ASSIGNMENT MEMORANDUM SUBJECT : RETAIL MARKETING …imm-gsm.s3.amazonaws.com/docs/Assignment_M_2012_2/RM001... · 2012-08-28 · ASSIGNMENT MEMORANDUM SUBJECT : RETAIL MARKETING (RM)

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© IMM Graduate School of Marketing Marking Memorandum: 2

nd Semester 2012 RM/RM001

ASSIGNMENT MEMORANDUM

SUBJECT : RETAIL MARKETING (RM) RETAIL MARKETING (RM001)

ASSIGNMENT : 2ND SEMESTER 2012

The following memorandum outlines the basic topics that should have been covered in the student’s answers to the assignment. The memo does not cover every possibility and the marker is to use his/her discretion when allocation marks based on the quality of the student’s answers. In addition, students did not have to cover every point identified in this memorandum – it serves as a guide only. As stated previously, marks are allocated based on the student’s comprehension of the work and insight shown through their examples and practical applications.

Take note that this memo is based on the eighth edition of the prescribed textbook: Levy, M. & Weitz, B.A., 2012. Retailing Management. 8th ed. McGraw-Hill.

Take note that 10 marks are allocated to presentation. This includes the following elements:

Length

Spelling checked

Structure

Use of headings and paragraphs

Logical development of answers

Harvard referencing method. QUESTION 1 [10]

See Levy & Weitz (2012, Chapter 2, pp.35-40) Students had to use the characteristics of the different types of retailers and the information in the case study on Cambridge Foods to identify what type of retailer Cambridge Foods is and then provide practical reasons for their answers. Their reasons should have been based on the characteristics of the chosen retailer type and the characteristics of the other types of retailers. They were advised to conduct some more research on Cambridge Foods to gain greater insight into its operations.

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If they simply rewrote what is given in the prescribed textbook they should not obtain a pass mark – practical application was essential.] Allocate approximately 2 marks per point used to motivate the choice of retailer type.

Total = 10 marks

Clearly Cambridge Foods is a food retailer. The outline of each of the five types of retailers is given in the table below.

FOOD RETAILERS:

1. SUPERMARKETS

Conventional supermarkets o 30,000 SKU o Pick n Pay supermarkets o Checkers.

Limited assortment supermarkets (extreme value food retailers) o 2000 SKU o Offer one or two brands and sizes o Designed to maximise efficiency and reduce costs o Offer merchandise at 40-60% lower prices than conventional

supermarkets o Spar.

Trends in supermarket retailing

Competition from discount stores

Changing consumption patterns. Ways to handle trends/threats

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o Emphasise fresh perishables o Target health conscious and ethnic consumers o Provide a better in-store experience o Offer more private label brands.

2. CONVENIENCE STORES

Tailors assortments to local market

Makes more convenient to shop

Offers fresh, healthy food

Fast, casual restaurants

Financial services available

Opening smaller stores closer to consumers (like airports)

Woolworths food stores

Stores at petrol stations. 3. SUPERCENTRES

The fastest growing retail category

Large stores (150,000 – 220,000 square feet) that combine a supermarket with a full-line discount store

One-stop shopping experience

PnP hypermarkets

Checkers Hyper. 4. WAREHOUSE CLUBS

Offer a limited and irregular assortment of food and general merchandise with little service at low prices

Use low-locations, inexpensive store design, little customer service

Low inventory holding costs by carrying a limited assortment of fast selling items

Makro

Trade centre.

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QUESTION 2 [30] Read the article titled – The changing face of retail (the store of the future – the new role of the store in a multichannel environment).

Refer to Levy & Weitz (2012, Chapter 3) as a reference Students had to give a discussion on the developments in retailing and the changing role technology is playing in the retail environment. In their discussion they had to make sure that they gave attention to the three channels in multichannel retailing and discuss how each channel’s role is changing as technology develops. It was essential that they give South African examples to highlight the points that they made. This question covers many of the topics covered in Chapter 3 in the prescribed textbook. The student needed to understand the nature of the changes identified in the article and then use the topics addressed in the chapter to try to explain why the situation has arisen and the implications it has for the retailer. There is no specific correct answer for this question. The key issue is that the student looked at the points identified in the article and then gave an informed opinion on the implications for the retailer and made suggestions. This should be linked to topics like the characteristics of the different channels and the advantages associated with the channels. Also look at the relevant issues affecting each channel, focusing on the Internet channel and how it is growing in importance and how it is changing the nature of the retail experience. The student did not have to discuss all the topics discussed in the chapter (and thus did not have to address all the issues given in the memo below), but rather they had to select those topics and issues that are most relevant to the situation identified in the article. The topics given below serve as a guide of the issues that should guide the general discussion. Approximate mark allocation (rough guideline only):

12 marks on the role of technology and how it is affecting retailing

12 marks for the issues relating to the three channels addressed in the prescribed textbook with a link to the article

6 marks for the practical examples Marker to use discretion when allocating marks based on the overall quality of the answer.

Total = 30 marks

RETAIL CHANNELS FOR INTERACTING WITH CUSTOMERS Exhibit 3-2 in the prescribed textbook lists the unique benefits of stores and the Internet.

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1. STORE CHANNEL (as a basis of comparison) Stores offer a number of benefits to customers that they cannot get when shopping through catalogues and the Internet.

Browsing. Shoppers will often only have a general sense of what they want but don’t know the specific item they want. They go to a store to see what is available before they decide what to buy. While many consumers surf the Internet and look through catalogues for ideas, most consumers still prefer browsing in stores.

Touching and feeling products. One of the greatest benefits offered by stores is the opportunity for customers to use all of their senses when examining products. While new technologies can provide 3-D representations on a CRT screen, these visual improvements will not provide the same level of information you get when actually trying on that swimsuit.

Personal service. Although shoppers can be critical of the personal service they get in stores, sales associates still have the capability of providing meaningful, personalised information.

Cash payment. Stores are the only channel that accepts cash payments. Many customers prefer to pay cash because it is easy, resolves the transaction immediately, and does not result in potential interest payments.

Immediate gratification. Stores have the advantage of allowing customers to get the merchandise immediately after they buy it. You are not going to wait a day or two for the delivery of the product.

Entertainment and social experience. Stores provide more benefits to consumers than simply having merchandise readily available and helping them buy it. For example, in-store shopping can be a stimulating experience for some people, providing a break in their daily routine and enabling them to interact with friends. Stores are a social experience. It doesn’t matter how many chat rooms there are on a site, they will never provide what the experience of brick-and-mortar shopping provides for all five senses, if not six or seven.

Risk reduction. When customers purchase merchandise in stores, the physical presence of the store assures them that any problems with the merchandise will be corrected. The store will be here to receive defective or unsuitable merchandise and issue you credit for it. Consumers do not have this same level of confidence when buying merchandise from catalogues or through the Internet.

2. ELECTRONIC RETAILING (as the focus – address what is relevant) Benefits offered by the electronic channel

Broader selection. A potential benefit of the electronic channel, compared to the other two channels, is the vast number of alternatives available to consumers. However, having a lot more alternatives to consider is not that much of a benefit. Consumers rarely visit more than two outlets even when buying expensive consumer durables. The advantages of having many alternatives is only

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meaningful if you have a programme to search through them and find a few items you might like to look at in detail.

More information to evaluate merchandise. An important service offered by retailers is providing information that helps customers make better purchase decisions. Retail channels differ in terms of how much information they provide and whether customers can format the information to compare different brands.

For instance, some catalogues provide only a few facts for each item, such as price, weight, and brand/model. Other catalogues offer much more detail about each item carried. Stores also differ in the information they make available to consumers. Specialty and department stores typically have trained, knowledgeable sales associates, whereas most discount stores do not. However, the personal knowledge of sales associates is typically limited. The space available in self-service stores and catalogues to provide information is constrained by the size of a printed page, a sign, and a package on a shelf.

Using an electronic channel, retailers have the capability of providing as much information as each customer wants, more information than they can get through store and catalogue channels. The electronic channel can respond to customers’ inquiries just like a sales associate would. Customers shopping electronically can drill down through web pages until they have enough information to make a purchase decision. Unlike catalogues, the information on the electronic channel database can be frequently updated and will always be available. On the other hand, retaining knowledgeable sales associates is difficult and, in many cases, not cost-effective. The cost of adding information to an electronic channel is likely to be far less than the cost of continually training thousands of sales associates.

Personalisation. The most significant potential benefit of the electronic channel is the ability to personalise the information for each customer in an economical manner. Often, sales associates in service-oriented retailers like department and specialty stores can provide this benefit. They know what their preferred customers want. They can select a few outfits and arrange to show these outfits before the store opens or even take the outfits to the customer’s office or home. However, an electronic agent can search through a wide range of alternatives, select a small set for the customer to look at in detail, and provide the information that the customer typically considers. An electronic agent is a computer program that locates and selects alternatives based on some predetermined characteristics. In the future, electronic agents may be computer software programs bought by consumers or offered as a service to their customers by retailers or third parties. The agent could learn about a consumer’s tastes by asking questions when it is installed on the customer’s computer or when the customer goes to the retailer’s website.

These agents function as a super sales associate in a department store, helping customers locate merchandise they might like. For example, Amazon.com has an electronic agent that recommends books based on the customer’s previous purchases.

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Problem solving information. The electronic channel also offers an opportunity to go beyond the traditional product information offered in stores to provide tools and information for solving customer problems.

Virtual communities, networks of people who seek information, products, and services and communicate with each other about specific issues, are examples of these problem-solving sites. Retailers are ideally suited to these problem-solving sites for customers. They have the skills to put together merchandise assortments, services, and information to attract members.

Perceived risks in electronic shopping. While most consumers have the opportunity to try out electronic shopping, they also have some concerns about buying products through an electronic channel. The two critical perceived risks are (1) the security of credit card transactions on the Internet and (2) potential privacy violations. While many consumers are concerned about credit card secu-rity, security problems have not arisen in actual usage. Almost all retailers use sophisticated technologies to encrypt communications. The perception of risk also is diminishing as credit card companies promote the use of their cards on the Internet and inform customers that the customers will not be responsible for security lapses.

Consumers are concerned about the ability of retailers to collect information about their purchase history, personal information, and search behaviour on the Internet.

Relative advantages of electronic shopping. Since many consumers have Internet access and can try out electronic shopping and technological developments are reducing security and privacy risks, the primary factor determining the growth of electronic shopping will be whether the electronic channel can provide sufficient benefits to interest customers in surfing the Internet rather than going to stores.

Even though electronic retail sales are still relatively small, the electronic channel has the potential for producing significant sales in the future, because the channel can offer consumers superior benefits to those offered by present in-store and non-store formats. Due to the interactive nature of the electronic channel, customers can have a selection of merchandise and information about the merchandise tailored to their needs. In effect, the electronic channel has the potential for preparing an individually tailored catalogue for the customer each time the customer goes shopping. Using this individually tailored shopping experience, customers will be able to make more satisfying selections of merchandise using the electronic format compared to other formats. The growth of electronic shopping depends on the degree to which retailers exploit the opportunity to provide a wide variety of personalised information through the electronic channel.

3. CATALOGUE CHANNEL (as a basis of comparison)

Convenience. Catalogues, like all non-store formats, offer the convenience of looking at merchandise and placing an order any day at any time from almost anywhere. With a catalogue, consumers have the added convenience of not

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being restricted to a place with an Internet connection and a computer. They can look through a catalogue on the beach or whilst propped up in bed. Finally, the information in a catalogue is easily accessible for a long period. Consumers can refer to the information in a catalogue anytime by simply picking it up from the coffee table. The development of ‘magalogs’, catalogues with magazine-type editorial content, enhances the desire to keep catalogues readily available.

Safety. Security in malls and shopping areas is becoming an important concern for many shoppers. Non-store retail formats have an advantage over store-based retailers by enabling customers to review merchandise and place orders from a safe environment – their homes.

Quality of visual presentation. The photographs of merchandise in catalogues, while not as useful as in-store presentations, are superior to the visual information that can be displayed on a CRT screen.

QUESTION 3 [20]

See Levy & Weitz (2012, Chapter 4, pp. 96-102) Students had to describe how Cambridge foods has segmented its market. They had to identify and describe the segmentation methods used and describe the target markets Cambridge Foods has selected. It was also important that the student make the effort to make use of the segmentation classification that is used in the South African context. Approximate mark allocation:

10 marks for the description of the methods used to segment the market

6 marks for the detailed description of the target market

4 marks if applied in the SA context with SA methods. The focus of the answer should have been practical application; students were not specifically required to discuss the theory.

Total = 20 marks

The attached table identifies the approaches to segmenting retail markets. Students had to select the most appropriate for the retailers in question. They did not (nor should they) have to use all of the methods identified.

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One of the local segmentation models that could have been considered is the SAARF universal living standards measure (LSM). The following paragraphs briefly outline some general comments relating to this topic. THE SAARF UNIVERSAL LIVING STANDARDS MEASURE (LSM) By Dr Paul Haupt The SAARF LSM or SAARF Living Standards Measure, developed by the South African Advertising Research Foundation (SAARF) has become one of the most widely used marketing research tools in South Africa. Unfortunately, it has become so relied upon that it’s very often being misused and has therefore become the victim of its own success.

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Developing the LSM To understand what can be achieved by using the SAARF LSM as a marketing segmentation tool, you need to know why it was created. When thinking about any population, it is important to understand that although people are very diverse, they do have certain commonalities. What is required from a market segmentation tool is to create an index that will differentiate between people with different behaviour patterns and group together those people with similar behaviour. Over time it was realized that what was needed was a set of descriptors based on more than one variable, which would provide a more powerful segmentation tool than any single variable on its own. From this thinking, emerged South Africa's first multivariate market segmentation index - the LSMs, which in addition was also a move away from segmentation based purely on demographics. The LSM index was designed to profile the market into relatively homogeneous groups. It is based on a set of marketing differentiators which group people according to their living standards, using criteria such as degree of urbanisation and ownership of cars and major appliances (assets). Naturally, the LSM bands are not airtight pockets. LSMs bring together groupings of people out of the total population continuum into contiguous and sometimes slightly overlapping groups. Essentially, the LSM is a wealth measure based on standard of living rather than income - in fact, income does not appear anywhere within the LSMs at all. In the new SAARF Universal LSM, the population continuum is divided into ten groups, from 1 at the bottom end, to 10 at the top. The LSMs are calculated using 29 variables taken directly from the SAARF All Media and Products Survey (AMPS). The full list of AMPS 2004 LSM descriptors are as follows: 1. Hot running water 2. Fridge/freezer 3. Microwave oven 4. Flush toilet in house or on plot 5. VCR in household 6. Vacuum cleaner/floor polisher 7. Have a washing machine 8. Have a computer at home 9. Have an electric stove 10. Have TV set(s) 11. Have a tumble dryer 12. Have a Telkom telephone 13. Hi-fi or music center 14. Built-in kitchen sink 15. Home security service 16. Have a deep freeze 17. Water in home or on stand 18. Have MNet and/or DStv 19. Have a dishwasher 20. Metropolitan dweller

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21. Have a sewing machine 22. DVD player 23. House/cluster/ town house 24. 1/more motor vehicles 25. No domestic worker 26. No cell phone in household 27. 1 Cell phone in household 28. None or only one radio 29. Living in a non-urban area Setting the record straight A misconception is that LSMs can be used as a psychographic or attitudinal measure. LSMs can tell a marketer that those in LSM 10 for example, have more commodities than others. It doesn't tell you their income, or whether they are predisposed towards spending money. To say that a product is being targeted at LSM 10 is to miss the point. The SAARF Universal LSMs® are thus not an alternate label for income. A large part of the marketing and advertising industry tends to use LSMs as the alpha and the omega of determining target markets. Of course it would have been nice if the LSMs could have been as important as that - as unequivocal. But the reality is that they are only one possible descriptor of market groupings, and to use them as the be-all and the end-all of market segmentation does more damage than good to the tool. In short, as with any research, a bit of common sense is called for. What is the SAARF Universal LSM? The new SAARF Universal LSM is similar to the older version, but starts out with 10 groups. As South African society develops, the SAARF Universal LSM has the ability to be extended beyond group 10, and 11, 12, etc. will be added as time goes by. Out of the original list of 20 variables used to determine a person’s LSM category in the previous LSM, 15 household variables have been carried through to the SAARF Universal LSM. In addition, the total number of variables has been increased to 29 to give finer definition to the scale. Key Issues to Remember

Take time to read the write-ups that accompany each LSMÔ group. This will provide information, such as where people shop, and what their media consumption habits are. Also, read the technical data about LSMs, so that you understand the principles which underpin them.

Use LSMs in conjunction with other marketing differentiators such as life stages, income, etc. If you want to use LSM 6 to 10 for targeting, you are basically targeting one third of the South African population - so you need to filter on other variables as well if you want to define your target market more closely.

Don't confuse LSMs with income. Think of a student, who lives in his parents' upmarket home in Sandton. Yes, he might live in an LSM 10 home, and yes, he will be different from a person living in, say, an LSM 4 home, but if his only

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income is derived from a part-time job while he is studying, his disposable income will be low.

It is important to remember that the SAARF Universal LSM is only one possible way of segmenting your market and that there are many other ways which could and should be considered in your quest for the best definition of your target market.

Source: Adapted from www.saarf.co.za

QUESTION 4 [30] Refer to the case study on Cambridge Foods Soweto store.

Refer to Levy & Weitz (2012, Chapter 5, pp.114-121) Students had to develop a strategy where they outline how they will utilise the seven sources of a sustainable competitive advantage to develop a sustainable competitive advantage for the Soweto Cambridge Foods store. Allocate approximately 4 - 5 marks for the discussion of each source of competitive advantage based on the quality of the answer. Theoretical discussion was not required. Practical application was essential throughout the answer. Marker to use own discretion when allocating marks – especially where the student discussed customer loyalty as one of the sources.

Total = 30 marks

BUILDING A SUSTAINABLE COMPETITIVE ADVANTAGE Seven important opportunities for retailers to develop sustainable competitive advantages are (1) customer loyalty, (2) location, (3) human resource management, (4) distribution and information systems, (5) unique merchandise, (6) vendor relations, and (7) customer service. 1. CUSTOMER LOYALTY Customer loyalty means that customers are committed to shopping at the retailer’s locations. Many of the bases for maintaining a sustainable competitive advantage discussed in this section also help attract and maintain loyal customers. For instance, having dedicated employees, unique merchandise, and superior customer service all help solidify a loyal customer base. But having loyal customers is, in and of itself, an important method of sustaining an advantage over competitors. Loyalty is more than simply liking one retailer over another. Loyalty means that customers will be reluctant to patronise competitive retailers. Some ways that retailers build loyalty are by (1) developing clear and precise positioning strategies and (2) creating an emotional attachment with customers through loyalty programs. A retailer builds customer loyalty by developing a clear, distinctive image of its retail offering and consistently reinforcing that image through its merchandise and service.

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Positioning is the design and implementation of a retail mix to create an image of the retailer in the customer’s mind relative to its competitors. Loyalty programmes are part of an overall customer relationship management programme. Customer loyalty programmes work hand-in-hand with CRM. Members of loyalty programs are identified when they buy because they use some type of loyalty card. The purchase information is stored in a huge database known as a data warehouse. From this data warehouse, analysts determine what types of merchandise and services certain groups of customers are buying. Using this information, retailers tailor their offerings to better meet the needs of their loyal customers.

2. LOCATION The three most important things in retailing are location, location and location. Location is the critical factor in consumer selection of a store. It is a competitive advantage that is not easy duplicated. Finding a great location is particularly challenging in older urban locations, where space is finite and tenant turnover is relatively slow. By concentrating on its locations, a retailer can create a market presence that is difficult for competition to match. Multiple locations facilitate scale economies that enable frequent deliveries, thereby ensuring fresh merchandise.

3. HUMAN RESOURCE MANAGEMENT Retailing is a labour-intensive business. Employees play a major role in providing services for customers and building customer loyalty. Knowledgeable and skilled employees committed to the retailer’s objectives are critical assets that support the success of a company. Recruiting and retaining great employees does not come easy. Retailers can gain a SCA by developing programmes to motivate and coordinate employee efforts, by providing appropriate incentives, by fostering a strong and positive organisational culture and environment, and by managing diversity.

4. DISTRIBUTION AND INFORMATION SYSTEMS All retailers strive for efficient operations. They want to get their customers the merchandise they want, when they want it, in the quantities that are required, at lower delivered cost than their competitors. By so doing, they will satisfy their customers’ needs and, at the same time, either provide them with lower-priced merchandise than their competition or decide to use the additional margin to attract customers from competitors by offering even better service, merchandise assortments, and visual presentations. Retailers can achieve these efficiencies by developing sophisticated distribution and information systems.

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5. UNIQUE MERCHANDISE It is difficult for retailers to develop a competitive advantage through merchandise because competitors can purchase and sell the same popular national brands. But many retailers realise a sustainable competitive advantage by developing private-label brands (also called store brands), which are products developed and marketed by a retailer and available only from that retailer.

6. VENDOR RELATIONS By developing strong relations with vendors, retailers may gain exclusive rights (1) to sell merchandise in a region, (2) to obtain special terms of purchase that are not available to competitors who lack such relations, or (3) to receive popular merchandise in short supply. Relationships with vendors are developed over a long time and may not be easily offset by a competitor.

7. CUSTOMER SERVICE Retailers also build a sustainable competitive advantage by offering excellent customer service. However, offering good service consistently is difficult. Retail employees provide customer service and humans are less consistent than machines. Retailers that offer good customer service instil its importance in their employees over a long period of time. It becomes part of the retailer’s organisational culture. Some retailers offer services customers don’t necessarily want, such as banking or dry cleaning, yet make customers jump through hoops to return merchandise. Most customers simply want retailers to trust them and tend to basic requests. It takes considerable time and effort to build a tradition and reputation for customer service, but good service is a valuable strategic asset. Once a retailer has earned a service reputation, it can sustain this advantage for a long time because it is hard for a competitor to develop a comparable reputation.

PRESENTATION [10]

Documents

ASSIGNMENT MEMORANDUM SUBJECT : RETAIL MARKETING …imm-gsm.s3.amazonaws.com/docs/Assignment_M_2012_2/RM001... · 2012-08-28 · ASSIGNMENT MEMORANDUM SUBJECT : RETAIL MARKETING (RM)