RETAIL STRATEGY & MARKETING
Retail Strategy & Marketing
University of Amsterdam – Business Lab Elective
CONTENT OF SUMMARY:
Week 1: Introduction & Retail trends
- Ch. 1: Retail Marketing
- Ch. 2: The retailing of goods in the Netherlands: classification criteria
- Ch. 3: Dynamics in retail
- Ch. 9: Exploring the environment
Week 2: Retail Models & SWOT
- Ch. 4: Retail marketing strategy in broader perspective
- Ch. 5: A closer look at the strategic process in the retail sector
- Ch. 6: Market segmentation and the selection of target groups
- Ch. 11: The concept of sales in the commercial retail function
- Ch. 12: Sales from the perspective of the shop
- Ch. 13: Sales from the point of view of product groups
Week 3: Positioning in Retail
- Ch. 7: Branding and positioning
- Ch. 10: Competitor analysis
- Ch. 14: Profitability
Week 4: Category Management
- Article 1: How does assortment affect grocery store choice?
(Briesch, Chintagunta & Fox, 2008)
- Article 2: The influence of assortment structure on perceived variety and
consumption qualities.
(Kahn & Wansink, 2004)
- Article 3: When choice is demotivating.
(Iyengar & Lepper, 2000)
Week 5: Format & Channel Strategy
- Ch. 8: Channel and format strategy, and the impact on location policy.
, RETAIL STRATEGY & MARKETING
Chapter 1: Retail marketing
1.1 The concept of retailing
Retail
All activities that companies and organisations engage in that focus on the direct delivery of goods, services,
and information through all available channels to consumers (end users), where the goods and services are
paid for out of the net income of consumers.
Retail spending
Can be roughly divided into:
- Spending on consumer services (e.g., banking, insurance, medica services and holidays).
- Spending on goods by consumers. Goods consumed on the spot also included (hospitality).
1.2 Goods-retailing and retail
Goods-retailing
That part of total economic activity that is engaged in the sale of goods directly to consumers. Retail is that part
of the economy that is engaged in the direct supply of goods, services, and information to consumers.
The old function of retail was to redistribute the flow of goods from the producer to the consumer over time,
by place and quantity. This became necessary because the industrial revolution gave rise to mass production.
As a result, production and consumption no longer overlapped:
- Redistribution in time: bridging the time between the completion of production at the producer’s and
the moment the consumer makes the purchase, where the delay is often caused by discrepancies
between demand and production (e.g., seasonal fluctuations).
- Redistribution by place: Geographical-distribution: the sites of production and consumption are rarely
one and the same.
- Redistribution by quantity: Resolving the differences between ‘output quantity’ at the producer’s and
the ‘input quantity’ at the purchase by the consumer. Producers make large quantities at once (cost:
economies of scale), consumers demand only a few items.
1.3 The changing function of retail
Old concept: retail was considered as a goods-producing process:
- Power in the value chain lay with the producers
- Good-retailing sector consisted of product specialty shops
Change in recent decades: power has shifted from the suppliers, to retailers, and ultimately to the consumer: a
transition from a seller’s market to a buyer’s market.
- Created an oversupply of offerings to consumers
- Not the producer that decides what is offered when and through which channel, but the consumer
decides what is purchased when and through which channel.
The function of retail no longer consists primarily of redistributing a production stream within the value chain,
but rather of meeting consumer demand.
1.4 Consequences of the change in function in the retail sector
Old vs. new value chain
- Old value chain: Retail trade could be found largely along just one chain, that of the product line in
which it specialised.
- New value chain: Consumer needs have tended increasingly to be the starting point. It’s the retailer’s
task to combine the products in the different producer value chains in such a way as to create a
demand related productrange (a range geared to broad consumer demand).
, RETAIL STRATEGY & MARKETING
Hybrid forms: Producers integrating forward and retailers taking over production (backward integration)
- Forward integration: Involves manufacturers engaging in retail activities themselves. Moving down
the value chain.
o For example: Unilever opening Magnum stores
- Backward integration: The retailer takes over functions from its suppliers: it acquires the wholesaler
and sometimes also the manufacturer by taking over their functions. Moving up the value chain.
o It often involves having control over the production process, rather than having production
facilities of one’s own.
From value chain to value web
The shift in power from producer, via retailer, to consumer has
more consequences for the value chain. The supply chain must
be replaced by the value web. This is a network of connections
in which the consumer has emerged as the central demand
side. This leads to new ways of distribution, but also to new
business models for the different players in the value web.
1.5 The place of retail in economic theory
The emergence of retail as a separate segment in the value chain can be traced back to the transaction-cost
theory in economics (Williamson, 1975).
Transaction-cost theory
The change in retail from a goods-producing to a demand-satisfying process can be explained by the
transaction-cost theory: Because of the shift in power from the producer to the consumer, it is no longer a
matter of minimising costs within the value chain from the producer’s point of view, but of minimising the
consumer’s problems in finding or looking for a product and the transaction costs associated with this.
Consumer transaction costs consists of two parts:
- Costs: associated with buying items (searching, finding, buying and transporting).
- Revenue: Proceeds (pleasure than can come from shopping and buying products or services).
From a transaction-cost perspective → The consumer will choose the supplier where the balance of costs and
revenues is most favourable.
- Retail comes into existences if: The transaction costs involved in ‘the producer supplying the consumer
directly’ are higher than ‘the sum of the costs involved in the producer’s supplying the retailers on the
one hand, and the retailer supplying the consumer on the other hand’.
Retail has a right to exist if:
T1 > T2 + T3
T1 = Costs incurred in direct distribution by the producer to the consumer
T2 = Costs associated with deliveries from the producer to the retailer
T3 = Costs associated with delivery by the retailer to the consumer
, RETAIL STRATEGY & MARKETING
Transaction-cost matrix (Sarkar, Butler & Steinfield, 1995)
- Threatened bricks-and-mortar retail (upper right)
o This is the situation that bricks-and-mortar retail
should be most concerned about. In time, these
shops will see their revenue decline in favour of the
market share of e-retailers, but also within their
composition of their own sales.
o The extent to which information is embedded in
product or service plays an important role!
▪ For example: Physical distribution of music
or video plays has largely disappeared
▪ But also: cars, kitchens or furniture are at
danger (most of the buying process also
consists of the processing of information).
- Empowering direct marketers (upper left)
o Poses a less direct threat to retail. After all, this revenue was not in the retail sector anyway.
However, the relative position of direct marketers and the technical possibilities open to
them are becoming stronger as a result of the Internet. This will allow them to increase their
market share at the expense of bricks-and-mortar retail (as information intermediaries)
- Domain of pure players: clicks and orders (lower left)
o New opportunities arise for retail-distribution systems that offer goods over the Internet or
try to match up supply and demand. For example, Amazon and Bol.com
- Multi-channel providers: clicks and bricks (lower right)
o Hybrid companies that start an internet sales channel from bricks-and-mortar retail, or pure
players that build physical shops based on an existing internet channel, or even
manufacturers that will span the entire spectrum. For example, Apple.
Analysis of developments based on the transaction-cost matrix
- Upper right (threatened retail): Will in certain sectors lose market share to internet retailers.
o Continuing what you’re doing → Experience further pressure on revenue
o Adopting → Make significant investments, which puts pressure on profitability
- Lower left (pure players): Do not have an easy time either. Two reasons:
o Marketing costs: Not visible on the streets, so high marketing costs, and also: winner-takes-all
principle applies even more online.
o Fulfilment costs: costs for the entire logistical transaction (not only deliver, also return costs).
- The multichannel providers seem to be in a better position!
1.6 Marketing and retail marketing
Consumer marketing
All aspects of marketing that are aimed at satisfying the needs of the end user. Two distinguishes:
- Trade marketing: focus on sales by producers to wholesalers and retailers in the merchandise sector.
- Retail marketing: Focuses on sales by retailers to end users.
Retail Marketing Trade Marketing
Value Chain Horizontal Vertical
Business process Demand-driven Product-driven
Product Range Broad/very broad Narrow
Choice of location Maximisation of turnover Minimisation of costs
Pricing Warehousing calculation Cost-price calculation
Promotion Focused on shops Focused on items
Marketing mix 8 Ps 4 Ps
Purchasing Primary activities Support function
Time horizon Short Long
Marketing function Purchasing Sales
Criterion for profitability Return on sales Return on investment
