Basic Retail Concepts Made Easy

Retailing is a crucial function that marketers perform in order to deliver the promised offer to their customers. It is an integral part of the value chain in an organization and provides ‘last mile connectivity’ between an organization and its customers. In most cases, it is performed by forms called retailers. These entities make the suitable product available to the customers through packaging, stocking, and other distribution outputs described as ‘decentralization’, ‘waiting time’, ‘lot size’ and ‘variety’. Retailing is an integral function of marketing that creates utilities in terms of economic, social, emotional, conditional, and epistemic values sought by customers.

With more and more customers making purchase decisions at the store, retailing has gone beyond being a part of distribution function and more into buying process. Retailing has been linked to the economic development of a society. It represents a consumption oriented economy.

Shopping has been regarded as a chore as well as an enjoyable experience. Some like me have used terms like ‘shopping therapy’ to signify a relief from monotony. A customer seeks different values from shopping, based on the motive of purchase. Retailing provides several utilities to customers which have been described as “distribution service outputs” by Louis P. Bucklin as-

1. Better product availability – more depth and width of products

2. Reduced waiting time

3. Desired lot size

4. Variety – enhanced merchandise mix available to customers

So far the discussion indicates that manufactures are not the only agencies that add value to the product through production and communication. Retailers convert the merchandise received from manufacturers into desired forms and also get involved in the communication function by providing information about availability and delivery of merchandise. In addition, retailers also communicate through store ambience and point of purchase communication.

Customer choice is a function of multiple values, including values that extend beyond economic utilities.

1. Functional

2. Emotional – psychological needs

3. Social – need for belongingness

4. Epistemic – need for novelty and ego satisfaction

5. Conditional – need arising out of a particular condition

Several theories have been posited to explain how retailing develops.

• Phenonmenon of Dual Adoption – When a product is launched, customers adopt it symbolically, the actual adoption happens only when the retailers put forth the product in the right perspective.

• Wheel of retailing - Retail marketing process whereby original low-price discounters upgrade their services and gradually increase prices. As they evolve into full-line department stores, a competitive opportunity develops for new low-price discounters to develop, and the process continues with the next generation.

• Retail Accordion Theory - A theory of retail institutional change that suggests that retail institutions go from outlets with wide assortments to specialized narrow line store merchants and then back again to the more general wide assortment institution. It is also referred to as the general-specific-general theory.

• Melting Pot Theory – Also called “Dialectic Process”. A new value proposition by one retailer gives rise to two new retailers with the same proposition. Retail firms adapt mutually to the emerging competition and tend to adopt the plans and strategies of the opposition.

• Polarization Theory – this theory suggests that, in a longer term, the industry consists of mostly large and small size retailers. The medium size becomes unviable. This is called polarization. Large stores offer one stop shopping. The smaller ones tend to offer limited range of products, but add value to their offers with other services. It is found that firms tend to be more profitable when they are either small in size or big. The medium ones fall into the “Bermuda Triangle”

• Bermuda Triangle Effect – This refers to the phenomenon where the performance of mid sized firms suffers if big mid sized firms continue to act small or small mid size firms set up costly big firm practices. However, organizations do not have a transition at the optimal point. Some move from informal to formal too early, others wait too long before making the transition. The result is higher costs and lower profitability. This leads to the Bermuda Triangle of management – many firms enter it, not all get out of it at the other end.

A retailer uses three main resources – inventory, real estate and people – to deliver value to its customers and to remain competitive. A retailer should access its performance at the corporate level, store level, and also at the department or category level. It is also advised that it carries out a comparison of its performance with its competitors to find out whether it has been efficient in its operations and whether the strategies have been effective in providing the desired result.

Some interesting sites:www.indiaretailforum.in

www.indiaretailing.com

www.retailindustry.com

Reference: Web sites: Wikipedia, answers.com, retailingconcepts.com etcBooks: Managing Retail – Oxford University Press