Retail Management

Module 4 Creating and

Sustaining Value- I
 Out Line. . . . .

4.1 Retail Marketing and Communication

4.2 Customer Relationship Management (CRM)
 The Role of Marketing in Retail
• Definition of marketing:
“The process of planning and executing the conception,
pricing, promotion and distribution of ideas, goods and
services to create exchanges that satisfy individual and
organisational goals.”
• The role of marketing in a retail organisation is two-fold.
• The first role that marketing can play for a retail organisation is
that of informing the consumer that it exists.
• The second role that marketing plays for the retailer is enabling
it to get closer to the end consumer.
 The Retail Marketing Mix
• The basic function of retail is to provide the right goods to the
consumer, at the right place and time.
• The marketing tools that a retail organisation uses to pursue its
marketing objectives are termed as the Retail Marketing Mix.
• Components of retail Marketing Mix:
1. Product
2. Price
3. Place
4. Promotion
5. Presentation
6. Customer Service
7. People
1. Product
• One of the main elements of the retail marketing mix is the product/s
and /or the services that the store offers to the customer.
• The different products that the store offers are together termed as the
merchandise mix.
• A merchandise line consists of a group of products that are closely
related because they are intended for the same end use, are sold to the
same customer group or fall within the same price range.
• The breadth, refers to the number of merchandise brands in the
merchandise line.
• The depth, refers to the average number of stock keeping Units
within each brand of the merchandise line
2. Price:
• Pricing is an integral part of the retail marketing mix.
• The price policy that the organisation decides to follow
depends on the customer profile of the target audience for its
range of products.
• It also depends on whether the product offering is unique or
has other substitutes available.
3. Place:
• The location of the retail store is most important element of the
retail marketing mix.
• Now with the advances in technology and the advent of
television shopping and the Internet, many retailers are now
going in for a click and mortar approach.
4. Promotion:
• The advertising budget, sales promotions, publicity and public
relations play a very important role in the competitive world of
retailing.
• Retailers need to develop a communication strategy in line
with their target market and the products that they stock in the
store.
5. Presentation:
• The manner in which the merchandise is presented at the store
level is very important.
• This aspect not only deals with the store layout and the
ambience created, but also with visual merchandising.
• Visual merchandising is the orderly, systematic and
intelligent way of putting stock on display in the retail store.
6. Customer Service:
• The support services that a retailer offers, have become very
important.
• Relationship marketing, data warehousing, and customer
relations management are most important today and all these
are aimed at enhancing customer service.
7. People:
• The people who work at the front-end of a retail organisation
are very important, as they are the face of the organisation for
the customers.
• Their attitude, behavior, manners and product knowledge plays
a very important role in building long-term relations with the
customers.
 The STP Approach
• The Retail Marketing Mix is used to develop an appropriate
marketing strategy for the store, depending on the target
market to be serviced.

• The marketing strategy evolved as a result of Segmentation,

targeting and positioning has come to be known as STP
marketing.
• A retailer needs to keep in mind that he cannot be everything
to everybody.
Segmentation:
• It is the breaking down of the large markets into sub-markets
or segments of consumers that are similar in terms of needs,
wants and buying habits.
• Market can be segmented based on demographical factor,
geographical factor, psychographics and lifestyles.
• A retailer should taken into consideration the size of the
market segment as it estimate the sales.
Target Market:
• After having divided the market into segments, the retailer
now needs to decide on whom he is going to cater to.
• The customer segment that he decides to cater to is known as
the target market.
• While selecting a target Market, the retailer needs to look at:
– The ability of the retail organisation to meet the needs of the
segment,
– The size and the future growth potential of the segment
– The kind of investment that would be required
– The kind of profits that could be earned.
Positioning:
• Positioning starts with a product, a piece of merchandise, a
service, a company, an institution or even a person.
• Positioning is not what is done to the product, but what is done
to the mind of the prospect.
• It is how your product is perceived in the marketplace, relative
to the competitors.
• The four main areas which affect retail positioning strategy
are:
1. Merchandising strategy
2. The trading style/format strategy
3. Customer service strategy
4. Customer communications strategy
 The Retail Image
• The Retail Image deals not only with the interiors of the store, but
also with the exteriors and the consumers, shopping experiences at
the store.
• The retail image has to be created keeping the target audience in
mind - the kind of environment that they would like to shop in and
the services that they would expect.
• The factors affecting the image of a retail store can be classified into
Primary and Complimentary factors. The primary factors are:
– The product itself
– The place where it is sold or the location of the store
– The pricing of the product
– The manner in which it is presented to the customers
– The advertising and promotion for the store.
 The Retail Communication Mix
• Communication is an integral part of the retailer’s marketing
strategy.
• Primarily, communication is used to inform the customers about the
retailer, the merchandise and the services.
• It also serves as a tool for building the store image.
• It is believed that every brand contact delivers an impression that
can strengthen or weaken the customer’s view of the company.
• The retailer can use various platforms/ channels for communication.
The most common tools are:
1. Advertising
2. Sales Promotion
3. Public Relations
4. Personal Selling
5. Direct Marketing
1. Advertising:
• Advertising can be defined as any paid form of non-personal
presentation and communication through mass media.
• One of the main aims of advertising is to sell to a wide mix of
consumers and also to induce repeat purchases.
• A retailer may use advertising to achieve any of the following
objectives:
1. Creating awareness about a product or store.
2. Communicate information in order to create a specific image in the
customer’s mind.
3. Create a desire to want product.
4. To communicate the store's policy
• For Advertising, the retailer may use any one or a combination
of the following mediums:
– Press advertisements
– Posters and Leaflets, Brochures, booklets
– Point of purchase displays
– Radio, television, outdoor hoardings and internet
Determining the advertising/ Promotional budget:
• The following are the main methods that may be employed to
determine the advertising budget:
a. Percentage of Sales method
b. The competitive parity method
c. The research approach or the task and objective method
d. The incremental method
e. What can be afforded
Determining the message and the communication platform
• The advertising message is often a major factor affecting the
success or failure of the advertising campaign.
• At this point, the retailer needs to consider;
– Who the potential customers are?
– Their demographic, economic and psychological characteristics
– What is the frequency of their buying and the type of merchandise.
• After determining what to say, the retailer needs to determine how
to communicate the message.
 2. Sales Promotion
• A sales promotion can be defined as a paid non-personal form of
communication, that incentives customers to visit a store and/or
purchase merchandise during a specific period of time.
• Depending on the type of promotion carried out, it can help increase
impulse buying, generate excitement and can motivate other channel
members.
• A retailer may create a sales promotion aimed at the consumer due
to various reasons like;
• To stimulate trial purchases
• To encourage repeat purchase
• Introduce a new brand/ product
• Counter competitor’s strategy
• Common Retail promotions are;
1. Coupons
2. Contests
3. Demonstrations
4. Product/brand promotions and schemes
5. Samples
6. Frequent shopper programmers
7. Sales promotions directed at trade or channel members
3. Public relations and Publicity:
• PR is a marketing communications function, which aims at
fostering goodwill.
• An important component of public relations is publicity.
• By the way of public relations, the retail organisation strives to
create and sustain a favorable image with consumers,
shareholders, suppliers and the public at large.
• An organisation may integrate the PR effort by way of press
releases, feature stories and company newsletters or through
interviews with the press or press conferences.
Publicity
• Publicity is a non paid form of media coverage.
• Examples of events in retail which may merit publicity are:
– Store openings
– Store renovations
– Celebrity visits and affiliations
– Designer Associations
– New Product range and launches
– Awards received by the retailer
4. Personal Selling:
• Personal selling is a paid form of personal advertising where
salespeople assist customers in satisfying their needs through a
person-to-person exchange of information.
• Personal selling may occur within the environs of the retail
store – where personal selling requires the sales person to
satisfy the needs of the consumers.
• It may also occur outside the retail store, where orders are
taken from customers by way of the telephone, internet or mail
and then serviced.
5. Point of Purchase (POP) Displays:
• The dictionary of retailing defines Point-of-Purchase
communication as the promotional signs and interior displays,
often located at the point of sales or alongside displays of
merchandise.
• The basic function of POP in a retail store is to induce sales.
• It works with advertising and sales promotions to reinforce the
messages being communicated.
• The role of POP change significantly with the type of product
being sold and the customer’s involvement in the purchase.
• The Concept of Integrated Marketing Communications
(Self Study)
 Customer Relationship Management
• The CRM Process
• Collecting Customer Data
• Analyzing Customer Data and Identifying Target Customers
• Developing CRM Programs
• Implementing CRM Programs
 Customer Loyalty
• Customer loyalty to a retailer means that customers are
committed to purchasing merchandise and services from
the retailer and will resist the activities of competitors
attempting to attract their patronage.

• Emotional attachment to retailer

– Personal attention
– Memorable positive experiences
– Brand building communications programs
CRM Process
 1. Collecting Customer Data
Information About Each Customer in the Data Base
• History of purchases
– Purchase date, price paid, SKUs bought, whether or not
the purchase was stimulated by a promotion
• Customer contacts by retailer
– Visits to web site, inquires to call center, direct mail
sent to customer
• Customer preferences
• Descriptive information about customer: Demographic
and psychographic data
• Customer’s responses to promotions
Identifying Information
• Ask for identifying information
– Telephone number, name and address
• Encourage use of frequent shopper cards: it also
called loyalty programs. These are the program that
identify and provide rewards for customers who
patronize a retailer.
• Link checking account number and/or third party credit
cards to customer
 Privacy Concerns
Control over Collection
• Do customers know what information is being
collected?
• Do customers feel they can decide on the amount and
type of information collected by retailers?
Control over Use
• Do customers know how the information will be used
by the retailer?
• Will the retailer share the information with third parties?
 Heighten Concerns When Using
Electronic Channel

• Information collected without the awareness of

customers
• Collecting click stream data using cookies
– Similar to an invisible person videotaping a
customer as they walk through a store
 Customer’s Decision to
Offer Information
Balance Benefits And Risks

• Disclosure of Information
• Unwanted Sales Contacts
• Discounts
• Special Treatment
• Personal Attention
 2. Analyzing Customer Data And
Identifying Targets Customers
• Data Mining – is a technique used to identify patterns in
data, typically patterns that the analyst is unaware of prior to
searching through the data.
• Market Basket Analysis
• Identifying Market Segments
• Identifying Best Customers
 Market Basket Analysis

Data analysis focusing on the composition

of the customer’s market basket – what
items are bought at the same time.
Uses:
-Adjacencies for displaying merchandise
-Joint promotions
 Identifying Market Segments
• Customer data analysis has focused on identifying
market segment- group of customers who have;
– Similar needs
– Purchase similar merchandise and
– Respond in a similar manner to marketing.
• Professional shoppers : people who love fashion and
value good customer service.
• Too busy to shop people: people who want the
shopping experience over as quickly as possible.
 Identifying Best Customers

• Estimating Lifetime Value: it is the expected contribution

from the customer to the retailer’s profits over his or her
entre relationship with the retailer.
• Lifetime customer Value (LTV): It is estimated by using
past behaviors to forecast the future purchases, gross margin
from these purchases and costs associated with serving the
customers.
 Which Customer Probably Has the Greatest Lifetime Value

Purchases Over Last 10 Weeks

1 2 3 4 5 6 7 8 9 10
Jack $20 $20 $20 $20 $20 $20 $20 $20 $20 $20
Jill $210 $0 $0 $0 $0 $0 $0 $0 $0 $0
 Customer Pyramid

Platinum
• Top 25% LTVs.
• Best
• Most loyal
• Least price sensitive
Gold
• Next best
• More Price-sensitive
• Not as loyal
 Customer Pyramid

Iron
• Doesn’t deserve
much attention
Lead
• Demands attention
• May have negative
value
 RFM Analysis
•RFM Analysis : is used for segmenting the customers
according to how recent they have made a purchase, how
frequent they make
•Recency: how recent they have made purchase
•Frequency: how frequent they make purchases
•Monetary: how much they have bought
RFM Target Strategies
A catalog retailer is deciding which group of customers to
send a catalog.. Based on experience and an RFM
analysis of customer database:
•Contribution margin – 20%
•Response rate – 5%
•Cost of catalog and mailing -$ 0.75
Will the retailer make a profit mailing to this RFM
segment?
$20.00 contribution x .05 response rate - $.75 cost
= $.25 profit per catalog mailed
 3. Developing CRM Programs

Retaining Best
Customers
Converting Good
Customers to
Best Customers
Getting Rid of
Unprofitable
Customers
 Customer Retention Programs
1. Frequent Shopper Programs
Issues with Effective Frequent Shopper Programs
• Expense
• Difficulty in Making Changes
• Impact on Loyalty Questionable
• Easily Duplicated – Difficult to Gain Competitive
Advantage
2. Special Customer Services
3. Personalization
4. Community
 Converting Good Customer into Best
Customers
• Customer alchemy: In the context of the customer
pyramid, increasing the sales made to good customers is
referred to as customer alchemy- converting iron and
gold customers into platinum customers.
• Cross Selling
 Dealing with
Unprofitable Customers

• The bottom tier of customer actually have negative LTV.

• Retailer lose money in every sale they make to these
customers.
• The cost of processing two or three returned items is much
greater than the profits coming from the one item that the
customer kept.
• Offer less approaches for dealing with these customers
• Charge customers for extra services demanded
 4. Implementing CRM Programs

• Effective CRM requires

– Need systems, databases

+
– Close coordination between departments – marketing,
MIS, store operations, HR
– Shift in orientation
Product Centric Customer Centric