CHAPTER 1: AN

INTRODUCTION
TO RETAILING

Chapter Objectives

To define retailing, consider it from different

perspectives, demonstrate its impact, and note
its special characteristics
To introduce the concept of strategic planning
and apply it
To show why the retailing concept is the
foundation of a successful business, with an
emphasis on the total retail experience,
customer service, and relationship retailing
To indicate the focus and format of the text

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Retailing
Retailing encompasses the
business activities involved in
selling goods and services to
consumers for their personal,
family, or household use. It includes
every sale to the final consumer.

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Issues in Retailing

How can we best serve our customers while earning a fair

profit?
How can we stand out in a highly competitive environment
where consumers have so many choices?
High unemployment, low consumer confidence, high savings
rates have reduced consumer spending. At the same time
retail competition has increased through increased format
blurring (sales of cameras at office supply stores, carpeting
and major appliances at home improvement centers).
How can we grow our business while retaining a core of loyal
customers?

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The Philosophy
Retailers can best address
these questions by fully
understanding and applying
the basic principles of
retailing, as well as the
elements in a wellstructured, systematic, and
focused retail strategy.
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Figure 1-1: Subway

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An Ideal Candidate for a

Retailing Career

Must be a people person (more

important than technical knowledge).
Technical skills can be taught more
easily than people skills
Must be flexible
Should be decisive
Must have analytical skills
Must have stamina

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Table 1-1: The 10 Largest Retailers in

the United States (2011)
Rank

Company

Main Emphasis

Wal-Mart

Full-line discount stores, supercenters,

membership clubs

Kroger

Supermarkets, convenience stores, jewelry stores

Target

Full-line discount stores, supercenters

Walgreens

Drugstores

Home Depot

Home centers

Costco

Membership warehouse clubs

CVS Caremark Pharmacies

Lowes

Home centers

Best Buy

Electronics, major appliances

10

Sears Holdings Department store, discount (Kmart)

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Manufacturer

Wholesaler

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Retailer

Final
Consumer

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Figure 1-5: The Retailers Role

in the Sorting Process

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Multi-Channel Retailing

A retailer sells to consumers

through multiple retail formats:
Web sites
Physical stores

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Multi-Channel Retailing

Cross selling across channels (in-store product availability info on Web site)
Consistent pricing in all channels (credibility)
Can buy, and return product regardless on channel
Role of each channel
o Store try on, ease of return, fast availability (immediacy), compare offerings
o Web 24/7, product information, product reviews by customers,
personalization (tailored assortment based on past purchases), most current
pricing, closeout sales
o Catalog-permanency, true color

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Figure 1-6: Apple

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Distribution Types

Exclusive: suppliers make agreements with

one or few retailers, designating such retailers
as the only ones to carry certain brands or
products within a specified geographic area
Intensive: suppliers sell through as many
retailers as possible
Selective: suppliers sell through a moderate
number of retailers

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Exclusive vs Intensive Distribution

Exclusive Distribution Fate of retailer is tied

to manufacturer success, retailer has no freerider concerns, retailer has less price
competition, manufacturer is better assured of
high levels of customer support
Intensive Distribution- Manufacturer is better
assured of maximizing sales (especially for
convenience goods), retailers face strong
competition for price and service, intratype
competition

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Figure 1-7: Comparing

Distribution Types

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Small
Average
Sale

Impulse
Purchase
Retailers
Strategy

Popularity
of
Stores
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Retail Strategy

An overall plan for guiding a retail

firm
Influences the firms business
activities
Influences firms response to
market forces

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Six Steps in Strategic Planning

1. Define the type of business
(corporate mission)
2. Set long-run and short-run objectives
3. Determine the customer market
4. Devise an overall, long-run plan
5. Implement an integrated strategy
6. Evaluate and correct (fine-tune)

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Figure 1-9: Expect More. Pay

Less at Target

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Aspects of Targets Strategy

Growth objectives
Appeal to a prime
market
Distinctive image
Focus
Customer service
Multiple points of
contact

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Employee
relations
Innovation
Commitment to
technology
Community
involvement
Monitoring
performance

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Customer Orientation
Coordinated Effort

Retailing
Concept

Retail
Strategy

Value-driven
Goal Orientation

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Figure 1-11: The Build-A-Bear Experience:

Never Boring

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Customer Service

Activities undertaken by a retailer in

conjunction with the basic goods
and services it sells. This includes:
Store hours
Parking
Shopper-friendliness
Credit acceptance
Salespeople

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Figure 1-12:
A Customer Respect Checklist
Do we trust our customers?
Do we stand behind what we sell?
Is keeping commitments to customers

important to our company?

Do we value customer time?
Do we communicate with customers
respectfully?
Do we treat all customers with respect?
Do we thank customers for their business?
Do we respect employees?
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Relationship Retailing

Retailers seek to establish and maintain long-term

bonds with customers, rather than act as if each
sales transaction is a completely new encounter

Concentrate on the total retail experience

Monitor satisfaction
Stay in touch with customers

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Effective Relationship Retailing

Use a win-win approach

It is easier to keep existing customers happy than to gain

new ones (present value of current customers income
stream cost of keeping existing customers content
versus cost of replacing them with new customer

Develop a customer database (loyalty programs)

Ongoing customer contact is improved with information

on peoples attributes and shopping behaviors

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Types of Loyalty Programs

Additional discounts at register

Not a real loyalty program
1 free with every n items purchased
Easily copied, no customer database
Rebates based on cumulative purchases
Customer maintains records
Can develop heavy half programs like Hilton
Targeted offerings and mailing based on purchase
history
Tesco example Market research staff know more
about my customers than board chairperson

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Relationship Management
Among Retailers and Suppliers

Disagreements may occur in the following areas (channel conflict):

control over channel (private label)
profit allocation (resale price control)
number of competing retailers (exclusive, selective or intensive
distribution)
product displays
promotional support (cooperative advertising funds and
restrictions)
payment terms (payment on time)
operating flexibility
gray market sales
markdown monies, chargebacks by dominant retailers

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Approaches to the
Study of Retailing

Institutional
Functional

Strategic

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Parts of Retail Management:

A Strategic Approach

Building relationships and strategic planning

Retailing institutions
Consumer behavior and information gathering
Elements of retailing strategy
Integrating, analyzing, and improving retail strategy

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