Retail Strategy Meaning, Steps in Developing Retail Strategy, Retail Value Chain

The distinction between “strategic” and “managerial” decision-making is commonly used to distinguish “two phases having different goals and based on different conceptual tools. Strategic planning concerns the choice of policies aiming at improving the competitive position of the firm, taking account of challenges and opportunities proposed by the competitive environment. On the other hand, managerial decision-making is focused on the implementation of specific targets.”

In retailing, the strategic plan is designed to set out the vision and provide guidance for retail decision-makers and provide an outline of how the product and service mix will optimize customer satisfaction. As part of the strategic planning process, it is customary for strategic planners to carry out a detailed environmental scan which seeks to identify trends and opportunities in the competitive environment, market environment, economic environment and statutory-political environment. The retail strategy is normally devised or reviewed every 3– 5 years by the chief executive officer.

The retailer also considers the overall strategic position and retail image

Customer analysis: Market segmentation, demographic, geographic and psychographic profile, values and attitudes, shopping habits, brand preferences, analysis of needs and wants, media habits.

Market analysis: Market size, stage of market, market competitiveness, market attractiveness, market trends.

Competition analysis: Availability of substitutes, competitor’s strengths and weaknesses, perceptual mapping, competitive trends

Review of product mix: Sales per square foot, stock-turnover rates, profitability per product line.

Internal analysis: Other capabilities e.g. human resource capability, technological capability, financial capability, ability to generate scale economies or economies of scope, trade relations, reputation, positioning, past performance.

Review of distribution channels: Lead-times between placing order and delivery, cost of distribution, cost efficiency of intermediaries.

Evaluation of the economics of the strategy: Cost-benefit analysis of planned activities.

Factors in Retail Strategy

• Incentive structure followed
• Pricing/discounting of the product
• Promotions planned
• Display attractiveness
• Placing of the product
• Incentive structure for the retailers
• Overall Consumer Behavior

Steps in Developing Retail Strategy

Objective Setting

A firm might pursue any number of objectives for any number of reasons. For example, an objective around sales could be expressed by total revenue, total units, or YOY (year over year) growth.

Yet these objectives, though all focused on sales, are not all the same. There are clear difference between those measures and what they might mean for an organization. Further, the measure is only part of the consideration. The stated objective might be made with an eye ultimately on profitability or market share or operational efficiency. Objective setting is not just stating a goal, ambition or target.

Situational Analysis

Situational analysis helps decision-makers in the firm understand what to do and how to do it. At its most basic level, it’s a multi-dimensional consideration of the context (the environment in which we’ll compete), organizational capabilities, customer, and competition. These factors describe the business environment, how our own abilities can deliver value relative to consumer needs, and the likely actions/reactions of our competitive set.

Customer Analysis

Customer analysis is a critical activity that ultimately helps focus marketing and sales resources more efficiently. It includes research into and analysis of consumer behavior, the results of which inform segmentation, targeting, and positioning. Thus, rather than marketing a product or actively trying to sell it across a wide swath of the total population, customer analysis helps break the population into smaller homogenous segments. From these, marketers select the sub-population of potential customers who are the most attractive and most accessible for targeting.

Tactical Planning

Tactical plans are the short-term actions the firm takes to affect the controllable elements of the strategy. For example, if a firm has the objective to “grow category sales by 4% by increasing merchandising and promotional activity,” a relevant tactic might be to plan robust promotional activity in key seasons. For example, this might mean that merchants engage their vendors in the soft drink and salty snacks categories to support promotions and allocate in-store space for merchandisers or store associates to build displays in advance of the New Year’s holiday or the Super Bowl. It could also mean that the corporate marketing team develops in-store circulars or television commercials to promote sale items around Thanksgiving, asking store managers to bring in shippers and high backstock levels to ensure sufficient inventory is kept on-hand. Each of these examples illustrate how a short-term tactical execution supports the broader objective of growing category sales by 4% by increasing merchandising and promotional activity.

Implementation and Control

Implementation and control refer to how the firm puts its strategic plan into place, including how it organizes cross-functionally and communicates priorities. Further, it also includes how the firm tracks progress toward its objectives, measuring performance so that adjustments can be made, if necessary. Certainly, a firm is responsible for managing its controllable variables. But robust monitoring and control systems help firms react and adjust to uncontrollable variable like changes to the business environment or specific competitive activity.

Retail Value Chain

The retail value chain defines a series of actions that enable businesses to sell their products to customers. Each action in the chain brings a portion of value to the entire process. The four steps in the retail value chain are creating the product, storing the inventory, distributing the goods and making the product available for consumers. Small businesses that participate in the retail value chain must be aware of how each of these processes operate.

The retail value chain is a series of activities that make it possible for businesses to sell goods to consumers. Each activity provides a small part of value to the overall process. Four steps are common in the retail value chain: manufacturer, warehouse, carrier, and supplier. All parts are necessary for retail stores to stock their shelves with consumer goods. Though each activity adds a small portion of cost to the products flowing into the retail store, the costs are typically less than the retail store going directly to each manufacturer for goods.

Manufacturers are the businesses that produce goods. They are commonly referred to as conversion agents. They take raw materials and labor as inputs, using these items to produce goods valued by customers. Few manufacturers actually have the ability to ship goods directly to retail venues. This requires the need for partners in the retail chain to take goods from the manufacturer to warehouses via carriers.

Warehouses store a variety of retail goods in their facilities from several manufacturers. They contract with a number of different producers to stock goods for easy distribution to retail stores. Larger retailers may have their own warehouses. This allows the retailers to locate distribution centers in strategic areas to deliver goods easily to retail stores.

Carriers represent trucking companies that move goods from one point to another. They deliver goods from manufacturers to warehouses and warehouses to retail stores. Their sole purpose in the retail value chain is to work as a service for each company. Retailers rarely have trucking divisions as part of their retail businesses. They contract this service out to save costs on insurance, fuel, wages, and maintenance.

Suppliers are the final step in the retail value chain. Retailers may own their own supply chains as part of their retail companies. These are the localized distribution centers that deliver goods straight to retail stores. Not all retail value chains have suppliers as part of their processes. Retailers can avoid these businesses by working directly with warehouses to deliver goods into their retail outlets.

Technology allows retailers to shorten the ordering process within the retail value chain. Electronic ordering ensures that retail stores order goods in a real-time format. This helps avoid stock outs and reduces the possibility of losing sales from consumers. Electronic systems also remove human flaws from the ordering process. Employees do not need to write paperwork or make phone calls to suppliers, warehouses, or manufacturers.