Very comprehensive summary of the Retail & Omnichannel Marketing course. All lessons have been extensively covered in this summary but also all articles are in great detail explained.
Week 1:
Required reading: Retail Disruptors (book) by J. B. Steenkamp & L. Sloot
Chapter 1: How hard discounters are disrupting the traditional retail model
1.1. The rise of hard discounters
Hard discounters emerged in post-war Europe. Their prices were rock-bottom, so they were successful
among low-income shoppers.
1.2. Hard discounter retailers
Hard discounters offer basic goods and daily necessities at the lowest possible prices while
maintaining high-quality standards. They reduce costs by displaying items on shipping pallets and in
boxes in which they arrive. Stores are minimally decorated and offers limited assortment which
enables them to provide high volumes of basic goods and helps to streamline operations.
Private labels feature prominently in the assortment of hard discounters which is the key differentiator
between hard discounters and brand discounters. Hard discounters have more expertise on how
products are produced, who can produce them and what trade-offs are needed.
How do hard discounters outcompete other retailers on price? They combine large revenues with a
small number of SKUs (stock keeping unit) resulting in high volume per SKU. This way, they can
really minimize costs without compromising on quality.
1.3. Hard discounters as brands
Why do brands matter?
1. Brands make decision making easier.
2. Brands are quality assurance.
Brands do not necessarily have to be manufacturer brands!
The discount banner name is becoming a brand in its own right.
Hard discounters make decision making easier:
If you recognize a brand and have some knowledge about it, you can easily access and use related
product knowledge already stored in your mind in your decision making. You do not need to engage in
additional thought or data processing to make a purchase decision. Shopping at hard discounters with a
few options (SKU’s) per category makes for easy decision-making.
Hard discounters provide simplicity which is often what we want.
Brand simplicity: brands that are easy to understand, transparent and honest, make consumers feel
valued, are innovative and fresh, and are useful.
Hard discounters as quality assurance:
A brand is the contract between company and consumers: if the consumer believes the brand breaches
the contract by underperforming or reducing quality, they will choose to contract another brand.
Consumers rely increasingly on hard discounter banner as a quality guarantee.
1.4. Why hard discounters become attractive for middle/high class consumers?
1. Stagnating incomes; middle incomes have stagnated, so these families start shopping at hard
discounters in order to keep living standards high.
2. Impact of recessions; hard discounters offer value merchandise at a time when customers are
watching their pennies. Hard discounter share increases faster during a recession, but that
extra jolt in a recession is not lost when good economic times return. Why not? Because
shoppers learn that the quality, assortment and shopping experience is better than expected so
a significant proportion stays loyal.
, 3. Smart shopping phenomenon; it is considered ‘smart’ shopping to purchase products of
comparable quality for a lower price. It is a trend in consumer behaviour.
1.5. Implications for retailers and brands
1. Rise of hard discounters costs conventional retailers directly via lost sales and indirectly via
downward pressure on prices.
2. Hard discounters have proven themselves able to move upmarket, while retaining most of
their efficiencies (e.g. Lidl stocking Coca-Cola besides its cheaper own-label items).
3. The shift from conventional retailers to hard discounters hurts manufacturer brands because
here the private labels account for 50 to 90 percent of total sales.
The rise of hard discounters poses a threat to brand manufacturers:
1. Any private-label item bought at a hard discounter is a sale lost to brand manufacturers.
2. The success of hard discounters compels other retailers to be more price competitive.
3. Brand manufacturers feel the pressure to reduce prices in order to retain market share.
1.6. The next frontier: the USA
In the USA, hard discounters are less of a factor in grocery retailing than in other countries.
However, this will likely change because of:
1. Consumer receptivity to hard discounters; stagnating incomes, and unevenly spread of income
growth across regions, is an engine for hard discounters.
2. Market opportunity; US lacks discount grocery chains, attractive for hard discounters.
3. Hard discounters’ plans; hard discounters take on aggressive expansion strategies.
,Chapter 2: Understanding the hard discounter business model
The four key success factors of hard discounters:
1. High volume per SKU
2. Irresistible value for money
3. High profitability
4. Rapid expansion of store network
These key success factors are interrelated and support each other, making it hard to imitate.
2.1. High volume per SKU
Hard discounters limit the number of SKUs offered which leads to high volumes per item.
Consumer desire for choice simplicity
Economic theory: the greater the number of choices, the higher chances that consumers find a close
match to their needs. Consumers derive utility from freedom of choice.
Consumer psychology: consumers experience choice overload leading to lower satisfaction and
likelihood of purchase and more regret. Large assortment can be cognitively overwhelming.
When is preference for small assortment most likely?
If the shopper is under time pressure.
If the shopper has the intention to buy rather than to browse.
If the shopper is focused on making a satisfactory decision.
If the shopper has limited brand knowledge.
Preference for small stores
Limited assortment goes hand in hand with small stores.
Small stores reinforce low shopping complexity: easy to navigate in and find products.
2.2. Irresistible value for money
Hard discounters mainly sell private labels so have high control over pricing and quality.
A stable, long-term relationship with suppliers generates substantial efficiencies; hard discounter
promises predictable and large volumes, prompt payment and not sudden renegotiations of terms.
Both allow them to deliver good-quality products for a low price.
, How private label suppliers experience a relation with hard discounters & conventional retailer:
Hard discounters Conventional retailer
Negotiations Demanding but adhere to Demanding and prone to additional
agreements. demands afterwards.
Relationship with Focus on longer-term collaboration Transactional and short-term, main
supplier to the mutual benefit of both parties. concern being to buy at lowest price.
Number of contacts Mostly one point of contact. Multiple points of contact.
Turnover of contacts Low: managers remain in place Frequent: loss of efficiency,
longer; they build knowledge and expertise, and continuity, but opens
understand products/markets. opportunities to educate more
receptive new contact persons.
Decision making Fast and transparent, aided by Long and opaque, due to internal
purchase manager having policies and different departments
responsibility for entire process and having contradictory objectives.
relationship with client.
Private-label quality 40% of suppliers think that private 0% of suppliers think that
label quality of hard discounters is conventional retailer’s private label
better than that of conventional quality is better than that of
retailers. discounters.
Quality vs. price Search for the optimal trade-off Quality is compromised in favour of
between quality and price. low price.
2.3. High profitability
Hard discounters’ gross margin is lower than conventional retailers. Their secret to make money is
cost control.
Store-related operating costs
Lower for hard discounters: lower staffing costs due to greater efficiency (e.g. restocking is fast
because of limited assortment and many items already come in shelf-ready packages), lower rent and
depreciation costs (e.g. stores are small and in secondary locations).
Overhead
Lower for hard discounters: absence of offices and lower costs of central staffing (e.g. relatively few
purchase managers needed for only small number of SKUs), money savings on logistics (e.g. limited
assortment requires less warehouse space, transportation focuses on efficiency), lower marketing
costs.
2.4. Store network expansion
Small store format allows for building stores in densely populated areas.
Stores have uniform layout saving costs and accelerating store expansion.
Investment costs
Short payback period on store investment: low investment per store, solid profitability and thus a
short payback period allow hard discounters to expand their store network rapidly.
Rapid shelf turnover means that hard discounters have a considerable amount of free working
capital that can be used to accelerate store expansion.
Lack of response by conventional retailers
Lack of response to the invasion of hard discounters until it is too late has helped hard discounters
immeasurable in country after county.
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