Lecture notes on Retail Marketing

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PONDICHERRY UNIVERSITY (A Central University) DIRECTORATE OF DISTANCE EDUCATION Retail Marketing MBA - MARKETING Paper Code : MBMM 3005 MBA - RETAIL MANAGEMENT Paper Code : MBRM 3005 III SemesterAuthors ӵ Prof. Kalyanaraman ӵ Prof. S. C. Sivasundaram ӵ Prof. A. Mohammed Jaffer ӵ Prof. K. Subramaniam Edited by Prof. Bidu Bhushan Mishra, Professor, Dept. of Business Management, UtkalUniversity, Odisha. © All Rights Reserved For Private Circulation Only TABLE OF CONTENTS UNIT LESSON TITLE PAGE NO. 1.1 An overview of Retailing 4 1.2 Types of Stores 12 I 1.3 Retail Strategy 29 1.4 Retail Environment 38 1.5 Trends in Indian Retail Industry 45 2.1 Retail Store Location 56 II 2.2 Store Layout & Design 86 3.1 Merchandise Management 114 III 3.2 Category Management 139 3.3 Retail Pricing & Merchandise Performance 144 4.1 Communicating with Retail Customers 164 4.2 Retail Advertisement 174 IV 4.3 Sales Promotion & Personal Selling 201 4.4 Retail Selling Process 224 V 5.1 Globalisation & Retailing 243 Notes MBA (Marketing) - III Semester Paper Code: MBMM 3005 Paper-XV Retail Marketing Objectives ➢ To understand the concept, process and management of retail business ➢ To develop an understanding of the retail strategy and planning process, and ➢ To have an understanding of merchandise process Unit – I An overview of Retailing - Types of stores - Product Retailing vs. Service Retailing - Non store Retailing - Retail strategy - Achieving competitive advantage and positioning Retailing environment - Legal, Social, Economic, Technological, issues - Trends in the Indian Retailing Industry. Unit - II Retail store location and layout - Country/Region analysis - Trade area analysis - Site evaluation and selection - Store design and layout - Comprehensive store planning - Exterior design and layout - Interior store design and layout - Interior design elements. Unit - III Planning merchandise needs and merchandise budgets - Methods for determining inventory evaluation - Assortment planning, buying and vendor relations - Merchandise pricing - Price strategies - Psychological pricing - Mark-up and markdown strategies. 1Notes Unit - IV Communicating with the retail customer - Retail promotion mix- Advertising - Sales promotion - Publicity - Retail selling process - Retail database- In-store customer service. Unit - V Globalization and changing retail formats – Online retailing - International Retailing – Opportunities and Challenges - Market entry formulas - New customized formats (customized stores, portable stores, merchandise depots, retail theater, service malls, customer-made stores, interactive kiosk ‘shopping arcades’) References Chetan Bajaj, Tuli & Srivastava, RETAIL MANAGEMENT, Oxford University Press, New Delhi.2010 Fernie, PRINCIPLES OF RETAILING, Elsevier Publishing, 2010 Giridhar Joshi, INFORMATION TECHNOLOGY FOR RETAIL, Oxford University Press, New Delhi.2009 Ron Hasty and James Reardon, RETAIL MANAGEMENT. McGraw- Hill Publication, International Edition. Swapna Pradhan, RETAIL MANAGEMENT, TEXT & CASES, Tata McGraw-Hill PublishingCo, New Delhi, 2008 2Notes UNIT - I Learning Objectives After going through this unit the students will learn: ➢ What and why of retailing in the modern business. ➢ Different types of retail format helping the retailer to carry out its business. ➢ Provide an understanding of the retail environment that helps in formulating appropriate retail strategy in achieving competitive advantage, and ➢ Also will highlight the issues and trends in the Indian Retail Industry. Unit Structure Lesson 1.1 - An Overview of Retailing Lesson 1.2 - Types of Stores Lesson 1.3 - Retail Strategies Lesson 1.4 - Retail Environments Lesson 1.5 - Trends in Indian Retail 3Notes Lesson 1.1 - An Overview of Retailing Introduction Retail is the sale of goods and services from individuals or businesses to the end-user called the customer. Retailers are the integral part of a system called the supply chain which carries goods from the producer to the target market. A retailer purchases goods or products in large quantities from manufacturers directly or through a wholesale, and then sells smaller quantities to the consumer for a profit. Retailing can be done in either fixed locations like stores or markets, door-to-door or by delivery. Retailing is the process that the retailer adopts in selling the products including subordinated services, such as delivery and installation. The term “retailer” is also applied where a service provider services the needs of a large number of individuals, such as a public. Shops may be in residential streets or in a shopping mall.. Sometimes a shopping street has a partial or full roof to protect customers from precipitation. Online retailing, a type of electronic commerce used for business-to-consumer (B2C) transactions and mail order, are forms of non-shop retailing. Shopping generally refers to the act of buying products by a consumer. Sometimes this is done to obtain necessities such as food, clothing and other daily necessities; sometimes it is done as a recreational/ social activity. Recreational shopping often involves window shopping (just looking, not buying) and browsing and does not always result in a purchase. Retail comes from the Old French word tailler, which means “to cut off, clip, pare, divide” in terms of tailoring (1365) and prefix with re and the verb tailor meaning “to cut again”. It was first recorded as a noun with the meaning of a “sale in small quantities” in 1433 (from the Middle French retail, “piece cut off, shred, scrap, paring”). Like in French, the word retail in both Dutch and German also refers to the sale of small quantities of items.. Evidently, retail trade is one that cuts off smaller portions from large lumps of goods. It is also a process through which 4Notes goods are transported to final consumers. In other words, retailing consists of the activities involved in selling directly to the ultimate consumer for personal, non-business use. It embraces the direct-to-customer sales activities of the producer, whether through his own stores by house-to- house canvassing or by mail-order business. Manufacturers engage in retailing when they make direct-to- consumer sales of their products through their own stores (as Bata and Carona shoe company, D.C.M. Stores, Mafatlals and Bombay Dyeing) by door-to-door canvass, or mail order or even on telephone. Even a wholesaler engages in retailing when sells directly to an ultimate consumer, although his main business may still be wholesaling. A retailer is a merchant or occasionally an agent or a business enterprise, whose main business is selling directly to ultimate consumers for non-business use. He performs many marketing activities such as buying, selling, grading, risk-trading, and developing information about customer’s wants. A retailer may sell infrequently to industrial users, but these are wholesale transactions, not retail sales. If over one half of the amount of volume of business comes from sales to ultimate consumers, i.e. sales at retail, he is classified as a retailer. Retailing occurs in all marketing channels for consumer products. Importance of Retailing International trade and commerce has existed for centuries and played a very important part in the World History. However International Retailing has been in existence and has gained ground in the past two to three decades. The economic boom in several countries, coupled with globalization has given way to Organisations looking at setting up retailing across borders. The advent of internet and multimedia has further changed the dimensions as far as Retailing is concerned. The retailer is an intermediary in the marketing channel because he is both marketer and customer, who sells to the last man to consume. He is a specialist who maintains contact with the consumer and the producer; and is an important connecting link in a complex mechanism of marketing. Though producers may sell directly to consumers, such method of distributing goods to ultimate users is inconvenient, expensive and time consuming as compared to the job performed by a specialist in the line. Therefore, 5Notes frequently the manufacturers depend on the retailers to sell their products to the ultimate consumers. The retailer, who is able to provide appropriate amenities without an excessive advance in prices of goods, is rewarded by larger or more loyal patronage. Economic Justification for Retailing All middlemen basically serve as purchasing agents for their customers and as sales specialists for their suppliers. To carry out those roles, retailers perform many activities, including anticipating customer’s wants, developing assortments of products, acquiring market information and financing. It is relatively easy to become a retailer. No large investment in production equipment is required, merchandise can often be purchased on credit and store space can be leased with no ‘down payment’ or a simple website can be set up at relatively little cost. Considering these factors, perhaps it’s not surprising that there are just over a 6 million retail outlets operating across the Indian cities from north to south and from east to west. This large number of outlets, many of which are trying to serve and satisfy the same market segments, results in fierce competition and better values for shoppers. To enter retailing is easy; to fail is even easier To survive in retailing, a firm must do a satisfactory job in its primary role - catering to consumers. Rama Subramaniam the former head - retail segment Spensors described a successful retailer as a “merchant who sells goods that won’t come back to customers, who will”. Of course, a retail firm also must fulfill its other role - serving producers and wholesalers. This dual role is both the justification for retailing and the key to success in retailing. General Services The general services which a retailer provides are: 1. The retailer anticipates the wants of the consumers and then supplies them the right kind of goods at reasonable price. His job is to make the consumers buying as easy and convenient as possible i.e. he acts as a consumers’ agent. 6Notes 2. He performs the service of bulk-breaking i.e. dividing large quantities into small units, such as individual cans, bottles, boxes, wrappers, packages, appropriate for consumer use. 3. He offers a large assortment of merchandise, of suitable size, colour, design, style and seasonal items-ranging from domestic utensils, household requisites to specialty goods. 4. He creates time and place utility by storing the products in off season and by transporting these goods to the places where they can be readily available as and when needed by the consumer. 5. He also assumes risks by guaranteeing the goods he sells to the consumer. 6. He also offers free delivery of goods, credit on open accounts, free alteration, liberal exchange facilities, instructions in the use of goods, revolving credit plans, and long term installment programmes. 7. He adds to the convenience and ease of consumer purchasing by offering convenient shopping locations, market information and other services such as free parking privileges, lessons on product use and a multitude of other facilities may be offered and found sufficiently desired to result in increased patronage. 8. He helps the producers in distributing their products by using advertisement display and personal selling. 9. The level of retail sales is one of the most useful barometers of the nation’s economic health. For example when sales of cycles pick- up, sales of steel and components also increase, as does employment and thus increasing purchasing power. But when sales go down, manufacturers cut back production, unemployment increases and retail sales also goes down. Facilitating Services In order to carry out functions involving transfer of ownership and physical supply effectively retailers perform a number of facilitating functions i.e. functions relating to standardisation and grading, financing, risk-taking and market information. 7Notes A retailer of fresh fruits and vegetables has to standardise and grade these to make these acceptable to customers. They establish standards, inspect goods they receive, and sort them in various classifications. Quite often they purchase in large quantities and then divide them and repack them before selling. When the retailer sells goods on credit he performs finance function. From the moment he sells and collects the last rupee from the customer, when goods are sold on credit, he is said to be performing a financing function. Another function performed by retailers is that of risk-taking. During the entire time a retailer holds title to particular goods, he must inevitably bear a wide variety of risks. Not only the goods may be destroyed through fire or flood, but also, there is often the danger of theft, deterioration or spoilage. Furthermore, such merchants are also faced with the threat that consumers will not accept their product or will purchase them only at unprofitable prices. He also undertakes risk in handling of fashion goods and other items for which consumer demand varies greatly from time to time. Since the retailer knows about the wishes of his customers the price, quality and the kind of merchandise available in the market as well as the existing and anticipated style trends, he keeps in stock the goods usually required by customers. Customer Service: A Key to Retail Success The customer in the store does not buy a product alone. Rather he is gaining experience in buying it, where customer services make a difference. The Customer service is the “sum of acts and elements that allow consumers to receive what they need or desire from your retail establishment.” It is important for a sales associate to greet the customer and make himself available to help the customer find whatever he needs. When a customer enters the store, it is important that the sales associate does everything in his power to make the customer feel welcomed, important, and make sure he leaves the store satisfied. Giving the customer full, undivided attention and helping him find what he is looking for will contribute to the customer’s satisfaction. 8Notes Challenges to Retailing The retail sector faces lot of challenges in its operations in all most all parts of the world. To achieve and maintain a foothold in an existing market for success, a prospective retail establishment must overcome the following hurdles: ➢ Regulatory barriers including ➢ Restrictions on real estate purchases, especially as imposed by local governments and against “big-box” chain retailers; ➢ Restrictions on foreign investment in retailers, in terms of both absolute amount of financing provided and percentage share of voting stock (e.g., common stock) purchased; ➢ Restrictions imposed on scope of operations (e.g., multi-brand vs. single brand retailing); ➢ Unfavorable taxation structures, especially those designed to penalize or keep out “big box” retailers; ➢ Absence of developed supply chain and integrated IT management system; ➢ High competitiveness among existing market participants and resulting low profit margins, caused in part by ➢ Constant advances in product design resulting in constant threat of product obsolescence and price declines for existing inventory; and ➢ Lack of properly educated and/or trained work force, often including management, caused in part by ➢ Lack of educational infrastructure enabling prospective market entrants to respond to the above challenges. Overview of Retail Sector The face of Indian retail industry has changed significantly by the th turn of 20 century. The retail industry in India, which was dominated by small and unorganized store until 1990s, has witnessed a rapid growth with the entry of corporate houses like the Tatas, RPG, ITC, Goenkas, etc. 9Notes and has become organized. The policies of the Government have also been suitably revised to facilitate the growth of this sector. The Indian customers also have got increasing exposure to domestic and foreign goods and are becoming more demanding in nature. This has fuelled more innovation in the market and the customers get the advantages of more competitive innovative products and services. All over the world, retailing is undergoing a process of evolution and is poised to undergo dramatic transformation. With special reference to India, the retail sector employs over 10 per cent of the national work force but is characterised by a high degree of fragmentation with over 5 million outlets, 96 per cent of whom are very small with an area of less than 50 m2. The retail universe doubled between 1986 and 2006 and the number of outlets per 1000 people at an All India Level increased from 4.9 in 1988 to 14.8 in 2006. Because of their small size, the Indian Retailers have very little bargaining power with manufacturers and perform only a few of the flows in marketing channels unlike in the case of retailers in developed countries. The corner grocer or the ‘Kirana’ Store is a key element in the retail in India due to the housewives unwillingness to go long distances for purchasing daily needs. Although convenience and merchandise were the two most important reasons for choosing a store, the choice inter-alia varied across product categories. Convenience was indicated by consumers as the most important reason in the choice of groceries and fruit outlets, chemists and life style items while merchandise was indicated as the most important in durables, books and apparel. In recent years, there has been a slow spread of retail chains in some formats like super markets, department stores, malls and discount stores. Factors facilitating the spread of chains are the availability of quality products at lower prices, improved shopping standards, convenient shopping and display and blending of shopping with entertainment and the entry to industrial houses like Goenkas and Tatas into retailing. Thailand is one of the countries whose economy has developed rapidly in recent years. There has been a tradition of independently owned outlets called shop houses. These outlets are run by families, with the shop located on the ground floor and the family’s living quarters on upper floors. 10Notes Thailand’s first departmental store opened in 1956 and the first shopping centre in (1967). Discounts and super stores were introduced in 1989. However, the presence of super market format has been low due to ingrained habit of buying fresh produce. Speciality stores were just emerging in Thailand in mid 1990s. Another country where the development of the retail sector has also followed an interesting path is Brazil. The concept of self service in shopping was introduced to Brazil in 1953 but until 1972, there was no foreign influence in the Brazilian retail sector. Food retailing especially, contained to be Brazilian owned and managed although international innovations were adopted. The number of intermediaries in marketing channels is decreasing as the operation of wholesalers is under threat from the direct contact between retailers and suppliers, although few specialised distributors have emerged who provide value added services such as distribution of frozen and chilled food. Summary Retailing is the sale of goods and services to ultimate consumers for personal and non-business use. Any institution may engage in retailing, but a firm engage primarily in retailing is called a retailer. Retailers serve as purchasing agents for consumer and as sales specialists for producers and wholesaling middleman. They perform many specific activities such as anticipating consumers’ wants, developing product assortments and financing. On the other hand, they are also try to satisfy the needs of the customers in one shot by having proper product assortments. Thus, they bring economy to the whole operational system and provide better satisfaction to the customers. 11Notes Lesson 1.2 - Types of Stores It is in retailing that very drastic changes have occurred during the last two decades. Some institutions have disappeared whereas newer ones have been added. This process of deletion / addition still continues in newer forms. There are large-scale retailing shops together with very small units, both working simultaneously. They have from hawkers and peddlers, who have no permanent place, to well-organised, settled retail shops like chain stores, departmental stores, etc. A marketplace is a location where goods and services are exchanged. The traditional market square is a city square where traders set up stalls and buyers browse the merchandise. This kind of market is very old, and countless such markets are still in operation around the whole world. In some parts of the world, the retail business is still dominated by small family-run stores, but this market is increasingly being taken over by large retail chains. Retail is usually classified by type of products as follows: ➢ Food products ➢ Hard goods or durable goods (“hardline retailers”) - appliances, electronics, furniture, sporting goods, etc. Goods that do not quickly wear out and provide utility over time. ➢ Soft goods or consumables - clothing, apparel, and other fabrics. Goods that are consumed after one use or have a limited period (typically under three years) in which you may use them. ➢ Services – banking, insurance, transportation, communication, IT & ITES, etc,. those are also marketed like products across the retail counters. Retailers can opt for a format as each provides different retail mix to its customers based on their customer demographics, lifestyle and purchase behaviour. A good format will lend a hand to display products well and entice the target customers to spawn sales. 12Notes The institutions carrying on the retail business can be classified as under: Major Types of Retail Stores In-Store Retailing Non-Store Retailing Franchising 1. Department Stores 1. Direct Selling 2. Super Markets 2. Telemarketing 3. Discount Houses 3. Online Retailing 4. Chain Stores or 4. Automatic vending 5. Multiple Shops 5. Direct Marketing. Department Stores Department stores are very large stores offering a huge assortment of “soft” and “hard” goods; often bear a resemblance to a collection of specialty stores. A retailer of such store carries variety of categories and has broad assortment at average price. They offer considerable customer service. These are large scale retail stores selling their products under one roof and offer a variety of goods divided into different departments, each of which specializes in an individual merchandise. Converse is of the opinion that a department store is a retail shop handling several classes of goods including fast moving consumer goods, each class being separated from others in management, accounting and location. It is viewed by Clarke as that type of retail institution which handle a wide variety of merchandise under one roof which are grouped into well-defined departments which is centrally controlled and which caters primarily to women shoppers. Thus a department store is a retailing business unit that handles a wide variety of shopping and specialty goods and is organized into separate departments for purposes of sales promotion, accounting control and store operation. Recent trends are to add departments for automotive, recreational and sports equipment, as well a services such as insurance, travel advice and income-tax preparation. Department stores are distinctive in that they usually are oriented towards service. They are usually shopping centers. 13Notes Classification of Department Stores These stores may be classified either according to ownership or income groups to which they appeal. a) On the basis of ownership these are: (i) The independent stores; (ii) The ownership group; and (iii) Chain department Stores. Independent stores are owned by a financial interest which does not own other similar stores Ownership group stores are those stores which were formerly dependent but now have been combined. Chain department stores are those stores which are centrally owned and operated. b) On the basis of income groups: These stores cater to the middle and high income groups. They usually handle good quality merchandise and offer maximum service to the customers. Other stores cater to the needs of the lower income group people. c) Sometimes there is also to be found what are called leased department stores. Although it appears to most customers that all departments in a department store are owned and operated by the store, which is not always the case. The operations of certain departments are sometimes turned over to leases and such departments are called leased departments. Features of Department Stores The chief features of these stores are: (i) These are integrated stores performing operations in addition to other retail stores such as wholesaling. (ii) Goods are divided into different classes with different locations and management within the store itself. 14Notes (iii) These stores are distinguished by the nature of goods they self and not by the varieties they keep for example, drug and variety stores carry a wide variety of goods. (iv) The store is a horizontally integrated institution. It brings together under one roof a range of merchandise offerings comparable to the combined offerings of many stores specializing in single or fewer merchandise lines. Location of Department Stores The success of a department store depends much on its location, availability of space, the area and community to be served and ability to attract customers are the important factors to be considered before establishing a store at a particular place. Special Consideration should be given to accommodation so as to allow every possible amusement facilities. Considerable space should also be allotted for show room displaying stores merchandise. Merits of Department Stores 1. Large department stores buy in large quantities and receive special concession or discount in their purchases. Many of them purchase direct form manufactures and hence, middleman’s charges are eliminated. 2. Department stores are in a position to pay cash on all or most of their purchases and this gives them an additional advantage of picking up quality goods at cheaper rates and at the same time stocking the latest style and fads. 3. Customers can do all their purchases under one roof and it appeals to people of all walks of life. 4. The organization is too large to provide expert supervision of various departments for the adoption of a liberal credit and delivery service for large-scale advertising. 5. When customers enter the store to deal with one department they are frequently induced by the advertisement which the display of goods offers to make purchases in other departments as well. 15Notes Limitations of Department Stores Department business organizations are not free from abuses. There are certain specific limitations from which such institutions suffer such as: 1. The cost of doing business is very high due to heavy overhead expenses. 2. Because of their location in a central shopping area they are of not much advantage to the public because goods required at short notice are always purchased from the nearest traders. 3. There is lack of personal touch and personal supervision which is to be found in single line. 4. When hired diligence is substituted for the diligence of ownership, loss and leaks are likely to occur. 5. Many customers abuse the liberal services extended and take advantage of the policy of the ‘customers is always right’. 6. The type of salesmanship found in many stores is very poor because of low payments and lack of supervision. Future of Department Stores Nothing definite can be predicted whether these department organizations will continue to carry on and will progress in face of overgrowing competition of chain stores, mail order business and other smaller independent dealers. Stores with overhead burdens which cannot be reduced may have to go, but the department stores as an institution are bound to go on with a future. The department store which is properly equipped in plant, stock and personnel to carry on a reasonable sales volume and then does a better job in giving values and services, then its competitors are entitled to, and will receive its business profit. Department Stores are now opening branches in many new areas and making concerted efforts to meet new competition. They have been modernized, redecorated and better services are being developed; and they are being converted to self-service. 16

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