How Has the Growth in Nontraditional Retailing Influenced Channel Profitability by Sam Ashe-Edmunds - Article Example

ARTICLE 1 How Has the Growth in Nontraditional Retailing Influenced Channel Profitability? By Sam Ashe-Edmunds, Demand Media The Growth in Nontraditional Retailing and Influence on Channel Profitability. The article is related to the issues learned in Lecture 4 on Web and No-Store Based Retailing. It also clearly highlights the issues learned in Lecture 2 on Strategic Planning in Retailing. STEP 1: SUMMARY OF FACTS IN THE ARTICLE Strategic retail planning According to this article, strategic planning needs to factor in the several options when selling directly to consumers online. There are costs associated; these include virtual shopping cart, credit card processing and shipping capabilities and telephone support. There are varieties of websites especially sales websites and third parties that can handle online sales needs. The online business is relatively cheaper for smaller businesses. The cost on rent, hire clerks, pay property tax, and insurance. Sam Ashe-Edmunds the author pointed out that there is the advantage of the economies of Scale and retailers need to be conscious when making use of nontraditional sales channels which may appear cheaper to use than brick-and-mortar sales, and this is because there are factors of using multiple sales channels on profitability. There are cases where one does online sales, and the business must continue to sell using traditional distribution channels, here there will be need for enough online sales to pay for startup and ongoing operating costs such as building the online sales capabilities and maintaining the software, service and shipping. This needs to be done in order to realize the actual benefits of online sales; else the profitability would even be lower compared to the traditional channels. The article highlights strategic retail planning as enabling retailers conduct a thorough analysis of requirements of the market. According to the author, the choice of the right Channels is tricky; there are two major factors that are key in deciding whether to use traditional or nontraditional sales channels, or a mix of both. The two are total cost and volume of sales. There is need for accurate sales forecast. This is the only thing a retailer needs to do in order to determine the difference in the various channels and their profitability. Thorough analyses of customer behavior will enable a retailer switch according to the customer demands. Technological Advancements According to this article, there are different types of retail sales channels. The advent of the internet has made retailing effective through sales of goods online, unlike previously where goods were sold through storefronts and catalogs. The advertisement has also improved where adverts are broadcasted in social media and internet. Previously, before the advent of the internet, adverts were done via direct-response TV, print and radio ads. The nontraditional retail channels have now adopted new strategies where goods are now sold directly to consumers via a manufacturer website, through a representative’s website or using a variety of third-party sales websites. Retailers are increasingly going global; most of them have decided to use IT as a vital tool to ensure online sales achieve high volumes at a reduced cost. According to the author, the many customers going online call for the delivering of uninterrupted service. Therefore retailer cannot afford at any given time for their site to go down or deliver poor customer experience. This will ensure there is realization of maximum sales and a great brand experience is delivered. The manufacturers have also been able to effectively market their products online, hence reducing the previous requirements to supply retailers directly, or used intermediaries like wholesalers, outside sales reps or distributors. The continuous increase in the use of Smartphones for shopping continues to change the landscape of retail channel distribution. Retailers need to analyze the overall cost of selling through nontraditional retail channel or online selling as compared with the brick-and-mortar store in order to know how they affect their profitability. STEP 2: DETAILED DISCUSSION ON AREAS OF THEORY Barlow et al (2004) recognized the need for developing virtual shopping experience of customers using technologies in online marketing. Here the article illustrates the fact that the increase in competition, changing customer lifestyles, increasing usage of dual distribution channels and the changing media roles, technological advances, and global penetration is evident. According to the natural Selection theory of retail change, retail businesses succeed if they adapt to emerging issues in customers, competition, Technology and legal environment. The retail presence in the cyberspace is a way of enhancing business image in order to generate more sales and eventually realize profit. There are consumers who cannot be reached due to geographical distance; this strategy will really rescue the geographically-dispersed customers. The web based retailing provides information to customers at a click of a mouse; this is the best way to promotes products and demonstrates new product benefits. The system therefore allows for reduced transaction time, improved customer service, reduced operating cost and ensures seamless multi channel shopping. This article also highlight the fact that direct marketing is used in web based retailing where customers are initially exposed to retail products through a non-personal medium where they then order either by mail, phone, fax, or online. This concept was also discussed in Lecture 4. The strategic planning has allowed retailers determine how to differentiate themselves from the competitors through provision of alternative retailing format to easily serve its consumers. This also encourages anticipation and avoidance of crises during the peak periods Environmental theorists observed retailing institutions as economic entities, the entities has retailers surrounded by competitors, customers, innovation, and technology. (Patil, 2012) Here change in retailing is attributed to the environmental changes within which the retail business operates. Retailing is a complex and dynamic field that has very competitive environment. Retailers have thorough analysis of requirements for doing business with different consumers. They have outlined mission, vision, goals, and consumer market, overall and specific activities together with relevant control mechanisms. Retailers provide a structured framework to assist in that planning and implementing the planned strategy. Retailers make use of Niche retailing where they haves identified the specific customer segments and deployed unique strategies to address the desires of those segments. Location identification for a store includes the following factors. Population size, competition, nature of nearby stores, property cost, and legal restrictions. While selecting, one needs to analyze the alternative geographic trading area in terms of residents, and existing retailers. this retail area analysis assist in understanding the consumer preferences, demographics, determine promotional strategies, media coverage patterns ascertain competing chains, review of other issues. STEP 3: SPECIFIC EXAMPLES WITHIN INDUSTRY Application of Universal Product Code (UPC) is now common in the retailing industry. This is a universal barcode that enable reading of barcode readers internationally. The use of UPC has enabled businesses effectively process transactions, and monitor inventory. Wal-Mart has effectively used the inventory management program for efficiency. The increase in the use of information and communication technology has given rise to emergence of online shopping and use of the Point of Sale scanning systems at barcode. There is therefore a wealth of information available to both the retailer and the consumer on goods and services required. Yilmaz et al (2012) described a dynamic retail monitoring and control system to analyze the process, time, reliability and cost between producer and consumer. This if adopted will speed service delivery to consumers. Various retail businesses have adopted vending machines for selling hot and cold drinks for instance Pepsi Co. Retailers in the world are now realizing and appreciating the value of information systems. This is because information systems have greatly benefitted them. Adoption of online shopping systems and other systems approaches have helped them perform efficiently, improve service delivery, reduce costs and expand customer base. Video kiosks are now using no-traditional retailing to sell their products. Examples are Holly wood movie and ShopSavvy. Many businesses are now using GIS software in determining retailing locations; Dunkin Doughnuts and Myer are successfully making use of the GIS software. This system is a geographic information system with digitized maps with demographic data, data on consumer purchase, current and proposed competitor locations. This gives the segments of trading areas. A business is then set up using the data basing on the shape, size and characteristic of trading area. Information systems assist retailers in the industry achieve the customer demands especially on product information availability, market segmentation and better product assortments. Pepsi for example has segmented it market according to age, and gender and the product information is accessible online. Additionally, the online information sharing has strengthened the relationship between the vendor and retailer. Retail information systems have enabled retailers to compete successfully in a complex and challenging environment. Large database such as Oracle and SQL Server and sophisticated data mining systems have enabled most of the retailers reach many customers through information sharing and effective use. This has been supported by the use of Data Warehousing and Business Intelligence. ARTICLE 2: Understanding your customers The article is related to the issues learned in Lecture 5 on understanding and identifying customers. It clearly illustrates the concept of customer service and customer satisfaction. The article is also related to the concepts learned from Lecture 7 on Retail organization and Human Resource Management. STEP 1: SUMMARY OF FACTS IN THE ARTICLE Customer service The article highlights the concept on understanding the retail customer; this is highlighted as a key to good customer service. According to this article, any retailer that wants to succeeds needs to give good customer service and deliver its promise in order to win the customer’s confidence. Great customer care requires that customer needs and expectations are well understood in order to provide exactly what they expect or even exceed their expectations. Customer Contact Strategy The article further provides avenues for effective customer contact strategy where the retailers are able to contact the customer and tell them what they are offering together with improvements following their feedback. Understanding the customer According to this author, there is also the need to collect the sales data in order to get the consumer behavior through analysis and evaluation. This will be achieved if the retailers are able to ask the customers what exactly they need from the retail business. The article clarifies the need to conduct customer satisfaction survey in order to identify what they think on given products. This will make the customer feel valued and the retailers will be able to gain valuable insights in to the customer preferences. Use of Customer Relationship Management System (CRM) The article also points out the use of retail data to understand customer behavior, the use of database and Customer Relationship Management System (CRM) is highlighted. According to the author CRM holds valuable information about retail customers; hence this will help understand them well. The use of CRM provides that tells the retailers the patterns the customers make orders. This data can be analyzed in order to make crucial decisions affecting the customer and overall retail performance. According to this article, CRM systems is sophisticated compared to simple mailing lists because they hold crucial information about the customer behavior and preferences, this will assist retailers improve customer satisfaction and retention. STAPE 2: DETAILED DISCUSSION ON AREAS OF THEORY According to Kotler P. (1991), any organization selling to final consumers whether it is a manufacturer, wholesaler or retailer is doing retailing. Retailing thus may be understood as the final step in the distribution of merchandise, for consumption by the end consumers. Every consumer expects a retailer to provide the goods and services needed in the required assortment, at the required place and time. (Chen et al, 2005). The product should be in the form acceptable to the customer and be available at a convenient location. Here the retail proximity to the customer is very important. Provide goods and services to satisfy customer needs Good customer care and service guarantees customer loyalty and confidence. The author by employees is key; the employees need to be trained on effective customer care skills. According to the author, good customer service especially calling customers by names and recalling the last conversation with them will brighten up their day. This will promote the business because they are able to tell their friends the good service offered. The article gives ways to understand customers well, here the author stresses on retailers putting themselves in the customers shoe in order to get their point of views. The author points out that in order for the retailers to understand their customers well, they need to be attentive to them whenever they are in contact with them. Elicit feedback to improve service The article clearly illustrates the concept of employee satisfaction and loyalty which translates into high levels of customer service. Highly motivated employee serves customers well. This is due to fairness of management, employee empowerment or monetary compensation. Employees can be assigned authority and be self-managers. It has also highlighted the fact that retailers must always consider employees as an asset as well as a source of competitive advantage. These employees should be empowered through training and provision of programs that rewards their good behavior. According to Armstrong (2006), motivating employees to perform well and achieve goals is the constant challenge of every manager. Every retail manager should therefore ensure an employee is well motivated to ensure high productivity. This can be achieved by either connecting with internal drives or providing external incentives. Brand Strategies and Product Development The article also highlights the points in which the customer can be contacted; this is given as through meetings and visits, phone calls, correspondence and deliveries. The author indicates that these are the things that can either win consumer loyalty or get them disappointed. According to the conflict retail change theory, the new format is developed due to the competition or conflict between two retailers. It involves a series of changes a retailer undergoes when challenged by a competitor. Retailers view the value of its brand as one of the most valuable assets. The value of retailers brand is more than just the name and logo. The brand is the retailer’s identity, image, and reputation. Putting a numeric value to the brand may be hard but is a fact that all the aspects of a retail business have great value. Product development is successful only if a proper market research is conducted. Marketing research process needs to look in to several issues. These includes defining problem to be researched, examine secondary data, generate primary data, analyze data, make recommendations and implement the findings. Merchandising control and planning According to merchandise philosophy, merchandising is the activities involving acquiring goods or services and making them available at a place, price, time and quantities that enables a retailer reach its goals. The merchandise philosophy requires that the target market desires need be considered, market place positioning properly done, suppliers capability established, cost, competition, products trends and value chain define. (Kunz et. al, 1998). Retail positioning strategies adopts upscale department store, upscale specialty store or any other depending on line of product or price or service. According to the cyclical retail change theories, retail change follows a pattern with phases having definite attributed to them. Retailers attract customers through low price, low service. The result is market expansion through more services, more expensive merchandise and more convenient locations. This theory explains the different retail business phases. Communicate with customers Constant communication with the customer is very important; this is because the retailer is able to know the various shifts in consumer preferences. Environmental theorists view retail changes as being caused by various external and internal factors which include economical, demographic, socio-culture, political and technological factors. According to environmental theorists retailers that meet the environmental requirements succeed while those that do not meet the requirements defiantly plummet. Retailers therefore need to be aware of the environment and adjust to its changes. Identify customer needs Every retailer needs to provide products that will be appealing to the consumer. This therefore calls for accurate identification and understanding of market consumers. The consumer buying behavior needs to be researched well; this should feature well in the strategic planning. Understanding of consumer behavior provides an insight in to the retailer’s products status in the market and how they are perceived. Customer knowledge needs to be evaluated in order for the retailer to assess what it has achieved in product positioning. Once a retailer has identified what the consumer knows about a product and what the consumer do not know, then a proper channel of communication is devised. Theory and concepts of consumer Consumer demographics and lifestyle has effects on retailing. There is need therefore to link the consumer behavior, market research and retail strategy. Consumer psychological factors are very important to every retail shopper, the personality; attitude, perceived risk and class conscious affect them. The approach taken is likely to impact on retail location, goods and service mix, promotion efforts, price orientation and overall strategy. Consumer identification has three techniques that impacts positioning; These are Mass marketing, (low cost), Concentrated marketing, and Differentiated marketing Mass marketing (low cost) Use of private labels to reduce cost of national or manufacturer brands. Proper employee utilization Differentiation Hiring right employees Empowering employees Well tough out private labels STEP 3: SPECIFIC EXAMPLES WITHIN INDUSTRY Retail is currently one of most mature users of information technology in human resource management. The industry uses e- technology-driven training programs delivered over satellites and over the internet. There is also the use of online appraisal and employee online payroll systems. There are also the state-of-the-art cash register and credit systems. Human Resource management in retail industry is highly valued and range from selection, recruitment, motivation, supervision and identifying training needs on various employment levels. The Human Resources management needs to understand the retailing aspects in order to conduct HR business that is in line with retailing operations. The availability of timely and accurate information on daily customer demands has led to the development of new pull logistics strategies. Retail strategy formulation help retailers in the industry build a competitive advantage that can be sustained. For example, strategic business location has enabled JB Hi-Fi stores in Australia is be located in a strategic place Retailer approaches Mass marketing is adopted by kohl’s department stores Concentrated marketing has been used by Foot locker. Differentiated marketing has been is adopted by Family Dollar. Chain retailers are those businesses that operate multiple outlets under common ownership structure. They engage in some levels of centralized or coordinated purchasing and decision making. Examples of chain retailers include Cole’s group. Reference Armstrong M “A Handbook of Human Resoiurce Management Practice”. , 10th edn, Koran Page, London (1996) Kotler, Ph., “Principles of Marketing”, Prentice Hall, New Jersey (1991). Kunz, Grace I. “Merchandising: Theory, Principles, and Practice”. New York: Fairchild Books, (1998). Understanding your customers. April 4, 2014 http://www.marketingdonut.co.uk/marketing/customer-care/understanding-your-customers Read More