MARKETING MANAGEMENT AND INTERNATIONAL TRADE

Lesson 20. RETAILING

Module 5. Elements of marketing mix – III. place

Lesson 20

RETAILING

20.1 Introduction

Retailing encompasses all the activities in selling goods or service directly to final consumer for self use or family use. In recent years there is growth of retail marketing all over the world including developing countries like India, one of the reasons being increase in income of consumers due to economic progress. The developments in the field of information technology has also helped the growth of retail marketing by integrating multi-location distribution carrying large number of products through a common hub. India's retail market is unorganized. It includes shops & houses in the same building. The front portion of the building is used by shop and the rear portion as house. In many small towns weekly bazaars are also organized. The retail segment is highly fragmented and is spread over a large geographic region. India now witnesses emergence of big shopping malls not only in big cities but also in small towns.

20.2 Significance of Retailing

Retailing is the final stage in distribution channel. Retailers have communication / contact with both consumers as well as producers. Retailers’ function involves procuring products in large quantities from many sources and then selling them to consumers as per their requirement in small quantities. Retailers carryout the functions of transporting, storing, marketing, promoting, paying for goods and also complete sale deed with consumers. Thus, retailer fulfills the expectation of producers as well as consumers. For producer's expectations it undertakes promotion of product, make the product visible, gain knowledge about its use, and render necessary service. For fulfilling consumers expectation it provide higher quality and low price, appoint learned sound employees, give immediate fast service, extend after sales service, extend suitable return policy.

20.2.1 Function of retailing

20.2.1.1 Provide variety

Companies specialize in production of one or limited number of products. If they open their own retail store, they will keep probably only their products. Consumers demand variety of products. Retailers keep wide variety of products for sale to satisfy diverse consumer needs.

20.2.1.2 Sorting

Companies produce goods and are interested to sell them to limited buyers in large quantity so as to reduce cost. Consumers demand products in small quantities. Retailers satisfy both the manufacturers and consumers by adopting sorting procedure. Under sorting, they purchase variety of goods in large quantities and sell them to consumers in small quantity. By doing so it also reduces transportation cost, warehouse cost and inventory cost for consumers.

20.2.1.3 Facilitator

They provide variety of service to consumers and facilitate consumption by them. They provide financial support to consumers, display products to make a choice, solve queries of consumers, do all necessary paperwork like form filling, deliver and install product at consumer’s house, extend guarantee / warranties.

20.2.1.4 Risk bearing

They bear the risk of spoilage / loss of unsold items as well as risk of receiving return products from consumers.

20.2.1.5 Keep inventory

Retailers keep inventory to make the product readily available to consumers and thereby helping consumers.

20.2.1.6 Link between producer and consumer

They transmit the information between manufacturers and consumers. The consumers preferences are provided to manufactures and new products information from manufacturer to consumers.

20.2.1.7 Physical distribution and promotion

Retailers bring the goods from manufacturers production units at their retail outlets and also provide goods at consumers home wherever required. Along with transportation they also carry out advertisement function by placing banners at retail outlets and on transport vehicles.

20.3 Type of Stores

20.3.1 Kirana stores

These are traditional independent stores of varied size. They show their physical existence throughout the country. They serve large population. Main advantage of these stores is their nearness to the population.

20.3.2 Department stores

These stores keep many product lines such that most of the items required by a family will be available at the store. The product line includes clothing, appliances, food items, gift articles, furniture, and many other household items. They are mainly located in metro cities.

20.3.3 Discount stores

These stores sell standard products at lesser price than other stores. They aim at less margin and large volume. They are situated in low rent areas but as they sell standard products of famous brands, is visited by consumers from far flung areas also. For example, 'Big Bazaar' in India.

20.3.4 Speciality store

This stores offer narrow product line with a deep assortment within that line. The product range may include jewellery, watch, sports, goods, books, garments and many more. This are further classified based upon type of products sold by the store. If a store sells a particular range for the whole family is called single line store. For example titan watch show rooms which sells watches specially designed for all family members children, youth, middle age, old age people & for both male & female population. If a store sells a product related to only one criterion (Gender, subject etc.) it is called limited line store. For example, Arvind showrooms sell only men's clothing. If a store sells a specific product only but of more than one brand then it is called super speciality stores. There are many such super speciality stores selling men's garments of more than one brand in India.

20.3.5 Superstore and hyper market

These are very big stores located outside traditional shopping centres. Their operations being self service type and sell products at low cost, low margin and high volume. Based upon build up area, hypermarket occupies double selling space than that of superstore. A superstore will have selling space of approximately 25,000 square feet. In India, such stores are still in the infant phase.

20.3.6 Convenience stores

These are small stores situated near residential areas. They keep small range of fast moving convenience products. They have longer operating hours and are open throughout the week. Such Stores are in place in India since long.

20.3.7 Category killers

This is a type of store which sells only one kind of goods. For example, domestic kitchen appliances. Such stores purchases items in a very large quantum and are thus able to sell at very low price.

20.4 Theories of Retailing

There are many theories to explain the concept of retailing. The theories deal with the historical development and growth in retail sector, the mode of entry in retail market and its subsequent growth.

20.4.1 Wheel retailing

One of the important theories is 'wheel retailing'. This theory says that retailers follow a definite cycle. They enter into the market as low price, low margin and low status operators. Upon entry into the market, they compete by offering products at lowest possible price so as to attract consumers. After certain time period they cease to be price competitive. They obtain more elaborate facility. As these retailers increase their prices, it gives opportunity to new retailers to enter the market.

According to the theory of 'wheel retailing', each retailer passes through three successive phase, i.e. entry phase, trading phase, and vulnerability phase.

The first or entry phase of the Wheel of Retailing starts with the opening of innovative retail institutions, which initially offer limited products with low prices and minimum services. Retail institutions at this phase strategically accept low margins due to lack of services and facilities offered and low market penetration, but these low margins can reduce product prices and help retailers to increase penetration of the market. When these retail institutions are successful, other rival retail institutions rapidly copy and adapt those strategies. At the end of the entry phase, the number of the same type of retail institutions has increased. As time passes this retail store moves to trading phase wherein, these innovative retail institutions become traditional retail institutions that offer more services and better store experiences at higher prices. These retail institutions are simultaneously increasing their margins and prices and appeal to more middle and upper income consumers rather than bargain hunting and lower income consumers. As time passes and the wheel turns, retail institution types mature additionally and move into the third and final phase, the vulnerable phase. These firms are mature retail institutions that should have strong or at least stable cash flow. However, as retailers add higher levels of operational practices, costs increase, product prices rise, and margins erode. Some mature retailers abandon high quality and high services in order to reduce operation costs and product prices to survive price competition. These changing operational practices make the third phase retailers vulnerable to easy replacement by other retailers. In this vulnerable phase, retail institutions lose market share and profitability.

Table 20.1 Wheel retailing

Entry Phase		Trading Up Phase		Vulnerability Phase
Innovation Retailer	Consumer	Traditional retailer	Consumer	Mature retailer	Consumer
-Low Status -Low Price -Minimal Service -Less Facilities -Less number of products to offer	-Price Sensitive Consumers -Dissatisfied with existing retailers in the market	-More facilities -Improved services -Fashion orientation -Increases price -More Product offering	-Upscale consumers who are willing to pay higher price.	-Higher end of market -High prices -Better quality products -Wide range of products -Emphasis on services	-Quality conscious -Consumers who are willing to pay higher price

20.4.2 Accordion theory

According to this theory, retailers enter a market as a general retailer. As they gain experience, they try to target specific groups. Then they start diversifying in order to grow but are followed by a stage of reverting to specialization. The various stages of growth according to accordion theory are shown below:

Fig 20.1 Accordion theory

References

http://www.futurelab.net/blogs/marketing-strategy-innovation/2009/03/service_design_innovation_can.html