18.3 Retailing Strategy Decisions
4 min read•june 25, 2024
Retailers use various pricing strategies to gain a competitive edge and boost profitability. From to , each approach targets different customer segments and impacts sales volume and margins differently. The right strategy can attract customers, create value perception, and drive business success.
Location and communication are crucial for retail success. Factors like , , and influence store placement. Effective communication through , , and helps retain customers. Integrating online and offline channels creates a seamless shopping experience, fostering customer satisfaction and loyalty.
Retail Pricing Strategies
Pricing strategies for competitive advantage
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- Everyday low pricing (EDLP) offers consistently low prices on most items, attracting price-sensitive customers and reducing the need for frequent promotions (Walmart, Costco)
- sets regular prices higher than EDLP retailers but offers frequent promotions and discounts, creating a sense of urgency and value for customers (Macy's, Kohl's)
- involves monitoring and matching competitors' prices to maintain price parity in the market and prevent the loss of customers to rivals
- Prestige pricing sets premium prices for high-end, exclusive products, targeting less price-sensitive customers and enhancing the brand image and perceived value (Tiffany & Co., Louis Vuitton)
- Impact on profitability varies by strategy:
- EDLP results in lower margins but higher sales volume
- High-low pricing leads to higher margins but lower sales volume
- Competitive pricing margins depend on competitors' prices
- Prestige pricing generates high margins but lower sales volume
Retail Location and Communication Strategies
Location factors in retail success
- Foot traffic, the number of potential customers passing by the store, is higher in prime locations like malls, city centers, and busy streets, increasing the likelihood of impulse purchases
- Accessibility factors include ease of reaching the store, proximity to public transportation, parking availability, and convenient store hours
- Demographics involve matching the target customer profile with the location, considering income level, age, and lifestyle of nearby residents
- Competition considerations include the presence of competing retailers in the area, clustering near competitors to attract more customers, and avoiding oversaturation and intense price competition
- and costs, such as rent, utilities, and other location-related expenses, require balancing prime locations with affordability
- , including lighting, music, layout, and decor, influences customer perception and behavior
Communication strategies for customer retention
- Advertising through traditional media (TV, radio, print) and digital media (social media, email, mobile apps) communicates promotions, new products, and brand image
- In-store experiences, including store layout, displays, signage, product demonstrations, sampling, and engaging and knowledgeable sales staff, enhance customer engagement
- Loyalty programs reward frequent customers with points, discounts, or perks, encouraging repeat purchases, customer retention, and gathering data for personalized marketing
- provides a seamless customer experience across online and offline channels, such as click-and-collect, in-store returns for online purchases, and consistent messaging and promotions
- Customer service, including responsive and helpful support, efficient handling of complaints and returns, and fostering positive customer relationships, is crucial for customer satisfaction and loyalty
Merchandise Selection and Management
Merchandise selection and brand image
- involves breadth (number of different product categories) and depth (variety within each category), aligning with target customer preferences
- includes offering a mix of national brands, private labels (retailer-owned, often lower-priced), and exclusive brands (only available at a specific retailer)
- ensures adequate stock levels to meet demand, avoids stockouts and lost sales, and minimizes excess inventory and markdowns
- arranges products to attract customers and encourage purchases, creates appealing displays and store layouts, and highlights promotions and high-margin products
- considerations include introducing new products to stay relevant, phasing out declining products to optimize assortment, and adapting to changing customer preferences and trends
- Vendor relationships involve collaborating with suppliers for favorable terms and exclusives, ensuring timely and accurate product delivery, and maintaining product quality and consistency
Retail Strategy and Operations
Strategic planning and execution
- involves determining the unique value proposition and competitive advantage to differentiate from competitors
- helps identify and target specific groups of customers with tailored products and marketing strategies
- (e.g., department stores, specialty stores, discount stores) are chosen based on target market and product offerings
- optimizes the flow of goods from suppliers to customers, reducing costs and improving efficiency
- , such as point-of-sale systems and inventory management software, enhances operational efficiency and customer experience
- uses data to inform decision-making, optimize pricing, and improve customer targeting and personalization
Key Terms to Review (26)
Accessibility: Accessibility refers to the design of products, services, or environments to be usable by people with a wide range of abilities and disabilities. It ensures that individuals with diverse needs can access and interact with information, products, and services effectively and independently.
Advertising: Advertising is a form of communication used to promote or sell products, services, or ideas to a target audience. It is a key component of the marketing mix and plays a vital role in the promotion mix, the IMC planning process, and retail strategy decisions.
Brand Mix: The brand mix, also known as the brand portfolio, refers to the collection of brands and brand lines that a company offers to the market. It encompasses the various brands, brand extensions, and sub-brands that a business uses to meet the diverse needs and preferences of its target customers.
Competitive Pricing: Competitive pricing is a pricing strategy where a business sets its prices based on the prices charged by its competitors in the market. The goal is to match or undercut the prices of rival products or services to remain competitive and attract customers.
Customer Segmentation: Customer segmentation is the process of dividing a customer base into distinct groups of individuals, households, or organizations based on common characteristics such as demographics, psychographics, behaviors, or needs. This strategic approach allows businesses to better understand and serve their target markets more effectively.
Demographics: Demographics refer to the statistical characteristics of a population, such as age, gender, income, education, occupation, and other factors that marketers use to understand and target specific consumer groups. This term is crucial in the context of understanding the marketing environment, segmenting consumer markets, selecting target markets, and developing effective retailing strategies.
Everyday Low Pricing: Everyday low pricing (EDLP) is a retail pricing strategy where a retailer offers consistently low prices on products throughout the year, rather than relying on frequent sales, promotions, or temporary price reductions. This approach aims to provide customers with a simple, straightforward, and predictable pricing structure, in contrast to high-low pricing strategies that involve regularly changing prices.
Foot Traffic: Foot traffic refers to the number of people who physically visit a retail location or commercial establishment. It is a crucial metric for retailers and businesses as it directly impacts sales, customer engagement, and overall business performance.
High-Low Pricing: High-low pricing is a pricing strategy where a retailer or manufacturer sets a high initial price for a product, then periodically offers discounts or sales to attract customers. This approach aims to balance the need for high profit margins with the desire to remain competitive and appealing to price-sensitive consumers.
In-Store Experiences: In-store experiences refer to the overall customer journey and interactions within a physical retail environment. It encompasses the various touchpoints, ambiance, and engagement opportunities that retailers create to enhance customer satisfaction, encourage longer dwell times, and ultimately drive sales.
Inventory Management: Inventory management is the process of overseeing and controlling the ordering, storage, and use of components that an organization will use to produce a final product or offer a service. It is a critical function in logistics, retailing, and wholesaling, ensuring that the right products are available in the right quantities at the right time to meet customer demand efficiently and cost-effectively.
Lease Terms: Lease terms refer to the specific conditions and provisions outlined in a rental or leasing agreement between a landlord and a tenant. These terms define the rights, responsibilities, and obligations of both parties during the duration of the lease contract.
Loyalty Programs: Loyalty programs are structured marketing strategies designed to encourage customers to continue doing business with a particular brand, company, or group of affiliated brands and companies by providing rewards or incentives for repeat business. These programs aim to foster customer loyalty, increase customer retention, and drive repeat purchases.
Market Positioning: Market positioning refers to the process of establishing a distinct and desirable place for a product, service, or brand in the minds of consumers relative to competing offerings. It involves strategically aligning a company's product or service with the needs and preferences of a target market segment to create a unique and differentiated position in the marketplace.
Merchandise Selection: Merchandise selection refers to the process of choosing the specific products and services that a retailer will offer to its target customers. It involves carefully curating an assortment of goods that aligns with the retailer's brand, pricing strategy, and the needs and preferences of their target market.
Omnichannel Integration: Omnichannel integration is the seamless coordination and synchronization of multiple sales and marketing channels to provide a unified and consistent customer experience. It involves the integration of various touchpoints, both physical and digital, to create a cohesive and personalized shopping journey for the customer.
Prestige Pricing: Prestige pricing is a pricing strategy where products are priced high to convey a sense of exclusivity, quality, and status. It is often used for luxury or premium goods to appeal to consumers who are willing to pay more for the perceived value and prestige associated with the product.
Product Assortment: Product assortment refers to the variety and depth of products a company offers within a particular product category or across its entire product portfolio. It encompasses the different types, sizes, styles, and models of products a business makes available to its customers.
Product Life Cycle: The product life cycle is a model that describes the stages a product goes through from its introduction to the market until its eventual decline. This concept is central to understanding how products evolve and how marketers should adapt their strategies to effectively manage a product throughout its life cycle.
Retail Analytics: Retail analytics refers to the collection, analysis, and interpretation of data related to the retail industry. It involves leveraging data-driven insights to optimize various aspects of the retail business, including inventory management, customer behavior, sales performance, and marketing strategies.
Retail Formats: Retail formats refer to the different types of retail establishments and the unique characteristics that define them. These formats are strategic choices made by retailers to cater to specific customer needs and preferences, influencing their overall retailing approach and operations.
Retail Pricing Strategies: Retail pricing strategies refer to the methods and approaches used by retailers to determine the prices of products or services they offer to consumers. These strategies are critical in ensuring profitability, competitiveness, and meeting customer expectations in the retail industry.
Retail Technology: Retail technology refers to the various digital tools, systems, and innovations that are integrated into the retail industry to enhance customer experience, streamline operations, and improve overall business performance. It encompasses a wide range of technologies, from in-store automation to e-commerce platforms, that are transforming the way retailers interact with their customers and manage their businesses.
Store Atmosphere: Store atmosphere refers to the overall ambiance, design, and sensory elements of a retail environment that create a specific experience for customers. It encompasses the physical and psychological factors that shape a shopper's perception and behavior within a store.
Supply Chain Management: Supply chain management is the coordination and management of the flow of goods, services, information, and finances across an entire supply chain, from the sourcing of raw materials to the delivery of products to the end consumer. It involves the planning, implementation, and control of all activities related to the movement and storage of goods, as well as the effective management of relationships with suppliers, intermediaries, and customers to maximize value and achieve a sustainable competitive advantage.
Visual Merchandising: Visual merchandising is the practice of designing and arranging physical retail spaces and product displays to create an engaging, visually appealing, and customer-centric shopping environment. It aims to enhance the overall in-store experience and influence consumer behavior and purchasing decisions.