18.3 Retailing Strategy Decisions

Retailers use various pricing strategies to gain a competitive edge and boost profitability. From everyday low pricing to prestige pricing, 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 foot traffic, accessibility, and demographics influence store placement. Effective communication through advertising, in-store experiences, and loyalty programs 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)
• High-low pricing 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)
• Competitive pricing 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
• Lease terms and costs, such as rent, utilities, and other location-related expenses, require balancing prime locations with affordability
• Store atmosphere, 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
• Omnichannel integration 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

• Product assortment involves breadth (number of different product categories) and depth (variety within each category), aligning with target customer preferences
• Brand mix includes offering a mix of national brands, private labels (retailer-owned, often lower-priced), and exclusive brands (only available at a specific retailer)
• Inventory management ensures adequate stock levels to meet demand, avoids stockouts and lost sales, and minimizes excess inventory and markdowns
• Visual merchandising arranges products to attract customers and encourage purchases, creates appealing displays and store layouts, and highlights promotions and high-margin products
• Product life cycle 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

• Market positioning involves determining the unique value proposition and competitive advantage to differentiate from competitors
• Customer segmentation helps identify and target specific groups of customers with tailored products and marketing strategies
• Retail formats (e.g., department stores, specialty stores, discount stores) are chosen based on target market and product offerings
• Supply chain management optimizes the flow of goods from suppliers to customers, reducing costs and improving efficiency
• Retail technology, such as point-of-sale systems and inventory management software, enhances operational efficiency and customer experience
• Retail analytics uses data to inform decision-making, optimize pricing, and improve customer targeting and personalization