know. Price lining occurs when retailers offer a limited number price categories within another classification. In Vertical Merchandising, merchandise is presented vertically using walls and high gondolas. Tonnage merchandising is a display 184 CU IDOL SELF LEARNING MATERIAL (SLM)
technique in which large quantities of merchandise are displayed together. Finally, in the frontal presentation method retailer exposes as much of the product as possible. 12.5 SUMMARY Retail merchandising deals with various activities undertaken promotes and increases the sale of goods and services in a retail store. Merchandise management is the process by which a retailer attempts to offer the right quantity of the right merchandise in the right place at the right time and meet the company’s financial goals. A merchandise manager is responsible for selecting the merchandise to be carried by a retailer and setting a strategy to sell that merchandise. He or she devises and controls sales and profit projections for a product category; plans proper merchandise assortments, styling, sizes, and quantities; evaluates and negotiates with vendors; and often oversees in-store displays. Visual merchandising is the presentation of a store and its merchandise in ways that will attract the attention of potential customers. Some aspects of visual merchandising are fixtures used to display merchandise and presentation techniques. 12.6 KEYWORDS Merchandising - Activities involved in acquiring particular goods and/or services and making them available at the places, times, and prices and in the quantity to enable a retailer to reach its goals. Micro-merchandising - Strategy whereby a retailer adjusts its shelf-space allocations to respond to customer and other differences among local markets. Visual Merchandising - Proactive, integrated approach to atmospherics taken by a retailer to create a certain “look,” properly display products, stimulates shopping, and enhance the physical environment. Storefront - Total physical exterior of a store, including the marquee, entrances, windows, lighting, and construction materials. 12.7 LEARNING ACTIVITY 1. Visit any two local specialty retailers and compare the arrangement of fixtures. Which one is good and why? ___________________________________________________________________________ _______________________________________________________________________ 2. Describe a situation when the product promoted by a retailer was not available in the store. What were your reactions? 185 CU IDOL SELF LEARNING MATERIAL (SLM)
___________________________________________________________________________ _______________________________________________________________________ 12.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Define retail merchandising. 2. What do you mean by non-store retailing? 3. What are the advantages of micro merchandising? 4. Differentiate between Product-focused merchandising and Consumer-focused merchandising 5. Who is a merchandiser? Long Questions 1. Explain retail merchandising philosophy? 2. Describe the various functions of merchandise manager. 3. Describe advantages and disadvantages of cross merchandising. 4. Explain different formats of visual merchandising. B. Multiple Choice Questions 1. The most valuable sources of data for merchandising decisions are: a. Suppliers b. Consumers c. Retail personnel d. Competitors 2. Scrambled merchandising has become popular among retailers because: a. unrelated items may have high profit margins b. it increases a retailer's depth of assortment c. unrelated items may have low inventory turnover d. the new product lines are directly related to the firm's original business 3. Which of the following is not a potential advantage of maintaining a small inventory? a. low investment costs b. low storage costs c. low obsolescence d. low impact of order delay on sales 186 CU IDOL SELF LEARNING MATERIAL (SLM)
4. ____ is the planning and control of the merchandise inventory of the retailers firms. a. Assortment planning b. Store Management c. Vendor Management d. Merchandise planning 5. ______ Management means maintaining basic required stock to fulfil consumer demands. a. Inventory b. Store c. Category d. Retail Answers 1-b, 2-a, 3-d. 4-a, 5-a 12.9 REFERENCES References book Levy, M. and Weitz, B., (2012). Retailing management. Boston: McGraw-Hill Irwin. New York. Berman, Barry; Evans, Joel R.; and Chatterjee, Patrali, \"Retail Management: A Strategic Approach\" (2018). New Delhi: Pearson India Textbook references Anand Thakur, (2002). RETAIL MANAGEMENT (Ed), EXCEL BOOKS PRIVATE LIMITED, New Delhi. Websites https://managementstudyguide.com/retail-merchandising.htm 187 CU IDOL SELF LEARNING MATERIAL (SLM)
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