Retail Marketing – is it really different from traditional marketing?

In simple language marketing is about identification and satisfaction of unique customer

needs and wants, at a profit. Retail organizations in the region, being predominantly
franchisees, often ignore the ‘identification and satisfaction’ part of the marketing
definition. The emphasis is on identifying correct store locations which enable customers
to ‘collide’ with the brand during shopping outings, and topping it up with awareness
creating advertising. And therefore the job role of marketing managers of retail
organizations in the region is usually defined as ‘managing’ the advertising and PR
budget.

Marketing is not just about ‘communicating’ what a company sells or the service it
provides, and assuming that customers will beat a path to the store. Marketing doesn’t
happen when we appoint a marketing manager. Implementing the marketing concept
requires three conditions - one, creating a customer-need satisfaction focused culture in
an organization, two, complementing it with organization systems and processes that on a
continuing basis monitor consumer perceptions and understand their motivations, and
three, adapting or developing offerings to meet both current and future consumer needs.

But can the traditional marketing tools and concepts that were created within companies
like P&G and Unilever, euphemistically called the ‘universities of marketing,’ to manage
consumer brands be relevant to and applied in retail organizations? I believe so. But with
an appreciation of nature of the retail industry, adapting to the structural constraints that it
imposes and the unique opportunities that it throws up.

In the regional context where retail is franchise-based, three additional issues merit
consideration – one, the roles and responsibilities of the franchisor-franchisee
relationship are usually based upon allocation of budgets in proportion of sales or
purchases, two, the brand owners are often remote from and less responsive to local
issues, and three, most franchisee dealings with franchisors occurs via the sales function
(after all franchising is a form of distribution) whose goals are not necessarily motivated
by marketing.

The table 1 captures the three fundamentals of applying the marketing concept –
segmentation, positioning and differentiation. Segmentation enables an organization to
identify the target market, a decision driven by the set of needs the organization seeks to
satisfy, and size of the target segment. Positioning is the distinctiveness that we seek to
create in the minds of customers so that the product or service is a part of the potential
customers’ decision-making when the need to consume the product or service arises.
Differentiation is what distinguishes one organization from another in terms of unique set
of resources and capabilities that enable the organization achieve a sustainable distinctive
positioning.
Table 1 – Application of the marketing concept
Differentiation Positioning Segmentation
The unique capabilities comprising of The unique identity one seeks to create The unique target
organizational processes, technologies, in the market and in the minds of market one desires
structures etc. that enable an consumers so that the brand / product / to serve by
organization develop a sustainable service is a part of the consumer choice fulfillment of
differentiation set specific needs

Differences in retail and product industries

Applying the marketing concept differs in retail, which is primarily a service industry,
and in product (e.g. FMCG) industries (Table 2).

Product assortment: Companies that manufacture and market products usually handle a
small assortment of products (e.g. types of Crest toothpaste on the shelf of a supermarket)
whereas retailers usually handle large assortments (e.g. number of styles, colors, fabrics,
sizes in an apparel store).

Geographic constraints: Retailers focus upon narrow geographies. Once a shop location
is selected, it very much defines the coverage - the geography from where customers will
come, and the competition, based upon the regional demographics, traffic flows, people’s
concept of convenience and willingness to travel distances to fulfill their need. This
factor will soon (if it has not already) become apparent in Dubai with the start-up of Ibn
Battuta and Mall of the Emirates, which can certainly be expected to lead to footfall
impact on the other older malls. Customers in Barsha and Jumeirah will seek the more
convenient locations. This implicit geographic segmentation in retail requires retailers to
focus upon broader spectrum of heterogeneous customers. My retail experience suggests
that the nature of customers, reflected in average spend and nature of merchandise
purchased, across the same apparel brand stores differ across Diera City Center, and
Burjuman, and this requires the need to offer a wider collection in the assortments.
Location that is fundamental to retail success has no equivalence in product or
manufacturing industries. Just as geographic segmentation imposes limitations upon
retailers in terms of the need to focus upon heterogeneous shoppers in the store
catchments area, customers are also constrained in fulfilling their needs of retail brands
from specific retail stores whereas product (like FMCG) brands are usually available in
multiple locations.

Differences in cost structures: Some fundamental structural differences exist in the cost
structures of retailers and manufacturers. Retailing is a high fixed costs business (based
upon investment in land, building, fixtures, IT, and logistics), with low margins. The
maximum business potential of each retail outlet has limitations based upon geographic
coverage. With size limitations and high fixed costs retail business profitability is very
sensitive to sales volumes fluctuations, and retail managers are prone to price
discounting. We have all seen the nearly ten month discount strategies adopted by most
retailers in Dubai.
Economies of scale: Once a retail store reaches maximum geographic potential and sales
plateau investment in new retail stores is required with consequential high fixed costs.
Diseconomies of scale at store level set in very quickly and to achieve economies of scale
a retail store chain of a certain size is necessary. Product manufacturers too have high
fixed investments but cater to a much larger geography (i.e. a much larger potential enjoy
economies of scale before diseconomies set in.

Product value declines rapidly with time: Retailers are genuine speculators. They bet on
every purchase that the customers will like what they are stocking. And if customers
don’t respond to the product assortment at the ticketed price, retailers cannot afford to
wait and need to freshen stock. To refresh stock they need to reduce price and hope that
the stock starts to move. The retail business results are very sensitive to product
obsolescence. It is rare that a retailer sells the complete stock at full price and margin. An
apparel retailer is happy if they are successful 60% of the time. I often say that in retail
we don’t make money in selling products but in managing stock aging and the
consequential provisioning that accountants’ make for dead stock. It is rare that we see an
FMCG product brand decline price seasonally – promotions yes, price reductions no no.

Influence of price perceptions: Customers’ experience of retail brand consists of

experiencing a vast assortment of products in a store environment. It is impossible for
customers to compare prices of a vast array of products across stores, and customers form
impressions about the prices in a store based upon price cues based upon comparing
prices of certain benchmark products. Customers find it easy to compare prices of a
Rolex watch but comparing prices of an apparel store Zara with a Mexx is difficult. Male
customers shopping for clothes often remember prices of products like pique polo T-
shirts whereas women customers may use a basic blouse as a benchmark product to
compare. The price perceptions once formed play significant roles in influencing
customers decide where to shop. For example take a brand like Mont Blanc. As a luxury
writing instrument it enjoys an up-market image i.e. price is perceived to be correlated
with quality and the product brand is the category leader. In contrast a high or low
perception of price is often the cornerstone of the image of retail brand. If the same
product is available at different prices at different retail stores, the price quality
relationship in the mind of the customer is broken.

Impact of these differences on marketing

The tradition marketing strategies of segmentation, positioning and differentiation cannot

be pursued for retail brands in the same way as for product brands.

1. Geographic segmentation forces retailers to focus upon heterogeneous shoppers in

the store catchments area, and retailers are forced to adopt broad positioning
strategies to maximize opportunity. Product positioning is like a rifle with a
telescope whereas retail positioning is like using a shotgun that aims broadly and
hits the target by discharging a load of pellets. Retailers also cannot de-select
consumer segments. When Burberry was re-launched it caused a proliferation of
the Burberry check, and often consumers who were not target customers of
 Burberry were seen carrying the Burberry check, creating a fear of devaluing the
brand strategy of using the check as an icon.
2. The speculative nature of retail means that the brand is re-launched every season.
Unilever can continue investing in a brand like Dove because the variation in the
product is marginal over time. In retail brand building requires cautious
investment with a strong sensitivity to consumer feedback. Gap went through
nearly 4 years of declining sales before it realized that it had lost its distinctive
edge in its target customers’ minds.
3. Retail is really attention to detail. Retail brand positioning requires managing a
large number of variables (product assortment versus products, price perception
versus price, geographic location, store design and ambience, staff selection and
training, customer service, advertising, etc.) since the retail brand identity is
created through an experiential and multi-sensory process and is a result of both
cognitive and emotional processes. A product brand like a Dove has the same
identity in a consumers mind whether purchased from a Carrefour, Spinney, or a
neighborhood grocery.
4. Price is a means of positioning is rarely used as a means of positioning.
Positioning on price is only possible for a retail format ‘hard discounter’ like Aldi.
5. Retail brand and formula proliferation is often more difficult in retail and doesn’t
fulfill the same role as product brand proliferation. Gap realized this with Old
Navy. Old Navy was the hip-hop brand whereas Gap had its roots in conservative
fashion as smart casual became derigueur office wear. Gap attempted to become
fashionable and customers realized that Old Navy was a cheaper Gap, and Old
Navy sales started to rise at the cost of Gap sales.
6. Retailers, by virtue of controlling the environment in which customers’ buy
products, possess knowledge of consumers’ shopping and brand choice behavior.
Retailers can speak to consumers one at a time, and use a range of tactical
marketing-mix variables like shelf space and position, price, promotions,
merchandising, sampling, staff interactions, etc. to influence consumers.

So how do retailers achieve differentiation?

Differentiation in retail is usually visible if one takes a round of any mall. All stores do
look different. But are they unique enough to influence consumer buying behavior over
the long term? The challenge is sustainable differentiation. None of the following options
alone endow a retailer with sustainable differentiation. But retailers need to manage all of
the following options concurrently on a continuing basis somewhat like an orchestra
conductor.

Format differences as response to customer heterogeneity: Some retail chains are clearly
differentiated e.g. a Carrefour, a hypermarket, is different from a neighborhood
convenience store like a 24 7 – a format difference. But even within format perceptible
differences emerge e.g. Carrefour carries merchandise seeking to appeal to a broad multi-
ethnic community whereas Lu Lu hypermarkets are perceived to serve the South Asian
community. Some large retailers abroad (e.g. Metro in Germany and Wal-Mart operate
both warehouse clubs and hypermarkets) have successfully developed the art of
managing different formats concurrently.

Retail brand identity differentiation as positioning: The Landmark group is attempting to

consolidate and present its category killer brands under the concept of “Centerpoint.” It is
difficult to see any real synergistic advantages in umbrella branding. Stores by
themselves have a strong identity, and consumer recall. The brand names (Shoe Mart,
Home Center, and Baby Shop) inform customers about the merchandise, and are lost in
this umbrella branding. Will a collection of category killers become a destination? Are
their economies of scale in advertising? Or location? Is it a large format department store
where one will get products for all needs?

Quality of retail service as positioning: Quality of service at the store is not separable
from product. A customer will rarely visit a store which is known for quality service but
where products are often unavailable. Retail service rarely creates a sustainable
differential advantage. Quality is always threatened by low cost. No customer objects to
investments in people, displays, technology, more checkouts, range of products, wide
aisles, parking, etc. to make shopping a memorable experience. But visible modifications
can be easily copied by competitors, and competing stores play catch up and start
becoming similar. And then the cycle starts again as high costs associated with providing
service are undercut by a more nimble low cost competitor.

Distinctive offerings as positioning: A distinctive product offering is key basis around

which a distinctive brand identity evolves. Waitrose is a supermarket cooperative
supermarket chain in the UK that has successfully differentiated itself at the upper-end of
the supermarket business by focusing upon fresh food. Whereas the use of private labels
is becoming common as a low cost alternative to famous brands (value at a price),
Waitrose has successfully managed to create an up-market identity in supplying a large
variety of fresh cuisines (Indian, Italian, Thai etc.) of a high quality in the Waitrose
brand. Waitrose has managed to do at the supermarket level what brands like Body Shop,
Gap, Ikea, etc. or sub brands like St. Michael by M & S have managed to do in fashion or
furniture retailing. Zara manages to fresh its stock by launching a collection each month.

Supply chain efficiencies: The real heart of sustainable differentiation in retail is the role
of efficiencies and knowledge networks in the supply chain that integrates suppliers with
customers. Store fronts are mere theaters. Value is usually created behind the scenes. A
Waitrose cannot be successful if it cannot manage the knowledge and capabilities of its
network partners in its fresh supply chain. A Zara cannot work if it does not have a
responsive supply chain that reproduces within two weeks what its fashion spotters in
retail stores identify as trends of the season.

Conclusions

Retail marketing success requires a certain amount of paranoia and hyperactive behavior.
The process starts with focusing upon the ‘consistent price image’ that one seeks to
achieve by ‘balancing quality and value’ through ‘stable pricing.’ This requires a slew of
concurrent activities that focus upon tactical engagement of the customer at the store to
develop consumer trust, and loyalty - through KVIs (e.g. known value items like pique
polo in a men’s apparel store), promotional activity (e.g. price signaling, reductions and
special offers), store presentation (e.g. bare stores like warehouse clubs or hard
discounters versus intimidating stores), publishing price comparisons, use of
appropriately priced store brands, special offers via loyalty cards, price strategy like
EDLP (e.g. strong communication to competitors, and customers), managing promotions,
reducing stock-outs (smoothening inventory management) or high-low pricing (selling to
two consumer segments) etc. etc.

Table 2 Comparing product and retail industries

Criteria Product industries Retail industry
Number of products Usually small ranges Large assortments
Geographic focus Large geographies Limited geographies - coverage a function of
store location
Customer focus Target segments can be narrow and Target segments have to be broad and shallow -
deep – homogenous demand has to be broadly targeted because of coverage
limitations – focus upon more heterogeneous
customers
Customer choice Usually obtain products from many Customers usually don’t have many options –
outlets – wider distribution – need to go to specific retail outlets
customers exercise choice
Economies of scale Economies of scale is a In the retail business diseconomies of scale set
competitive weapon in quickly – retail is a high fixed cost industry –
to achieve economies f scale need to create a
retail chain
Prone to Based upon technology and Based upon inventory aging
obsolescence – price competition
declines – need for
inventory
provisioning
Role of price Easy to compare product prices Price perceptions influence consumer’s store
perception choice behavior

© Manoj Nakra