1. shopping
2. retail

CHAPTER 2: RETAIL EVOLUTION AND STRATEGIES
CHAPTER SUMMARY
In the beginning most retail businesses were family businesses in downtown business districts,
then chains of stores developed. As retailing began to evolve, retailers developed mission
statements and began to make decisions based upon strategies related to pricing, customer
service, and assortment planning. The choices impacted the implementation of category
management. The two prevalent pricing structures in grocery retailing were everyday low
pricing and high-low pricing. The two prevalent service strategies were based on the
productivity loop and the experiential loop.
Technology changed retailing in a number of ways including supply chain management and
space management. Supply chain management is the efficient, effective integration of suppliers,
manufacturers, warehouses, stores, and transportation intermediaries into a seamless value chain
with the ultimate goal of lowering costs. Space management is the strategy that focuses on the
optimization of space to increase sales. This strategy ultimately evolved into category
management with the advent of technological applications. Categories of products were
managed based upon data from POS systems, syndicated data and customer behavior research.
Categories were operated as if it is a separate business units within a store. Category managers
were responsible for advertising, promotions, pricing, and merchandising of the category.
Financial performance was tracked at the category level, rather than the department level. Key
suppliers became strategic business partners and were involved in the planning process.
Chapter Objectives:
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Realize the importance of understanding the customers’ needs in light of a changing retail
environment.
Discuss the role of retail strategy in the choices retailers make to achieve their goals.
Compare the pricing strategies of everyday low pricing and high–low pricing.
Contrast the service strategies of the productivity loop and the experiential loop.
Give examples of the changes and evolution of assortment planning.
Explain the relationship between technology and retailing.
Summarize the evolution of space management to category management in the consumer
packaged goods industry.
Chapter Outline:
a.
b.
c.
d.
e.
f.
g.
h.
Introduction
Retail Strategy
Pricing Strategy
Service Strategy
Assortment Strategy
Technology and Retailing
Implementation of Category Management in Consumer Packaged Goods
Review
Discussion Questions
1.
When family businesses began to evolve into chains, what were the major challenges
they faced?
Retailers, particularly grocery stores, faced a number of challenges, including an
inherent low profit margin, high levels of competition, and an assortment that
included many perishable products. As retailers began to expand their territories,
they started competing on a number of criteria including price and assortment.
Globalization also impacted retailers throughout the world.
2.
Differentiate the everyday low pricing and high–low pricing strategies.
Retailers choosing everyday low pricing seek to price a product for the long term,
negotiating with vendors for the lowest possible price for a long period of time.
The high–low retailer competes on service and assortment, not price. They rely on
sales and promotions to entice the buyer. Retailers choosing high–low pricing
anticipate large fluctuations in the retail and wholesale price. The cycle begins
when the manufacturer offers high–low pricing by discounting a given product for
a limited period of time to the retailer.
3.
Explain the concept of forward buying.
The retailer buys in large quantities and warehouses the products until they are
needed as stock in stores.
4.
Contrast the productivity loop and the experiential loop.
The productivity loop offers lower prices, but lower levels of service, and limits
the assortment. The experiential loop offers higher levels of service, a
comprehensive assortment, and higher prices.
5.
Define customer relationship management.
A process whereby retailers buy the right products to meet their customers by
anticipating customers’ behavior based on the customer’s previous experience
and the retailer’s knowledge of the customer. In the past retailers practices
customer relationship management through a personal relationship, today
retailers use customer database.
6.
How did assortment planning evolve?
Retailers began to classify stores based on the customer demographic and
lifestyle characteristics. Assortments are planned to micro market to the customer
type. The assortment is the number of different items in a merchandise category.
Retailers must understand the link between the number of items offered in a
category and assortment from the customer’s perspective. The breadth of an
assortment is the number of categories and the depth is the number of products in
each of the categories.
7.
Define supply chain management.
The efficient, effective integration of suppliers, manufacturers, warehouses,
stores, and transportation intermediaries into a seamless value chain so that
merchandise is produced and distributed in the right quantities, to the right
locations, and at the right time, to minimize system-wide costs while satisfying the
service levels required by customers.
8.
Define and explain CPFR.
CPFR is the integrator that enables all ECR improvement concepts, including
category management. A major change in the way retailers think is moving from
the traditional marketing channel to supply chain management. The traditional
marketing channel begins with the manufacturer; supply chain management
begins with the customers purchasing the goods and follows the orders upstream.
CPFR has many components, including category management, replenishment
planning, logistics and distribution, and store execution. The basics of CPFR are
a continuous cycle of four stages: (1) strategy and planning, (2) demand and
supply management, (3) execution, and (4) analysis.
9.
How did space management evolve from a manual task to category management?
The origin of space management was a visual depiction of a planogram. This
manual process enables retailers to plan the assortment for each specific store,
and prepare a visual depiction or planogram (POG) of the planned merchandise
display based on the needs of the specific customer base. Space managers
managed the space on a shelf to optimize the space and increase sales. The
process was also very slow, but extremely important in the successful execution of
the retail process. Space managers used a magnet board, with hand-drawn lines
to represent shelves and magnets to represent products in a planogram. The
space manager placed magnets on the board in the correct order for the store,
with the correct number of facings beside the correct competing products. A
facing is the number of products on a shelf facing the customer. If a mistake was
made on any row, the space manager began the row again by rearranging all of
the magnets on the row. When finished, the board was photographed and the
process began again for another store or type of merchandise. This process was
very time consuming, and also had to include time to process the photographic
film and mail the planograms to the store.