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Retailing is around us everywhere. Whenever you buy something, it is usually from a retail outlet. Everywhere that you go, there is a retail outlet begging you to buy a new car or a jumper or a can of baked beans for only 39c. The world is also full of huge shopping centres and malls packed with retail outlets trying to make you purchase from their particular store. The competition in the retail industry is tremendous and these outlets all have to use certain techniques to try and make you buy from them. What are these techniques? Why do some retail outlets go bust and others flourish into multi-national organizations positioned all around the world? It all has to do with their retail strategy; which includes:
- Retail branding and positioning within the market
- Their merchandise range
- Their product selection and pricing
- Their in-store layout
- How well their stores are merchandised
Customers are the people that make retail outlets money. Marketing campaigns are directed at the customers in the hope that they can be enticed into the stores so that they will spend money. New customers and current customers are given offers everyday of the week. However studies have shown that current customers generate more revenue than new customers.
Existing customers tend to purchase more than new customers and studies show that costs to retain customers are 80% lower than costs to generate new customers. There are also many benefits associated with existing customers. An increase in existing customer satisfaction leads to:
- Increased positive word of mouth
- Less reason to offer costly loss-leaders to generate traffic
- Existing customers usually spend more than new customers
- The profits earned from each individual customer grow the longer they remain
loyal to the firm. (McLaughlin et al 1998)
The retail brand is one thing that customers will always look at. What makes up the retail brand? Everything in the store that makes that particular store different from every other store makes up the retail brand. The lighting, the atmosphere, the music, the colour and the layout all go into making up the brand. The perception that a customer has of the stores image is the retail brand. In today’s competitive market where many retailers have a similar product range, the retail brand can be the key to customers.
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Visual merchandising is a part of the retail brand. This is what a customer sees when they walk into a store. Generally a store with an expensive price on their products will be targeting the upper market, where as a discount store will target the bargain hunter. This image must be portrayed right through to the layout of the store. A powerful store image can create a competitive advantage difficult for other retailers to duplicate (Barr et al 1997). One wonderful example of visual merchandising is the shopping centre or the mall.
Shopping centres are massive fantasylands where time does not exist and people spend lots and lots of money. This is at least what designers of shopping centres are aiming at. Shopping centres contain hundreds of retailers all with one common goal; to make the customer part with their hand earned dollars. Shopping centres are designed to make people spend. Clocks are rare in a shopping centre so that you are not constantly reminded of the time and if you get hungry, there is a food court available to keep you there longer. When you left home before coming to the shopping centre, all the doors were locked at home so as you don’t get robbed. However when you enter this strange fantasyland, there are no doors to increase the welcoming feeling. The shortest route in a shopping centre usually takes you past many other shops, yet it isn’t very short at all, and the layout is designed so that you have a very small line of sight. You can never see from one end of the shopping centre to the other. This is intentional so that you are not daunted by the size of the shopping centre. Another way that they keep you longer is that escalators or elevators never let you exit them close to an exit to the “real world”. And while you are in this wonderland, you are bombarded with signs promising 50% off.
The once a year clearance sale Everything Slashed 50% of all clothes Have you ever heard this before? These phrases are a common occurrence in the retail industry. The sale is one retailing tool that is used quite commonly to get customers in the store. Items are offered at a reduced price for the consumer so that they can get a bargain. The problem with this is that generally speaking, the sale price is not a lot less than the normal price. Some tricks that retailer’s use is to rotate the items on sale. They offer a product at a high retail price and then offer a similar item of another brand at a low sale price. They also rotate sale items. One week the 34cm Panasonic TV is on special for $399 while the 34cm JVC TV is at the normal retail price of $499. The following week, the 34cm JVC TV is on sale for $399 while the Panasonic 34cm TV has gone up to its normal price of $499. (Science press 1993) By doing this, the price of the sale item seems a great deal cheaper than the normal price therefore large quantities of the sale item are sold. Approximately 75% of sales come from selling items at a “sale”.
By selling an item on sale, this also helps with the sale of accessories. If the customer has saved $100 on a TV, they are more likely to spend that $100 on accessories. Another way that shoppers get caught in the trap is by thinking that the more you spend, the more you save. Many retailers get people caught up in this trap. Another trick is offering loss leaders.
Loss leaders are items that are advertised below cost. These items are offered to get customers in the door. A retailer will offer an item at a ridiculously loss price hoping to entice the customer into their store. Once inside, the customer is trapped. The retailer’s plan has worked. You have entered their store and now you must look at all the other items. Usually the loss leader is in inferior product with very few attributes. “However, we also have this product over here that is very similar, but it has a few more of the functions that you are after, it does cost a little more however…”
One problem that retailers face with offering sales is that it can affect their brand image. Sales can also annoy and push away loyal customers. The worst scenario for a retailer is to have a loyal customer purchase a product that is not on sale, only to find that the following week, it has been reduced drastically. This can deter customers from buying products for the full price and waiting for the sale price. Another problem that is associated with the store image is that if you are an upmarket retailer, by offering too many sales, this can bring the image of your firm down. E.g. David Jones.
There are many factors that go into the retail brand:
- Retail personality
- Customers perceptions
- Product range
How does the store feel when you walk in? When a consumer walks into a store, immediately they are bombarded with imagery. All the imagery in a store is designed to show the customer what the firm has to offer. What a person sees when they walk into a store, is what they will later associate with the store. A discount store usually has cement floors and dull looking shelves. They look cheap so that the store feels cheap. The discount store could quite easily afford to carpet the floors or cover the air-conditioning ducts or make the shelves look nicer, however they choose not to. They want the custom to see that they cut corners everywhere to give the customer the cheapest possible price (Science Press 1993).
The perception of the store can also go the other way. Give the customer a place where they are exposed to gentle music and they feel that the merchant is in tune with their lifestyles, their needs, the way they want to look or the way they would like to furnish their homes and you can charge a higher price (Barr et al 1997). The classier a place looks, the more money a person is willing to spend. Beds are set up like bedroom scenes with all the accessories looking like it has come straight out of a Vouge magazine. These layouts put customers in a buying mood and they are recognized as part of the retail personality.
What a consumer thinks about the retail store is an important factor. How a consumer feels when they walk into a store and what they think when they think about the store are all part of the customers perception. This area is an important part of the retail brand. Four areas that can give the customer a good perception of the retail brand are:
1. The products themselves
2. The retail formula
3. The actual consumer
4. The management of the retail outlet. (Warnaby 1994)
By having a unique product range, a consumer’s perception is changed. How the retail outlet is set up and how it is managed all affect the consumers perception of the retail brand. Targeting your products at the right consumers is also a strategic part of retailing.
Music is also an important factor in retailing. In-store experiments have shown consumers spend significantly less time in stores when music is loud compared to when it is soft. Music must fit the situation in which it is to be used and the wrong music can produce effects that totally negate the objective of the exercise. (Aylott 1999)
A retail store has a positioning within the market. Where it fits makes up the retail brand. The position of corporations such as Wall-Mart is what has made them successful. Wall-Mart is a category killer with a massive range of products offering low prices, often lower than wholesale, that is suitable for everyone (Peterson et al 2000). The chosen target market usually defines what your retail position will be. If you are targeting high-class people, your retail brand and position within the market should show this.
Product range is one of the most important areas in retail. The type of products that a retailer has along with the breadth and depth of their product range are important factors of the retail brand. The breadth of the product range takes into account the number of different product lines a retailer has. The depth of the product range accounts for the different styles, shapes, colours, etc that each individual line has. The product range is a very important part of the retail brand.
The layout of this product range also is an important factor in retailing. Products can be arranged according to brand, price, use/application or feature and benefits of the product (Varley 2001). How the products are arranged is entirely up to the retailer. Some stores cluster the aisles with stock and displays to give the perception of large amounts of stock. Other retailers choose to have few displays in the customer’s way so as to make the shopping experience less stressful.
There are a number of ways for a retailer to price their products:
- Uniform mark-up
- Demand led pricing
- Premium pricing
- High-low pricing
- Everyday low pricing
- Discounting (Varley 2001)
Depending on the retail brand and position depends on which method that you use.
Uniform Mark-up is where all products are priced with the same gross profit margin. This may be 10%; in this case, all items will be increased by 10%. This method is rarely used because generally retailers will set gross profit margin according to Sales.
Demand Led pricing
Demand led pricing allows the retailer to change the gross profit margin according to demand. Items that have a high turnover will have a lower mark-up than items with a lower turnover.
Premium pricing is where the retailer introduces a large gross profit margin and sells everything at a relatively expensive price. This method is only useful if the store image suites the price, i.e. if the store looks classy and prestigious. For this pricing method to work, many other value adding methods must be used.
When stock arrives, its gross profit margin is set relatively high. As time goes by, the gross profit margin is lowered and the stock is cleared out. This is especially useful for fashion items where the clothes are only good for one season.
Every Day Low Pricing
There is a low gross profit margin set on all the products. All the items are priced as close to the wholesale price as possible. This method relies on a high turnover and is generally only used in supermarkets. For this method to work, generally other value adding areas are forfeited, i.e. customer service.
This is where products are offered at a lower than average price. The gross profit margin is low and the items offered are generally of a poorer quality. This method is often used for factory seconds or end of line clearances. For this method to work, it must coincide with the retail brand, much like the Premium pricing method only at the opposite end of the scale.
There are many areas to investigate when a retail outlet is organized. All of these areas must be investigated and for optimum sales a right mix of each must be used. When setting up a retail store, research must be done so that the retail brand matches the store image, pricing strategy and feeling and the retail store must adhere to the customers wants and needs. For a retailer to succeed, the store must be perfect because if their store is not perfect, another one will be and that store will succeed.
Aylott R., Mitchell V. (1999) “An exploratory study of grocery shopping stressors” British Food Journal Vol 101 (9) p683-700
Barr V., Field K., (1997) “Stores: Retail Display and Design” South China Printing co. Hong Kong.
McLaughlin E.W., Sirohi N., Wittink D.R. (1998) “A model of consumer perceptions and store loyalty intentions for a supermarket retailer” Journal of Retailing Vol 74 (4) pp223-245
Peterson M., McGee J. E. (2000) “Survivors of "W-day": an assessment of the impact of Wal-Mart's invasion of small town retailing communities” International Journal of Retail & Distribution Management Vol 28 (4) p170-180.
Science Press (1993) Secrets of selling [Video tape]
Varley R. (2001) “Retail Product Management” Routledge London.
Warnaby G. (1994) “Laura Ashley – An international retail brand” Management Decisions Vol 32 (3) p 42-48