Extracted from Third Edition of Canadian Retailing


Chapter 6. Developing the Retail Strategy

Chapter Objectives

After reading this chapter, you should be able to:

  1. List the steps involved in strategic retail planning.
  2. Understand the concept of an organization's mission statement.
  3. Evaluate the issues involved in a situation analysis.
  4. Identify the major strategic alternatives available to retailers.
  5. Discuss the factors involved in deciding on markets in which to compete.
  6. Review the components of retail positioning strategy.
  7. Understand the implementation of the strategy.
  8. Discuss the issues involved in evaluating and controlling retail operations.

The battle for leadership in the $1.5 billion music retail industry has led to brutal competition since HMV entered the arena. In 1991, A&A Records and Tapes filed for bankruptcy (it was reborn and went bankrupt a second time in 1996), Discus Music World went bankrupt, and many independent music retailers went out of business. HMV, part of a massive British conglomerate, opened its first Canadian store in 1987, but the intense competition really began with the launching of its flagship Toronto store in 1991. By the end of 1991, HMV's 51 stores sold more than $100 million in CDs, cassettes, and videos, closing in fast on the market leader, Sam the Record Man, which sold about $135 million in its 140 stores. For 1995, HMV's 80 stores sold more than $225 million in CDs, cassettes, videos, and computer software, surpassing Sam the Record Man (now in third place) and Music World with its 110-store chain.

These "big three" face new and formidable competition. Future Shop, the computer and appliance chain, added CDs to its product mix in 1994 and sells the top hits at discount prices. More recently, Tower, the giant U.S. chain, opened its first Canadian superstore in Toronto, and Virgin Records from the United Kingdom plans to open 15 to 20 stores in the near future. The mail-order segment, dominated by Columbia House and BMG Direct, has captured about 25 percent of all record music sales in Canada with the popular "buy one CD, get nine free" type campaigns.

HMV's strategy has led to increased sales and profits.
Courtesy HMV Canada

The Canadian music retailing industry has experienced dramatic changes in the past few years-the shift from records to CDs and cassettes, the dramatic increase in video and computer software sales, the changing demographics-yet many retailers sell their product with little innovative marketing or customer service.

HMV continues to shake up the industry by pursuing an aggressive strategy that includes the following elements:

  • Location-many stores are located in upscale shopping centres across Canada on very favourable terms (shopping centre developers are keen to have HMV with many retailers falling into bankruptcy).
  • Atmosphere-from the displays, to banks of video screens, to "listening posts" where customers can play the latest hits, to in-store concerts, HMV provides a new experience for shoppers.
  • Customer service-from the helpful, knowledgeable staff who are rewarded, in part, based on the store's performance.
  • Selection-a wide and targeted selection provided by the staff, many of whom "run" a part of the store and decide what titles to carry in their particular section.
  • Prices-on average higher than other chains like Sam's because HMV decided that customers would be willing to pay something extra in terms of helpful staff and a broad selection.
  • Product mix-HMV added a computer software department because its young staff are convinced that serving the Internet and personal computer market is going to be "as big as the music business."

The strategy has led to greater sales and profit increases for HMV than for any other music retailer in the industry. Since he opened HMV in Canada, the president, Paul Alof (who left in 1995) had a goal: to make HMV the number one music retailer in Canada. The goal was accomplished but the continuing challenge for the new president is to remain on top.

The success of any strategy depends on how the retailer implements its plan and meets the needs of customers. In a highly competitive market a well-designed and well-executed strategic plan is essential for survival and growth (See note 1).

Strategic planning includes defining the overall mission or purpose of the company, deciding on objectives that management wants to achieve, and developing a plan to achieve these objectives. HMV evaluated the retail music industry in Canada and identified strategies that would allow the firm to prosper and grow. The strategies will be implemented through pricing, promotion, and physical facility plans in order to accomplish the overall mission of the firm.

Figure 6-1 illustrates the steps involved in strategic planning. The plan begins with a statement of the mission or purpose of the organization. Objectives management wants to achieve are then established. An analysis of internal strengths and weaknesses and external threats and opportunities is then undertaken to help management decide on the best way to carry out the organization's mission and to achieve its objectives. Next, management identifies the major strategic alternatives it could pursue. Markets in which to compete must be selected, and resources needed to compete must be obtained. A positioning strategy outlines how the organization will serve the needs of chosen markets. An important aspect of the positioning strategy is determining how the retailer will develop and exploit its competitive advantage. The strategy must then be implemented. Finally, results must be measured and evaluated to ensure that the strategy is working.

Figure 6-1 Strategic Planning


Defining the Mission or Purpose of the Organization

Management begins the planning process by identifying the organization's mission or purpose. The mission statement describes what the firm plans to accomplish in the markets in which it will compete for customers it wants to serve. A mission statement normally includes the following elements:

  1. What products and services will be offered, what customers will be served, and what geographic areas will be covered.
  2. How the physical assets, financial assets, and human resources will be used to create customer satisfaction.
  3. How the firm intends to compete in its chosen markets.

One of Mark's Work Wearhouse's goals is to provide quality products at competitive prices.
Courtesy Mark's Work Wearhouse

The mission statement provides a clear sense of direction for the organization and distinguishes the firm from all others. Retail Highlight 6-1 provides examples of Canadian retailers' mission and goal statements, presented in their annual reports. Most of these retailers have more detailed mission statements that are provided to their employees.

Mission statements often reflect an organization's values or corporate culture. Corporate culture establishes the values of greatest importance to the organization. These are values on which emphasis is constantly placed. Often these values reflect the personal goals of top management. A firm's values are often stated in the company motto, as shown in the following examples:

Retail Highlight 6-1
Canadian Retailers' Mission and Goal Statements

Many retailers today are focussing on customer satisfaction as their primary goal. Listed below are mission statements from a number of Canadian retailers. Which retailers seem to have adopted a mission of customer satisfaction?

Mark's Work Wearhouse provides quality name brand, private, and captive label products competitively priced and supported by active sales promotion. Our stores are easily accessible, one stop retail outlets offering a complete range of workwear, casual wear, and related apparel including custom uniforms.

The company's mission is to grow consistently as a mature and stable enterprise known for:

Being the most customer-sensitive and responsive specialty retail organization in the markets in which it operates.

Having a people-oriented work environment where people are allowed the greatest possible freedom\E to carry out their responsibilities, own what they do, have fun, learn, and earn fair financial rewards.

Providing a superior financial return to investors as a result of being customer driven and people oriented.

Empire (the diversified Canadian food and pharmaceutical retailer and distributor) has three components to its mission statement:

Goal: Empire is committed to building shareholder value through long-term profitability and growth by becoming a market leader in its core operating businesses and by investing in opportunities to augment this growth in value.
How: Empire will achieve this goal by treating employees in ways that create extraordinary customer service and shareholder value.
Value: Empire will be a good corporate citizen, upholding the highest standards of integrity and ethical conduct.

Sears Canada is a full-time, full-service department store and catalogue retailer dedicated to providing its customers with quality merchandise and exceptional service, coast to coast. Our vision is to be Canada's most successful retailer . . . providing total satisfaction for our customers, opportunities for our associates to grow and contribute, and superior returns for our shareholders.

Canadian Tire's vision, which guides the daily activities and long-term strategy of the enterprise, is to be the best at what customers value most. To achieve the vision, the company's efforts will be dedicated to the mission-to be the first choice for Canadians in automotive, sports, leisure, and home products by providing total customer value through focussed assortments, competitive operations, and customer-driven service.

Le Château is a vertically integrated retailer of the latest fashion apparel at moderate prices. We adapt mainly European designs of clothing, accessories, and footwear for North American men and women. Our clientele is predominantly 15 to 30 years of age, although we continue to attract more consumers of all ages. Our ability to provide unique clothing and respond quickly to upcoming fashion trends is greatly enhanced by our vertical approach to retailing. In addition to extensive product development, approximately 70 percent of the Company's goods are manufactured in our Canadian production facilities.

The Bay's mission is to be Canada's best fashion department store by offering broad, dominant assortments, quality and value, fashion and trend leadership, a high level of customer service, and an unremitting guarantee of performance. Zellers' goal is to lower the cost of living for ordinary Canadians by dedicating ourselves to providing our customers with exceptional value-everyday.

Sources: Mark's Work Warehouse; Empire Company Ltd.; Sears Canada Inc.; Canadian Tire; Le Ch;afateau; and Hudson's Bay Company Annual Reports.


Setting Objectives

Management's task, after agreeing on the mission statement, is to establish objectives. Objectives are statements of results to be achieved. Objectives may include profitability, sales volume, market share, or expansion results.

Management normally sets both long-term and short-term objectives. One-or two-year time frames for achieving specific targets are short term. Long-term objectives are less specific than short-term targets and reflect the strategic dimensions of the firm. Retailing is too dynamic to establish specific targets much beyond five years.

Good objectives are measurable, are specific as to time, and indicate the priorities for the organization. To illustrate, Mark's Work Wearhouse's specific goals related to profits, debt-to-equity ratio, current ratio, and other measures on an annual basis. Examples of well-stated and poorly stated objectives appear in Table 6-1.


Table 6-1 Examples of Well-Stated and Poorly Stated Objectives

Examples of Well-Stated Objectives Examples of Poorly Stated Objectives

  • Our objective is to increase market share from 15 percent to 18 percent in 1997 by increasing promotional expenditures 15 percent.
  • Our objective for 1997 is to earn after-tax profits of $5 million.
  • Our objective is to open three new units by 1997 in each of the following provinces where the chain presently has no units: Nova Scotia, New Brunswick, and Prince Edward Island.
  • Our objective in 1997 is to increase promotional expenditures.
  • Our objective is to maximize profits.
  • Our objective is to expand by adding units to the chain.


Conducting a Situation Analysis

Once objectives are set, management must decide on a plan for achieving them within the context of the firm's mission. This plan is based on an analysis of the strengths and weaknesses of the organization and the threats and opportunities in the environment. This assessment of internal strengths and weaknesses and external threats and opportunities is referred to as a situation analysis, popularly known as SWOT analysis (strengths, weaknesses, opportunities, and threats).

Internal factors are those variables largely under the control of store management. Such factors include financial resources, physical assets (for example, buildings, display fixtures), management skills, sales force composition, merchandise lines carried, the reputation of the firm, and employee attitudes toward the company. The questions the retailer wants to answer are shown in Table 6-2. External factors are those over which store management has very little or no control. The external environments on which management focusses were discussed in Chapter 2. These include the legal environment, the economic and social environments, the competitive environment, and the technological environment. Management examines trends in these environments and determines whether the trends pose threats or opportunities, or whether they have no relevance for the organization.

For example, Mark's Work Wearhouse views its performance management system, which includes setting objectives for all company employees, as a strength of the firm. The "On Concept" stores, which are large (10,000 to 15,000 square feet or 930 to 1,400 m2) and have a dominant position in their retail location, are also a strength. Current weaknesses include poor performance of stores in the Quebec and Vancouver markets. On the external side, Mark's Work Wearhouse recognizes threats from "Big Box" retailers (large freestanding stores, like warehouse stores, that offer merchandise with limited service and an emphasis on price) and electronic shopping. Opportunities include the custom uniform, corporate wear, and winter workwear segments. Mark's has taken steps to address its threats and capitalize on its opportunities (see note 3).

The result of the situation analysis forms the foundation for identifying the major strategic alternatives. Management may stay the course and make only minor adjustments in strategy. In other instances major changes may be made in markets served and in strategies for serving the new markets. In the recession period in the early 1990s, many Canadian retailers made major changes to their strategies to reflect the harsh economic times. For example, the Oshawa Group, which operates Food City and supplies IGA stores, has reduced operating expenses by restructuring its stores, warehouses, and offices. As well, it is expanding its Price Choppers stores-standard size supermarkets that offer limited selections of groceries, fresh meat, and produce at lower prices. The Oshawa Group hoped to win back consumers who cut back spending, shopped more often in the United States, and sought bargains in discount warehouse-style stores (see note 4).

Table 6-2 SWOT Appraisal

Internal Appraisal External Appraisal

Strengths:
What is the firm's present position?
What is the firm good at?
What major resources/expertise exist?

Weaknesses:
What is the firm's present position?
What are the major problems faced?
What is the firm poor at doing?
What major resources/expertise deficiencies exist?

Opportunities:
In what areas could success be achieved?
What favourable environmental trends exist?
How are markets developing?

Threats:
Where is performance likely to suffer?
What unfortunate environmental trends exist?
How are competitors behaving and developing?

Source: Nigel Piercy, "Analyzing Corporate Mission: Improving Retail Strategy," Retail and Distribution Management, March/April 1983, p. 35.


Identifying Strategic Alternatives

In broad terms, a retailer may consider pursuing one or more of four major strategic options; market penetration, market development, retail format development, and diversification (Figure 6-2). As well, retailers often refine their strategies through a range of productivity improvements.

Market penetration

Retailers following a strategy of market penetration, which targets existing market segments with existing formats, seek a differential advantage over competition by a strong market presence that borders on saturation. Market penetration is often used by retailers because it builds on the firm's existing strengths, which include knowledge of current customers and their preferences and the firm's familiarity with the merchandising lines. Such a strategy is designed to increase (1) the number of customers, (2) the quantity purchased by customers, and (3) purchase frequency.

Figure 6-2 Major Retail Strategic Options
    Market Penetration Market Development
Retail format Existing Increase number of customers
Increase quantity purchased by customers
Increase purchase frequency

Reach new segments with existing formats
Expand markets

    Retail Format Development Diversification
  New Offer new retail formats to existing customers

Develop new retail formats targeted at new segments
   
Existing
New
   
Market segment



Increasing the number of customers

Strategies designed to increase the number of customers is one way of increasing sales and profitability. Adding stores and modifying in-store offerings can lead to more customers. Sears Canada has added new national brands, devoted more space to apparel, and added more private labels to attract more customers to its stores (See note 5). For years, Sobey's has added new stores in Atlantic Canada to increase its dominant position in this market. Sobey's also continues to remodel existing stores-making them brighter and larger-to attract more customers. As well, a penetration strategy could include the use of the retailing mix variables to ensure:

  1. The lowest price lines and the lowest prices within the market area.
  2. Extensive width and depth of consumer goods such as health and beauty aids and housewares.
  3. Aggregate convenience including location, parking, hours, and ease of purchase; features such as supermarket-like front ends, total merchandise display, wide aisles, easy-to-see-and-locate merchandise groups, shopping carts, and usually a single display floor.

    Increasing the quantity purchased

Improving the store layout and merchandise presentation can help to create an atmosphere that is conducive to more spending. Loblaws invests substantial sums to renovate existing stores to provide a comfortable shopping environment, and has expanded produce, seafood, deli, and bakery departments to get more customers into the stores and to increase the quantity purchased (see note 6). Another approach is to encourage salespeople to cross-sell. Cross-selling involves salespeople from one department attempting to sell complementary merchandise from other departments to their customers. For example, a salesperson who has just sold a pair of dress pants to a customer would take the customer to the shirt and tie area to sell the customer a shirt and tie that complements the pants.

Increasing purchase frequency

Toy supermarkets such as Toys "R" Us, the U.S. chain with 56 stores in Canada, have been quite successful in implementing strategies designed to increase purchase frequency. The firm offers a complete selection of items that sell year-round. Customers know that when they buy a toy at Christmas they will find a good selection after Christmas to accommodate returns. Toys in the low- to medium-price ranges, often with strong licensed characters and video games, provide sales day in and day out. High-impulse items like peg-boards, die-cast toys, and hobby kits lead to high customer traffic. The firm capitalizes not only on birthdays and Christmas but also on other holidays and special occasions like Valentine's Day, Easter, Halloween, and back-to-school.

Market development

A strategy of market development focusses either on attracting new market segments or completely changing the customer base. Market development normally involves bolder strategy shifts, more capital, and greater risk than a market penetration strategy. Examples of market development efforts include reaching new segments and market expansion.

Loblaw introduces in-store pharmacies to attract new segments.
Courtesy Loblaw Company Ltd.

Reaching new segments

Fast-food restaurants provide a good example of the strategy of attracting new segments in existing markets. McDonald's, through the years, has added chicken, breakfast items, salads, pizza, and Tex-Mex dishes to their menu. This helps attract consumers who are looking for something nonfried, less filling, with lower calories, and more nutritious than many traditional fast-food offerings. Harvey's has broadened its product line to include sandwiches to attract new segments. Tim Horton's has added muffins, soup, and sandwiches to its doughnuts and coffee to attract new segments. McDonald's also seeks to reach new segments by opening restaurants in unique, non-traditional sites including hospitals, subway and train stations, and tourist areas. In the Toronto SkyDome, McDonald's has four outlets, including one seating 600 people. Toys "R" Us is reaching a new segment with its Baby Boutique, an expanded merchandise line of high-end nursery items for expectant parents (see note 7).

Market expansion

An effective strategy for many retailers is to expand on a geographic basis. The basic premise is that if the store concept works in one locale, it should work in another. Franchise retailers have successfully used geographic expansion for many years. Probably one of the most interesting and well-documented franchise expansions was McDonald's Canada's expansion to Moscow. With over 1,000 outlets in Canada, in 1995, Tim Horton's has aggressively pursued market expansion. The takeover of Tim Horton's by Wendy's will allow more rapid expansion for Wendy's and Tim Horton's as they plan to open a number of combo units (combining both Wendy's and Tim Horton's in one location) in both Canada and the United States (see note 8).

McDonald's introduces a new retail format; a limited menu outlet in a high traffic location.
Courtesy McDonald's Restaurants of Canada Ltd.

Retail format development

A retail format development is introducing a new retail format to customers. For example, Sears Canada has opened a number of freestanding furniture stores, called Whole Home, in Ontario, and plans to have up to 40 locations across Canada within a few years. At 3,252 square metres (35,009 square feet) the Whole Home Furniture Store has tripled the selling space for furniture, rugs, and decor items over what is offered by the typical Sears store. Sears Canada identified an opportunity for this kind of furniture store, which offers a wide range of value-priced and higher-end fashionable merchandise.;s9 Other examples are fast-food retailers like McDonald's and Subway who offer limited menus in smaller locations inside major stores (e.g., Wal-Mart) or gasoline stations.

Diversification

Diversification is a move to an entirely new retail format directed toward a market segment that the retailer currently does not serve. CIBC's strategy of selling automobile insurance through telemarketing is an example of diversification. The major Canadian bank's strategy of taking over investment firms and offering these services through the Internet is another example of diversification.

Productivity improvement

The strategy of productivity improvement focusses on improved earnings through cost reductions, increased turnover through an improved merchandise mix, and increased prices and margins. Productivity improvement often occurs in firms in the mature or declining phases of their life cycles. During these stages, strategies requiring major infusions of cash are not acceptable to management. Rather, the emphasis is on squeezing as much profit as possible from the operation. The strategy is more a refinement of existing strategies than a dramatic new way of doing business. Dalmy's women's clothing chain, after suffering losses in four of five years, improved productivity through reducing overheads, closing unprofitable stores, reducing head office expenses, tightening control over inventories, and conserving working capital (see note 10).

Cost reductions

Some retailers concentrate on cost reductions as a competitive weapon in increasing productivity. A key to such a strategy often is to increase self-service to hold down labour costs. Reducing store hours, making better use of part-time help, and cutting back on customer services are other actions that can be taken to reduce costs.

Provigo, a large Canadian wholesale and retail organization (retail operations include Provigo, Maxi, and Héritage), focusses on a sophisticated information technology system to achieve significant cost reductions in its distribution system. Information obtained from the company's point-of-sale scanners in their supermarkets allows the firm to measure the contribution of individual products to profitability. Provigo uses information technology to achieve productivity improvements through reducing costs and improving the merchandise mix. As well, the company processes virtually all its orders with suppliers through electronic data interchange, resulting in significant cost savings (see note 11).

Improved merchandise mix

Most stores attempt to improve productivity by increasing their turnover through a better merchandise mix. The key is to ensure that the new merchandise satisfies the needs of the target market while maintaining the store's desired position. Mark's Work Wearhouse encourages in-store product managers and product category coordinators to introduce new items into the product assortment on a test basis. By using local knowledge of customer needs, this ongoing testing allows Mark's to respond quickly to changing market demands. Video chains, like Jumbo Video, have broadened their merchandising mix to include games and laser disk rentals.

Price and margin increases

Price and margin increases can be a key element in productivity-based strategies. Higher-than-normal prices may be possible on low-visibility items or infrequently purchased products. Charging for services such as delivery or installation may also be feasible. Many furniture retailers charge a fee for delivery of merchandise. Adding high-margin items to the merchandise mix, as is done by superstores, is a further dimension of such a strategy. Banks vary service charges to retail customers based on account balances.

Based on the strategic alternatives the retailer identifies as providing the best opportunity for growth and profits, the retailer decides on the target markets where it plans to compete.


Deciding on Markets in Which to Compete

Market segments are the groupings of consumers based on homogeneous responses to merchandise offerings. Segment descriptors provide the ways in which market segments can be described.

Typical descriptors based on demographics (age, income, occupation, etc.) are the most frequently used ways of segmenting markets. Psychographics (the activities, interests, and opinions of consumers) are often used to supplement demographic data.

Target markets are the segments that management decides to serve. Market positioning is how management plans to compete in target markets that appeal to the firm. Let us briefly use the Harvey's hamburger chain to show the relationships between segmentation, targeting, and positioning in strategy development before we discuss each concept in more detail.

Business Hamburger chain
Market segment descriptors

Age
Income level
Occupation

Target market selected Adults aged 18 to 30
Education: completed secondary degree
Personal income: $22,000 and over
White-collar Professional
Positioning strategy in target market Superior-quality product at a premium price in attractive surroundings

You can probably better understand segmentation, targeting, and positioning if you think about how McDonald's, Wendy's, Burger King, and A&W chains compete against Harvey's by choosing different market targets and positioning strategies.

Segmenting markets

Requirements of segmentation. The market segments selected by management must be:

  1. Measurable-Is the segment measurable and identifiable?
  2. Accessible-Will focussing marketing efforts on a particular market segment have a positive impact on eliciting desired responses?
  3. Economically viable-Is the segmentation variable shared by enough potential customers to justify the expense and effort of focussing marketing efforts on that segment?
  4. Stable-Are the consumer characteristics stable indicators of market potential?

In strategy development, consumers can be viewed in one of three ways, depending on the product or service offered:

  1. Similarity-All consumers are viewed as basically similar. Although differences such as age, income, needs, and preference exist among them, these differences are not thought to be important influences on the purchase of the firm's specific product class. A standard product will essentially satisfy most consumers. For example, in retailing, convenience stores provide a merchandise mix, wide variety, and little depth, all of which focus on the customer's primary reason for shopping at the store-convenience-and ignore the differences.
  2. 2. Differences/similarities-Consumer differences and similarities are important sources of influence on market demand. These differences and similarities facilitate the grouping of consumers in aggregates and appeal to these aggregates on common bases. For example, most womenswear retailers target specific segments based on various descriptors including age and lifestyle. The Dalmy's chain, which has five store banners to target different segments, has defined its target for the Dalmy's division as younger fashion-conscious women in the mid-price market (see note 12).
  3. Uniqueness-All consumers are somewhat different. The differences among them make a standardized offering unacceptable. Market offerings must be tailored specifically to the needs of a very narrowly defined group of consumers. For example, high-end menswear retailers, like Harry Rosen, provide a made-to-measure service for men wanting custom-made suits.

    Target market selection

No single best way exists for selecting target markets in which to compete. Often, management begins by looking at the entire market in terms of both the size and consumer segments to which it might appeal. From these segments, it identifies a smaller number of segments that hold the most promise for the firm-these are the possible targets. Next, management zeros in on these possible targets and applies a set of screening criteria to help select the final targets. A number of variables are normally evaluated for each target to determine the ones most compatible with the organization's resources and skills. Typical criteria are shown in Table 6-3. They include the growth potential of each likely target market, the investment needed to compete, and the strength of the competition. The possible market targets are evaluated by deciding (1) on a weight for each factor and (2) how each possible target rates on each factor. Multiplying the weights by the ratings yields a score that is summed for each target. The total score for each target allows management to objectively evaluate each target. This lets management select targets for further development of marketing strategies. Table 6-3 provides an example of a retailer who has evaluated four targets, with young professionals scored as most attractive and middle-age as least attractive.

Once retailers have chosen target markets in which to compete, a plan must be developed for attracting targeted consumers. The basis for such planning is a thorough understanding of those consumers-their behaviour, values, motives, and expectations. Especially important is an understanding of the decision process customers go through in making merchandise and store choice decisions. Because of the importance of this topic, a separate chapter in the text is devoted to a discussion of buyer behaviour. Chapter 3 focussed on the consumer as a problem solver and highlights a number of different issues related to the behaviour of consumers. Chapter 4 provided an in-depth look at consumers by focussing on social characteristics and living patterns of customers. Knowledge of consumer behaviour helps retailers better understand consumers' merchandise and store preferences and their shopping behaviour.

Table 6-3 Market Attractiveness Analysis
 
Potential Market Targets
Critical Market Factors
Weight
Young Professionals
Teens
Seniors
Middle Age
Future growth potential
20
9
8
6
4
Present size
15
8
5
7
7
Investment required
10
8
5
6
7
Strength of competition
10
7
7
9
9
Ability to meet the needs of the market
20
8
9
6
8
Profit potential
25
6
5
5
4
Score
100
760
660
620
605

Note: Each target is rated from 1 (very unattractive) to 10 (very attractive).


Obtaining Resources Needed to Compete

As part of the planning process, retailers must evaluate the alternatives for owning a business as well as avenues for entering a retail business. For example, a retail firm can be operated as a sole proprietorship, a partnership, or a corporation. To enter retailing, a person can start his or her own business, can buy an existing business, or can become part of a franchise operation. Such issues are the topics of Chapters 7 and 8. Chapter 7 focusses on different forms of ownership, issues in buying a retail business, determining capital needed for a new business, and sources of needed funds. Because franchising is one of the fastest growing segments in retailing today, a separate chapter, Chapter 8, is devoted to a discussion of franchising as a retail business concept.

Store location, a crucial element of retail planning, is the topic of Chapter 10. For example, Home Depot and Price Club/Costco need sites that have a large amount of space and are located near major highways. Because of this, these retailers are willing to pay over $1 million per acre in markets like Vancouver and Calgary to obtain prime sites see note 13).

Human resources are just as vital to the success of a retail operation as are financial resources and physical facilities. As will be shown in Chapter 9, the human resources plan must be consistent with the overall strategy of the retail organization. Human resources management also involves a variety of issues such as recruiting, selecting, training, compensating, and motivating personnel as well as organizing, and it is essential that these activities be managed effectively and efficiently.


Figure 6-3 Hypothetical Positioning Map for Women's Apparel Retailers


Developing a Positioning Strategy

After target markets are selected and the necessary resources are obtained, a positioning strategy is developed. Positioning is the design and implementation of a retail mix to create an image of the retailer in the customer's mind relative to its competitors (see note 14). A positioning map is often used to portray the customer's image and preference for retailers. A hypothetical positioning map for women's apparel retailers is provided in Figure 6-3. The two dimensions, fashion and assortment, are two criteria that consumers might use in forming images of the stores. In this example, Sarah's Classics and Fudge's Apparel are close to each other because consumers see them as similar in terms of fashion and assortment. In contrast, Biba Boutique and Suzy Shier are far apart, suggesting that consumers have quite different images of them. Retailers use these maps to determine how consumers perceive them and their competition. Based on these consumer perceptions, a particular retailer can reinforce its position or consider repositioning if its current position is unsatisfactory.

One example of positioning is Zellers, the discount department store chain. Zellers is positioned to appeal to the budget-minded customer with the assurance of the lowest price. Zellers focusses directly on this position with its slogan: "Where the lowest price is the law." A profile of Zellers is provided in Retail Highlight 6-2.

Zellers reconfigures its stores to maintain dominance in the discount market.
Courtesy Hudson's Bay Company Ltd.

Retail Highlight 6-2
Zellers' Profile
Zellers is the leading national chain of discount department stores. It targets the budget-minded customer with the assurance of the lowest price. Excellent values are offered in both national and private-brand merchandise and these are communicated aggressively with frequent advertising in both print and electronic media. Zellers is further distinguished by Club Z, its customer rewards program. Zellers is successful in its competitive retail segment by operating with a very low expense rate. Zellers stores are characterized by self-service and central checkout. Zellers markets its own credit card and accepts those of the major banks. Merchandising and sales promotions are centrally directed. Zellers operates 292 stores across Canada mainly in shopping malls. The average store is 72,000 square feet (6,700 m2) with new stores in excess of 100,000 square feet (9,300 m2).
Source: Hudson's Bay Company, Annual Report, 1994.

The importance of developing and maintaining a positioning strategy must be stressed, especially in an era when competition in retailing is fierce. When Zellers' positioning was threatened by the entry of Wal-Mart into Canada, it reconfigured its stores to provide for broader, more competitive merchandise assortments and repriced its merchandise to maintain its dominant position against all competition.

The positioning strategy involves the use of retailing mix variables. The retailing mix consists of all variables that can be used as part of a positioning strategy for competing in chosen markets. As shown in Figure 6-4, the retailing mix variables include product, price, presentation, promotion, personal selling, and customer service. Issues related to the retailing mix variables are included in Chapters 10 to 17 of the text.

 

Figure 6-4 Variables of the Retailing Mix and Types of Decisions

Variable

Types of Decisions

Product Merchandise lines (width, depth, assortment)
Brand lines (national, store, generic)
Supplier selection
Inventory levels
Price Pricing policy (above, at, below the market)
Price levels
Price adjustments
Presentation Store design
Store layout
Merchandise presentation
Promotion Advertising budget, copy, and media
Sales promotions
Publicity and public relations
Personal selling Sales force size, training, and compensation
Motivation of staff
Customer service Support services
Credit policies
Returns policies

Strategy Implementation

A sound strategy is no guarantee of success if it cannot be well executed. To implement a firm's desired positioning effectively, every aspect of the store must be focussed on the target market. Merchandising must be single-minded; displays must appeal to the target market; advertising must talk to it; personnel must have empathy for it; and customer service must be designed with the target customer in mind.

The Gap, a popular and profitable specialty clothing chain, will be used to illustrate how the marketing mix variables play a critical role in positioning efforts within target markets. The Gap has over 1,200 stores in the U.S. and Canadian markets, targeting consumers with a simple, yet powerful positioning strategy-good style, good quality, and good value. The blend of some of the retailing mix variables in support of this position strategy is:

Product The Gap designs its own clothes with the focus on simplicity. New collections hit the stores about every eight weeks and unpopular designs are marked down and quickly sold off.
Price Strict quality control procedures and using manufacturers in 40 countries ensures high quality, low costs, and a very good price for customers.
Presentation Merchandise is displayed to emphasize the deep assortment of colours and is laid out on tables and shelves where it can be easily touched.
Promotion Advertising for The Gap has been striking, including the "Individuals of Style" campaign, a series of black-and-white photos of personalities from Miles Davis to k.d. Lang. The message communicates an individual sense of style.
Personal selling Sales staff receive no commission but constant contests are run to motivate the staff to provide quality service.
Customer service The Gap accepts all credit cards (see note 15).

Evaluating and Controlling Operations

Once a strategy is implemented, managers need feedback on the performance of the new strategy. Some types of information are needed on a routine, ongoing basis to help management determine whether objectives have been met. Chapter 19 focusses on several types of control systems that help management assess the success of operations.

The effectiveness of the long-term competitive strategy of the firm, however, must also be evaluated periodically. Such an evaluation covers all elements of the plan, as shown in Table 6-4. This type of evaluation guarantees that the firm's plan does not degenerate into fragmented, ad hoc efforts that are not in harmony with the overall competitive strategy of the business. Management can also use the process to decide what changes, if any, should be made in the future to ensure that the combination of retailing mix variables supports the firm's strategy.

 

Table 6-4 Evaluating Competitive Strategy
Merchandising Plan Financial Plan
  1. What is the growth pattern of existing merchandise lines?
  2. Is the merchandise line portfolio balanced? Should merchandise lines be added or deleted?
  3. Should product line breadth or depth be modified?
  4. What is the strength of the individual brands carried?
  5. Are the merchandise lines properly positioned against the competition and in support of the marketing plan?
  6. Does the firm have an adequate open-to-buy plan?
  7. Are adequate inventory controls in place?
  1. Is a profit analysis possible, including a break-even analysis and analysis of ROI and leverage?
  2. What are the profit margins by merchandise line? Are they increasing or decreasing? How do they compare to those of the competition? Compare with trade statistics where possible.
  3. Does the firm have a sound accounting and information system?4. What are the trends in such indicators as return on assets, earnings per share, and net profits?
Pricing Plan Physical Facilities Plan
  1. What are the profit margins on the merchandise lines carried? Are they increasing or decreasing? How do they compare to those of competition?
  2. Are the pricing policies, including price lines (at, equal to, or above the competition), appropriate for each target market?
  3. Does pricing have a primary or secondary role in the marketing plan?
  4. Is a realistic system for planned markdowns in place?
  1. Is adequate emphasis placed on space productivity?
  2. Is flexible fixturing used whenever possible?
  3. Does signing provide adequate information to shoppers?
  4. Do the atmospherics support the other elements of the marketing plan?
  5. Is merchandise arranged for easy cross-selling whenever possible?
  6. Is lighting appropriate for each area?
Advertising and Sales Promotion Plan The Retail Information System
  1. Are the objectives for advertising and sales promotion clearly stated? Do they support the marketing plan?
  2. Is the media mix supportive of the marketing plan?
  3. Are budgets adequate to accomplish the objectives? How are budgets established?
  4. Are the creative strategies compatible with the marketing plan?
  5. Does the firm have weekly, monthly, and seasonal plans for such activities in place?
  1. Does the merchandise information system provide the information needed for key operating decisions?
  2. Is a sound, competitive shopping system in place?
  3. Is someone in the firm responsible for evaluating environmental trends that can affect the continuing success of the firm?
  4. Are the financial and merchandising ratios of the firm regularly compared to comparable trade statistics?
Distribution and Sales Support Plan Human Resources Plan
  1. Are customer service levels such as on warranties and repairs satisfactory? What weaknesses exist?
  2. Are mail and telephone sales programs compatible with the overall marketing plan?
  3. Are the after-sales delivery programs, if any, compatible with the marketing plan?
  4. Are the credit programs offered cost effective? Should credit options be added or deleted?
  5. Is the breadth and intensity of market coverage satisfactory for a firm with branches or multiple outlets?
  1. Does the firm have the talent to execute its marketing strategies?
  2. Is the firm adequately staffed?
  3. Are the firm's selection and recruiting efforts and training programs adequate?
  4. Are the firm's pay scales adequate? Are opportunities for promotion available? Are performance appraisals and feedback occurring?
  5. If several outlets exist, are personnel decisions centralized or decentralized?
  6. Are disciplinary procedures in place?
  7. Do union/management relations receive adequate attention?


Chapter Highlights


Key Terms

corporate culture 162 positioning 172
market development 165 productivity improvement 168
market penetration 164 retailing mix 173
market segments 169 situation analysis 163
mission statement 160 strategic planning 158
objectives 162 target markets 169



Discussion Questions

  1. Indicate the steps involved in developing a strategic plan.
  2. What is meant by an organization's mission statement? What does this statement normally include?
  3. What is the difference between long-term and short-term objectives?
  4. What is a situation analysis? Which factors are evaluated in such an analysis? What is the ultimate value and use of a situation analysis?
  5. Explain the relationships between target markets, positioning strategy, and the retailing mix.
  6. Discuss each of the following strategy alternatives: market penetration, market development, retail format development, and diversification.


Application Exercises

  1. Mission statements of a number of Canadian retailers are included in the text. Visit your library and find mission statements of other retail operations from their annual reports. Be prepared to discuss if they provide a clear sense of direction for the organization.
  2. Select at least three fast-food operations in your community. Indicate each firm's target market and positioning strategy and discuss how the elements of the retailing mix are combined in implementing the positioning strategy.
  3. Select at least four women's clothing stores in your community. Suggest how each store might be segmenting the market. Recommend how their segmentation approach could be improved.


Suggested Cases

8. Diego's
9. The Undercover Agency
10. Clean Windows Inc.
11. Donna Holtom
12. Omer DeSerres
13. Wing and a Prayer
14. West Coast Furniture


Notes

  1. Sources include: Christian Alland, "Loony Tunes," Canadian Business, August 1995, pp. 73-74; James Pollock, "Luckhurst Rising Fast on HMV's Charts," Marketing, February 5, 1996, p. 7; "A Musical Success," The Record, July 25, 1995, p. B7; and Mathew Ingram, "The Battle for the Music-Sales Market," Financial Times, November 4, 1991, pp. 1, 12.
  2. Mark's Work Wearhouse, Annual Report, 1995.
  3. Ibid.
  4. Marina Strauss, "Oshawa Group Pins Hope on Price Chopper," Globe & Mail, June 6, 1992, p. B7.
  5. Sears Canada, Annual Report, 1994.
  6. Loblaw Companies Limited, Annual Report, 1994.
  7. "Toys-"R"-Us Gears up for New Market," Financial Post, July 7, 1995, p. 12.
  8. Scott Anderson, "Wendy's Puts US$ 42.5M Bite on Tim Horton's," Financial Post, August 9, 1995, pp. 1,2.
  9. Miles Socha, "Triple the Pleasure," The Record, August 26, 1995, p. B4.
  10. Dalmys, Annual Report, 1994.
  11. Univa, Annual Report, 1994.
  12. Dalmys, Annual Report, 1995.
  13. Susanne Craig, "Box Retail Expansion Pushing up Land Prices," Financial Post, August 26, 1995, pp. 1-2.
  14. David A. Aaker and J. Gary Shansby, "Positioning Your Product," Business Horizons, May-June, 1982, pp. 56-62; George Lucas and Larry Gresham, "How to Position for Retailing Success," Business, April-June, 1989, pp. 3-12; and Martin R. Lautman, "The ABCs of Positioning," Marketing Research, Winter 1993, pp. 12-18.
  15. Russell Mitchell, "The Gap," Business Week, March 9, 1992, pp. 58-64 and Mario Shao and Laura Zinn, "Everybody's Falling into the Gap," Business Week, September 23, 1991, p. 36.

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