Retail Management 5 Units

HVBS- Retail Management
UNIT I- INTRODUCTION
An overview of Global Retailing Challenges and opportunities Retail trends in India Socio
economic and technological Influences on retail management Government of India policy
implications on retails.
What is Retail?
Retail is the final stage of any economic activity. By virtue of this fact Retail occupies an
important place in the world economy. In an attempt to understand the scope of the term retail,
various definitions of the term have been examined. According to Philip Kotler: "Retailing
includes all the activities involved in selling goods or services to the final consumers for
personal, non-business use. A retailer may be defined, as a 'dealer or trader who sells goods in
small quantities' or 'one who repeats or relates'. Retailers acts as the connecting link between the
manufacturers, wholesalers and the consumers. A typical distribution channel is shown below;
Functions of a Retailer:
From the customers point of view, the retailer serves him by providing the goods that he needs in
the required assortment, at the required place and time. From an economic standpoint, the role of
a retailer is to provide real added value or utility to the customer.
Sorting
Manufacturers usually make one or a variety of products and would like to sell their entire
inventory to a few buyers to reduce costs. Final consumers, in contrast, prefer a large variety of
goods and services to choose from and usually buy them in small quantities. Retailers are able to
balance the demands of both sides, by collection an assortment of goods from different sources,
buying them in sufficiently large quantities and selling them to consumers in small units.
While all retailers offer an assortment, they specialize in types of assortment offered and the
market to which the offering is made. Westside provides clothing and accessories, while a chain
like Nilgiris specializes in food and bakery items. Shoppers Stop targets the elite urban class,
while Pantaloons is targeted at the middle class.
Breaking Bulk
Breaking bulk is another function performed by retailing. The word retailing is derived from the
French word retailer, meaning to cut a piece off. To reduce transportation costs, manufacturers
and wholesalers typically ship large cartons of the product, which are then tailored by the
retailers into smaller quantities to meet individual consumption needs.
Holding Stock
Retailers also offer the service of holding stock for the manufacturers. Retailers maintain an
inventory that allows for instant availability of the product to the consumers. It helps to keep
prices stable and enables the manufacturer to regulate production. Consumers can keep a small
stock of products at home as they know that this can be replenished by the retailer and can save
on inventory carrying costs.
Additional Services
Providing product guarantees, after-sales service and dealing with consumer complaints are some
of the services that add value to the actual product at the retailers end. Retailers also offer credit
and hire-purchase facilities to the customers to enable them to buy a product now and pay for it
later. Salespeople are also employed by retailers to answer queries and provide additional
information about the displayed products.
Channel of Communication
Retailers also act as the channel of communication and information between the wholesalers or
suppliers and the consumers. From advertisements, salespeople and display, shoppers learn about
the characteristics and features of a product or services offered. Manufacturers, in their turn,
learn of sales forecasts, delivery delays, and customer complaints. The manufacturer can then
modify defective or unsatisfactory merchandise and services.
Transport and Advertising Functions
Small manufacturers can use retailers to provide assistance with transport, storage, advertising
and pre-payment of merchandise. This also works the other way round in case the number of
retailers is small. The number of functions performed by a particular retailer has a direct relation
to the percentage and volume of sales needed to cover both their costs and profits.
TRADITIONAL AND NON TRADITIONAL RETAILING

Traditional retailing involves the store based retailing. It includes the corner kirana store formats.
Thanks to the development in the retail scenario, the new face of retailing is emerging taking the
form of malls and non-store based retailing. The difference between traditional retailing and non
traditional retailing are listed below;
1 Size
Traditional store based retailing is run with a relatively lesser square feet compared to the malls
which operates on a large scale. Often malls are set in multiple thousands of square feet. The
modern retailing also takes place in virtual space or cyber space without any brick and mortar or
in the form of multichannel retailing.
2 Location
The small kirana shops are often located near the consumers vicinity or household location. The
modern retail stores may be located near the consumers location. Mostly due to the escalation in
the cost of real estate, it may be situated a bit away from the densely populated area.
3 Ambience
The traditional stores do not bother about providing amenities and ambience to the shoppers as
they spend the minimum time in the shops. The modern malls are focusing more on providing
shopping experience and hence ambience plays a major role. The design, decorum and the
environment is artistically decorated so as to hold the attention of the shoppers. The malls spend
a lot of providing amenities right from parking lots to children play area so as to increase the
footfall.
4 Assortment
Traditional retail shops may not have a large space to store a wide variety of products and
brands. The modern malls offer depth and breadth in a range of products complete with
unlimited choices and substitutes. Some specialized stores deal with a special product category
but include variety in the same.
5 Knowledge of Consumer
Most of the Kirana shop owners know the customers by name and have a personal touch with the
consumers and their family. Sometimes it may also lead to emotional bonding and loyalty. In
modern retail formats, the customer may not come in touch with even a sales person. Thanks to
automation, a customer can just walk in pick up the products and walk out without the need for
any human intervention. Though database captures the shopping details and the personal profile
of the customers, it lacks the human touch.
6 Home Delivery
The consumer can depend on home delivery of their purchases without much delay in case of
traditional stores. In case of modern retailing though some stores offer home delivery, not all
stores offer the same. In case of e-tailing the shoppers may have to wait for a longer time for the
delivery of the products ordered.
7 Cost
Normally consumers hold the perception that the products sold in malls and big shopping
complex are costlier than the ones sold in the traditional store. They feel that the cost incurred in
providing the ambience and shopping experience are loaded on the product, making them highly
priced than the ones available in kirana stores. Sometimes the shoppers enjoy the ambience and
do window shopping, gather information and go back to their corner stores for purchase of the
product. This poses a serious threat to modern retailers leading to more foot fall but less revenue
per square feet. Apart from the above distinguishing features there are other aspects like the
credit transaction, time spend in the stores, waiting time for billing , frequency of visits and the
like.
Industry Evolution
Traditionally retailing in India can be traced to the emergence of the neighborhood Kirana
stores catering to the convenience of the consumers
Era of government support for rural retail: Indigenous franchise model of store chains run by
Khadi & Village Industries Commission
1980s experienced slow change as India began to open up economy. Textiles sector with
companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim first saw the emergence of
retail chains. Later Titan successfully created an organized retailing concept and established a
series of showrooms for its premium watches
The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure
Retailers. For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music
World in music; Crossword and Fountainhead in books.
Post 1995 onwards saw an emergence of shopping centers, mainly in urban areas, with facilities
like car parking targeted to provide a complete destination experience for all segments of society.
Emergence of hyper and super markets trying to provide customer with 3 Vs - Value, Variety
and Volume
Expanding target consumer segment: The Sachet revolution - example of reaching to the bottom
of the pyramid.
At year end of 2000 the size of the Indian organized retail industry is estimated at Rs. 13,000
crore
INDIAN RETAILING
The Indian retail sector can be broadly classified into:
Food retailers: There are a large number and variety of food retailers in India. Traditional
type of retailer who operate one single business unit employing family members constitute
majority of the share of food retailing. The share of supermarkets formulates only a small share
in the total food sales in India. However the growth rate of supermarket sales is increasingly
more number of higher income consumers prefer to shop these supermarkets which offers
hygiene and good ambience.
Health and Beauty products: With the growth in the income level, the Indian consumers
started to spend more on the sale of health and beauty products. Here also small and single outlet
retailers dominate the market. However there is an increase in the number of retail outlets
dealing with these products in view of the increase in the quality consciousness of the
consumers.
Clothing and Footwear: A number of clothing and footwear shops operate in shopping
centers and markets all over India. Traditional outlets stock a limited range of cheap and popular
items whereas modern clothing and footwear have modern products and attractive displays to
lure customers. In view of rapid urbanization and changing consumer tastes and preferences, the
traditional outlet will face a time to survive.
Home furniture and household goods: Small retailers again dominate this sector. Despite the
large size of this market, very few large and modern retailers have established specialized stores
for these products. However there is considerable potential for the entry or expansion of
specialized retail chains in the country.
Durable goods: The Indian durable goods sector has seen the entry of a large number of
foreign companies during the post liberalization period. A greater variety of consumer electronic
items and household appliances became available to the Indian customer. Intense competition
among companies to sell their brands provided a strong impetus to the growth for retailers doing
business in this sector.
Leisure and personal goods: Increasing household incomes due to better economic
opportunities have encouraged consumer expenditure on leisure and personal goods in the
country. There are specialized retailers for each category of products (books, music
products,etc.) in this sector. Another prominent feature of this sector is popularity of franchising
agreements between established manufacturers and retailers.
Categorizing Retailers
Depending upon certain characteristics retailers can be classified into several categories.
Retailers can be categorized on the basis of following six factors:
1. Target Market Served
2. Product Offerings
3. Pricing Structure
4. Promotional Emphasis
5. Distribution Method
6. Service Level
And one operational factor: Ownership Structure

These groups are not mutually exclusive. In some ways all retailers can be included in each
category.
1. Target Market Served

Here the classification is based on the type of markets a retailer intends targeting.
a. Mass Market
Mass market retailers focus on the largest market possible by selling products of interest to
almost all the buyers. As mass market retailers have to attract customers from such huge markets
the competition amongst them is very high.
b. Specialty Market
Here the category includes retailers focusing on specialty markets. Specialty markets cater to
buyers who are looking for products with features that are beyond those in mass market. These
customers are looking for special or advanced products. Here a higher level of customer service
is also expected. Although not as large as the mass market the specialty retailers also target a
sizeable market. Blalock Seafood and Specialty Market is premier source for fresh seafood, fine
wines, and gourmet additions on the Alabama Gulf Coast and in Destin, Florida
c. Exclusive Market
The number of retailers catering to exclusive market in a geographic location is generally small
as the target market is small. The buyers interested in exclusive market products are willing to
pay a premium for unique features and for highly personalized services. The number of such
buyers is usually small.
2. Product Offering
Under this category the retailers are classified according to the width and depth of the products
they offer. Width refers to the number of different product lines and depth refers to the number
of products in each product line.
a. General Merchandisers
The general merchandisers are retailers who offer various product lines which mean they have a
broad width. However, the number of different items in each product line is few, therefore a
shallow depth.
b. Multiple Line Specialty Merchandisers
Retailers classified under this category offer a limited number of product lines so they have a
narrow width. But they offer an extended selection in each line. They have a greater selection
than the general merchandisers. Example is consumer electronics retailer.
c. Single Line Specialty Merchandisers
Some retailers have a very limited offering of just one product line that is a very narrow width.
And sometimes in this single product line they offer a single product. An example here can be a
small website selling a single product like computer gaming software.
3. Pricing Strategy
Retailers can also be classified on the basis of their pricing strategy. Some retailers use pricing
for competitive advantage while others employ non-pricing strategies for competitive advantage.
a. Discount Pricing
Discount retailers usually sell low priced goods. Their profit margin is low that is price minus
cost. They usually sell in high volume to make profit. The discount retailers try to keep overhead
costs low by controlling expenses on things like real estate, website design, store layout and offer
fewer services to customers.
b. Competitive Pricing
Some retailers are not interested in competing on price nor are they willing to be seen charging
the highest price. Usually such retailers operate in specialty markets. They deeply study the
market and ensure that their prices are competitive but do not desire to get engaged in price wars
with the discount retailers. They therefore use other elements of the marketing mix like high
quality products, beautiful store decoration etc to create higher value for money. The customers
are there by lured into paying more.
c. Full Price Pricing
Retailers who are catering to exclusive markets realize that such markets are far less price
sensitive than mass or specialty markets. Here, additional value added through increased
operational expenditure (like expensive store location, more services) justifies higher prices. The
retailers targeting exclusive markets sell in volumes less than those of discount or competitive
market retailers however the profit margin in each product is far more.
4. Promotional Focus
Several promotional techniques are employed by the retailers to catch the customer's interest.
Out of the various promotional techniques some retailers use one method as their primary
promotional approach.
a. Advertising
Advertising is a mass promotional method which is employed by a sizeable number of retailers.
The use of newspapers and television are traditional promotional methods still being used. For
online retailers internet advertising is the preferred option.
b. Direct Mail
Various retailers use direct mail as their promotion technique. A bulk of the customer market can
be reached through postal mails and postcards. Catalog retailers primarily use bulk mail to
distribute their material. Apart from them small local retailers also use postcards for promotion.
c. Personal Selling
Retailers selling expensive high-end products realize that the most effective promotional method
in their case is person to person contact with the buyers. The buyers expect such service and
though many retailers also employ other promotional techniques like advertising personal selling
is the best alternative in building customer relationship in such cases.
5. Distribution Method
Retailers are not bound to use only one distribution method they may use more than one method
to fulfill their purpose.
Store-Based Sellers
Almost all buyers physically visit a retail outlet to obtain products of their need. This is the most
traditional and predominant method. These store outlets can be further sub-divided into different
categories based on features like is the store a stand-alone or physically connected to other stores
etc.
Stand-Alone
These stores do not have other retail outlets connected to it, as the name suggests these stand-
alone.
Strip-Shopping Center
Here the store arrangement is of two or more retail outlets physically connected to each other and
sharing physical resources (e.g. a parking lot).
Shopping Area
A shopping area is like a city shopping district, where many retail outlets operate. These outlets
may not be physically connected but are at close proximity. It is a huge retail shopping area with
large number of retailers operating independently but with their outlets in close proximity.
Regional Shopping Mall
It is a huge self-contained shopping area with various connected outlets.
Non-Store Sellers
For the benefit of the shoppers retailers are fast adopting a new style of marketing their product.
The customers do not need to physically visit a retail store to buy a product but can do the same
sitting in their home.
a)Online Seller
The retailer sells his products over the internet. This is a fast growing retail method where the
delivery of the product is usually handled by a third party.
b)Direct Marketers
These marketers are basically retailers selling mainly through direct method. They have one
location where they receive orders but it does not receive customers to physically visit and buy.
Orders are received through telephone or mail.
Service Level
Apart from providing desirable products at reasonable price the retailer also focuses on providing
the customer with services that enhance the purchase experience.There are at least three levels of
retail service, they are:
a)Self-Service
Here the consumer performs almost all the services. Some customers enjoy such shopping
experiences and believe it gives them more freedom while others find it bothersome. Self-service
provides self-selection services such as online and vending machine purchases. A self-checkout
service is also a part of self-service design, here the customer is helped with the selection but the
payment and scanning is done at self-checkout stations.
b)Assorted Service
The retailers provide various kinds of services to their customers. These include assistance at the
point-of-purchase, helping the customer while selecting the product, explaining and arranging
payment plans, product delivery etc. Some level of service is always provided to the buyer.
c)Full Service
As the name suggests almost all kinds of services available are provided to the customer. The
customer just needs to select the product and the rest is looked after by the retailer. Retailers who
provide full service to their customers do this as a value addition to the customer's buying
experience.
An Overview Of Global Retailing
Retailing is becoming a global industry, as more and more retailers pursue growth by expanding
their operations to other countries. The large retail firms are becoming increasingly international
in the geographical scope of their operations. Amway, Avon, Ace Hardware, and Inditex (Zara)
operate in more than 20 countries.
Top 10 Companies In World
Modern retail has surged in Chile because of a strong economy, significant investments by local
retailers, and the 9 percent annual increase in modern retail space over the past five years .In
2011, Wal-Mart opened 35 new stores in small, convenience, and hypermarket formats, and the
favorable conditions attracted other international retailers.
French apparel retailer Faonnable. International restaurant chains are also benefiting from the
favorable conditions. U.S.-based Dunkin Donuts plans to grow significantly in Chile over the
next five years as part of its international growth strategy.
Uruguay: coming into its own.
While historically dependent on its larger neighbors Argentina and Brazil, Uruguay (4th) is
becoming a retail destination of its own for locals and tourists alike. Despite its relatively small
local population, Uruguays high rate of urbanization and strong consumption levels are
attractive to retailers.
Peru: an opportunity in modern retail. Peru (10th) has continued its strong economic growth for
a decade, evident in an increase in disposable income and consumer confidence. Perus GDP
rose 5 percent in 2011, and retail sales increased 13 percent. With modern retail making up a
relatively small share in Peru, many regional players see an opportunity to enter, causing the
countrys organized retailers to play catch up.
In apparel, China is now Inditexs largest market outside of Europe. The Spain-based company,
whose brands include Massimo Dutti and Zara, opened 132 new stores in China 2011, with
additional plans to add online sales for the autumn-winter season. Gap is planning to increase its
store total in China from 14 to 45 this year, and it is considering introducing additional brands
such as Banana Republic. China is also Apples second-largest market after the United States. It
has six stores in the country now and is planning to invest in more stores this year to support
additional growth. Chinese consumers have become more price sensitive. They are receptive to
more targeted below-the-line marketing activities and are less brand loyal than consumers in
other countries, in part because of the constant entry of new brands
Malaysia: consumer confidence. Retail in Malaysia is still fragmented, revealing an opportunity

for expansion. Modern chains continue to spring up in city centers, catering to the urban
population. By 2015, more than three-quarters of Malaysians are expected to live in cities.
Currently, foreign players dominate grocery, including Carrefour, Tesco, Hong Kong-based
Dairy Farm, and Japans AEON, along with local retailers such as Parkson and The Store.
Sri Lanka: ambitious growth. Sri Lankas improved political and economic stability helps it
move up to 15th in the GRDI. Unprecedented levels of tourism (46 percent growth in 2010 and
31 percent in 2011), strong GDP numbers (6 to 7 percent), healthy consumer spending, and
increased exposure to global brands augur well for the retail industry. Post-war stability also
brings infrastructure development and expansion in the retail footprint.
Indonesia (16th). The organized grocery sector in Indonesia has strong growth potential given
its currently lower penetration than other developing Asian markets. Malls have sprung up across
the country, with five new projects reaching completion in 2011. Japanese retailer Lotte Group
opened a duty-free shop at the Soekarno-Hatta International Airport in Jakarta, its first outside of
South Korea.
Central Asia and Eastern Europe Retailers in Central Asia and Eastern Europe have not faced
the same economic instability as their Western neighbors. Growing, oil-rich countries Georgia
and Azerbaijan enter the GRDI as their citizens adopt modern retail formats quickly, making
them targets for luxury goods brands. Macedonia and Albania remain attractive to some
international retailers, particularly from neighboring markets, but others are skeptical worried
about their small size and low consumer wealth.
Russia is drawing global retailers as it is a large, attractive market, but penetration from
international retailers is greater than that of emerging market retailers in the region.
Turkey: more consolidation to come. Impressive economic growth (8.5 percent in 2011) and
strong consumer spending (20 percent growth since 2009) drives the retail industry in Turkey
(13th). Turkish retailers, including hard discounter BIM, dominate the market even as
international retailers such as Carrefour and British retail giant Tesco increase their presence.
Although hypermarkets and supermarkets are spreading, major retailers are opening small-store
formats, such as Carrefour Express and Migros Trk's M-JET, to compete with bakkals and grow
in smaller cities.
Saudi Arabia: strong fundamentals. Saudi Arabia is 14th this year as it continues to exhibit a
strong market, evident in rising GDP and population, increased government spending, and a
more stable political environment. With 28 million citizens, Saudi Arabia is the largest and
among the most attractive markets in the Middle East. Saudi Arabias drop of four spots from
last years GRDI rankings is the result of new countries entering the ranking, rather than a
change in Saudi Arabias attractiveness. Rising disposable incomes and acceptance of modern
formats and foreign brands are driving consumer spending. Furthermore, a government stimulus
plan will inject about $110 billion into the economy in the next five years. Saudi Arabias large
population and its relatively low GDP per capita compared to its neighbors suggest that the Saudi
middle class could be a source of growth as incomes rise. Moreover, religious tourism is driving
sales in many sectors, as millions of Muslims make the annual trek for Hajj.
Lebanon: vibrant and progressive.
Lebanons 22nd ranking is a 10-spot drop from last year, the result of political instability and the
Syrian uprising taking place next door. However, Lebanons capital, Beirut, is home to a vibrant
and trendy bourgeoisie who follow international fashion trends and prefer shopping in high-end
malls for products from renowned international designers, including wristwatches and luxury
cars. Although Lebanon is small and still counts as a low-income country, its array of celebrity
designers is helping it regain a reputation as a global fashion capital.
Chile. Chile, 4th in the Retail Talent Index, has seen explosive economic growth, which is
directly impacting the nations retail sector. Retail growth is supported by an available, well-
trained pool of labor. But these workers are tied up in the thriving construction, industrial, and
retail sectors. Unemployment in Chile is relatively low at approximately 6 percent. In retail, the
number of sales associates has increased, but their salaries have not, indicating that supply has
exceeded demand. The government is making a concerted effort to expand the workforce by
encouraging more women to join the ranks of the gainfully employed.
Some factors that have created these differences in supply chain systems in the major
markets include (1) social and political objectives, (2) geography, and (3) market size.
Social and Political Objectives
An important priority of the Indian and Chinese economic policy is to reduce unemployment by
protecting small businesses such as neighborhood retailers. Several E.U. countries have passed
laws protecting small retailers, as well as strict zoning laws to preserve green spaces, protect
town centers, and inhibit the development of large-scale retailing in the suburbs.
Geography
The population density in the United States is much lower than in India, China, or Europe. Thus,
there is less low-cost real estate available for building large stores in these countries compared
with in the United States.
Market Size
The U.S., Indian, and Chinese retail markets are larger than those in any single European
country. In Europe, distribution centers and retail chains typically operate within a single
country, which prevents them from achieving the scale economies that U.S. firms, which serve a
broader customer base, enjoy. Even with the euro and other initiatives designed to make trade
across European countries easier and more efficient, barriers to trade that are not found in the
United States still exist.
New Globalization
The 2012 GRDI finds a world that is truly globalizing. While the usual giants of the developing
world, particularly the BRIC nations, still make their impact, there are also many exciting and
lucrative opportunities in some of the smaller, more far-flung markets around the globe. By
finding the right locationsand tapping into the local talent thereretailers can make an
immediate impact and create a long-term advantage in competitive markets
Trends in Indian Retail Segment

Retail space
Indian retail is expanding at a rapid pace driven by changing lifestyles, strong income growth
and favourable demographic patterns, Mall space, from a meager one million square feet in
2002, is expected to touch 40 million square feet by end-2007 and an estimated 60 million square
feet by end-2008, says Jones Lang LaSalles third annual Retailer Sentiment Survey-Asia.
Alongside, Indian cities are witnessing a paradigm shift from traditional forms of retailing into a
modern organized sector. A report by Images Retail estimates the number of operational malls
will be 715 malls by 2015, on the back of major retail developments even in tier II and tier III
cities in India.
Luxury retail
With consumers for luxury goods more in numbers than adult population of several countries,
the Indian luxury retail market is estimated to leap-frog from around US$ 3.5 billion to US$ 30
billion by 2015, according to a survey done by AT Kearney. Indias luxury market, estimated to
be the 12th largest in the world, has been growing at the rate of 25 per cent per annum.
Already Indians splurge US$ 2.9 billion on luxury assets, spend another US$ 953 million on
luxury services and top it by buying luxury goods worth US$ 377 million. And with a rapidly
expanding population of high net worth individuals, India could emerge as the next hub for
luxury goods consumption. Consequently, a number of foreign brands including French
Connection, Sanrio of Hello Kitty fame, Jimmy Choo, La Pearla and Calvin Klein among others
have already lined up for permission to infuse foreign direct investment through the single-brand
retail window.
Retail in Kids market

Retailers are busy bonding and branding as for as the kids market is concerned.
Monalisa, the Versace of kids, is coming to India.
International brand Zapp tied up with Raymond to foray into kids apparel.
Disney launched exclusive chains which stock character-based stationery.
Pantaloons joint venture with Gini & Jony will set up a retail chain to market kids apparel.
Swiss kidswear brand Milou is collaborating with Tirupur-based Sreeja Hosieries.
French furniture brand Gautier is all set to hit the Indian retail market by the end of the year
with a comprehensive range of furniture for children and infants.
The UK based retail chain, Marks & Spencer, is launching its kids wear categories in India.
Retail Franchising
Along with e-tailing another perceptible trend in the growth of organized retail market has been
the concept of retail franchising. According to industry estimates, retail franchising has been
growing at the rate of 60 per cent in the last three years and is set to grow twofold in the next five
years. A number of companies have been taking this route driven mainly by the need to meet the
increasing consumer expectations of quality, ambience and brand experience. In addition, this
route also helps the big retailer players to rapidly foray into the tier II and III towns and rural
areas.
Rural retail
Led by the rising purchasing power, changing consumption patterns, increased access to
information and communication technology and improving infrastructure. Consequently,
Corporate India is already firming up concrete plans to tap the rural retail market, which is
growing at double the rate of urban markets, with innovative schemes and human resource
policies. And with 87 per cent of rural markets not having access to any sort of organized
marketing and distribution, this segment has tremendous potential for growth. several states in
the country are permitting retailers to purchase produce directly from farmers, paving way for a
new kind of revolution in rural India. Farmers are taking special care of produce to garner higher
prices, selling to retail companies such as ITC, Godrej and other and finally making good money,
after centuries of social and economic exploitation.
International Retailers
With international brands like Tommy Hilfiger, Esprit and Puma (that have entered the country)
growing well over 100 per cent, many others are also planning to foray into the Indian retail
market. Indias vast middle class with its expanding purchasing power and its almost untapped
retail industry are key attractions for global retail giants wanting to enter newer markets.
The worlds largest retailer, Wal-Mart, has tied-up with Sunil Mittals Bharti Enterprises to
enter Indian retail market.
Microsofts first shop-in-shop pilot has been launched with the Tata Group subsidiary Infiniti
Retails multi-brand consumer durables retail format, Croma.
The Walt Disney Company, consumer product retailing arm of global animation giant, will
soon add 135 new stores to its existing 15 stores.
Worlds leading coffee chain, Starbucks enters India through a tie-up with the countrys
leading multiplex operator PVR Limited.
Apple Inc has entered into an exclusive marketing and distribution deal with Reliance Retail
through iStore by Reliance Digital.
The UK-based international coffee chain, Costa Coffee, plans to double the number of retail
outlets by the end of 2008.
Some of the international players that have already entered India include McDonalds, Pizza Hut,
Dominos, Levis, Lee, Nike, Adidas, TGIF, Benetton, Swarovski, Sony, Sharp, Kodak, Medicine
Shoppe among others.
Retail Reform
The Government allows 100 per cent foreign direct investment (FDI) in cash and carry through
the automatic route and 51 per cent in single brand. Besides, the franchise route is available for
big operators. To further attract global retailers, the economic survey 2007-08 has suggested a
share for foreign equity in all retail trade and 100 per cent in respect of luxury brands and other
specialized retail chains.
Consolidation of market share - The big getting bigger
In the early stages of development in retail markets, there is a proliferation of players.For
example in China in 2003 the top 100 players accounted for only 8% of the total retail market
with the top ten accounting for 3.2% of the market. However, when retail markets develop there
is a consolidation of players with fewer large players dominating the market.
Convenience stores and hypermarket formats are gaining prominence
These are driven by consumer need for convenience and lower price / higher value in mass
categories while big box category killer stores are gaining importance in the specialty retail
categories. While supermarkets may emerge at the initial stages of retail market development,
they are unable to match the consumer value proposition of convenience stores and
hypermarkets.
Private label products become increasingly important
Private labels today account for 17% of global retail sales with the highest share of 23% in
Europe and Asia the least at 4%. As per M+M Planet Retail data, private label penetration varies
from 25%-95% among some of the largest retailers in the world. Growing acceptance among
consumers, increasing price competition and need for differentiation among retailers and lastly
the ability to offer higher margins are the key factors contributing to the growth of private labels.
private labels provide the retailer an ability to offer a significant price advantage to consumers
with private label prices being 16-32% lower as compared to manufacturer brands.
The Retailing Macro-environment

The component of macro environment are highlighted.
Demographic factors: The retailer must scrutinize the demographic data to determine the
target customers, their expectations and perceptions so as to design and deliver an effective value
proposition. Increase in the number of working women, increase in the composition of younger
age group in the total population, growth in the working population, change in pattern of
spending, urbanization, change in the life style etc should be considered by the retailer while
framing the retail strategies.
Economic factors: Increase in the number of middle income and high income group of
consumers, increase in the disposable income and the resultant increase in the standard of living
of population etc., provides a positive influence on the retail sector. Other economic factors to be
monitored include growth of GDP, the rate of inflation, cost of credit and the long term prospects
of the economy.
Cultural and social factors: Individuals are becoming self centered and show a greater need
for self expression. This is reflected in the growing need for designer labels and specialist
apparel stores. Consumers are paying more attention to the quality of life and healthy living and
concern for environment. Growing awareness about consumer rights requires business to operate
in the best interest of consumers. Lifestyles are changing which is reflected in the form of change
in the patter of food consumption, clothing and leisure time spending activities.
Consumers pay greater emphasize to both price and quality. These changes are reflected in the
needs and wants of consumers, their demands and expectations from the shopping experience. A
retailer should be aware of these changes so as to deliver the same to the satisfaction of the target
customers.
Political factors: Different political philosophies can have a major effect on retail
organizations. The problems of inflation, internationalization of retail sector, liberalization and
privatization issues will be tackled in different ways by different political parties in the power.
Governments economic policy will have a major impact on the interest rates, taxation, inflation,
employment generation and a host of other factors that will have an impact on the retail business
and its profitability.
Legal factors: Legal factor is closely associated with the political philosophy. The role of law
and the regulating authorities set up to administer and enforce the law are affected by the
political power. The laws relating to retail establishment and management will also change
constantly. For examples the laws relating to FDI, labeling requirements, pricing, hours of
trading etc is being constantly updated and therefore affects the retail operation.
Technological factors: Changes in technology not only affects the products that the retailers
sell but also the way they sell them. The influence of information technology and the
development of sophisticated data capture facilities has led to revolutionizing certain sectors of
the retail industry. For example the introduction of Electronic fund tranfer systems, allows the
transfer of funds from a customers accounts to the retailers account without the need for paper
work. Likewise shopping and e-tailing enriches the shopping convenience of the retailer.
Natural factors: environmental groups have brought to focus the problems of pollution, water
conservation, energy shortage and diminishing limited natural resources. The awareness
regarding these issues has led to a shift in the consumption pattern. For example the demand for
green products, organic products and the like has increased.
OPPORTUNITIES OF RETAIL
India has a huge market size in terms of population. The challenge lies in identifying the key
drivers that steer the Indian consumers perception and in turn the shopping behaviour. The
retailer who identifies a right consumer with right proposition is sure to succeed. The key to
successful retailing lies in understanding the consumers. The key drivers of retail growth as
identified by Ernst and Young Ltd and others are presented below:
1 Increased market share
Disposable incomes of middle class population is expected to rise at an average of 8.5% per
annum till 2015. India has 209 million households, of which the 6 million classified as rich
have annual incomes of over USD 4700 and 75 million classified as consuming have annual
incomes between USD 1000-4700. Over half of these rich families live in Delhi, Mumbai and
Bangalore, and spend around USD 18 billion annually. 62% of the market for premium products
in India is also concentrated in these three cities.85% of Indias retail market is also concentrated
in the countrys 8 largest cities. An estimated 1 million households at the top of Indias income
map constitute the super-richin the country. Growing by 20% every year, this segments buying
behaviour is in line with its corresponding international segments. This segment is worth
targeting for high-end premium products.
2 Market at the Bottom of the Pyramid
This segment of about 40 million households earns USD 4,000-10,000 per household and
comprises salaried employees and self-employed professionals. This segment is expected to
grow to 65 million households by 2010 and is currently the key driver behind explosive growth
in passenger car sales.
3 Explosion of Media
There has been an explosion in media kick started by the cable explosion. The cable explosion
has accelerated to a point where there are more cable connections than the telephones in Indian
homes and about 70 channels are being aired at all times. This media bombardment has exposed
Indian consumer to the lifestyles of more affluent countries. This exposure has raised the
aspirations and expectations regarding the shopping experience and shopping behavior. Further
the availability of broadband connections would encourage the shoppers to try new shopping
methods which will enhance the retail market share.
4 Change in the profile and lifestyle of consumers
The Indian consumers lifestyle and profile is evolving rapidly. India has one of the youngest
populations in the world with 54% of the population below the age of 25. Discretionary spending
has increased and the number of high income households has grown year on year since 1995-
96.There is an increasing shift from price consideration to design and quality. At the same time,
the new Indian consumer is not beguiled by retailed products which are high on price but
commensurately low on value or functionality. There is an easier acceptance of luxury and an
increased willingness to experiment with mainstream fashion. This results in an increased
tendency towards disposability and casting out from apparel to cars to mobile phones to
consumer durables. The self-employed segment of the population has increased along with
increasing population of working women and new job opportunities in emerging service sectors
such as IT-enabled services, retail, food services, entertainment and financial services. This has
driven growth in consumption, especially mobile phones and two and four-wheelers. Retail loans
have doubled in the last three years to reach USD 38.7 bn by 2005. Credit friendliness, drop in
interest rates and easy availability of finance have changed mindsets. Capital expenditure
(jewellery, homes, cars) has shifted to becoming redefined as consumer revenue expenditure, in
addition to consumer durables and loan credit purchases.
5 Availability of quality retail space
Availability of retail space has been one of the key deterrents for the advancement of modern
retail formats in India. However, in the last three years, real estate in the organized retail sector
has seen some positive changes, largely due to the attractively high rental yields of 10-15 %,
which is 5-8% higher than residential property. The ratio between yield on property development
and its financing cost has also turned positive due to the sharp fall in interest rates during 2001-
04.India should see a marked improvement in warehousing as well as the quality of malls and
shopping centers with the increase in the availability of retail space.
6 Increased opportunities in non metros
The top 6 Indian cities -Mumbai, Delhi, Chennai, Kolkata, Bangalore and Hyderabad -are the
darlings of Indias exploding economy. They represent 6% of the population, but contribute 14%
of Indias GDP. They are the centers of business, finance, politics and the emerging sunrise
industries such as IT, pharma and ITeS, which have put India on the global map. These cities are
also the barometer of Indias economic development and most foreign investors have flocked
here. Besides the 6 metros, India has 61other cities with populations greater than 0.5 million
these cities represent 80% of Indias population and contribute about 14% to the countrys GDP.
Even though the 6 metros have the greatest concentration of Indias wealth, the other 61 cities
have consistently outpaced the metros in growth rates since 1995. These cities are witnessing
higher incomes and a fundamental change in consumer mindset. Increasing awareness levels in
Tier II cities are eroding the earlier difference between metros and Tier II cities in terms of
urban aspirations. International brands increasingly relying on Tier II cities to drive growth are
Nokia, Pizza Hut, Ford, Reebok and Adidas.
7 Regulatory enablers aiding growth
The decision regarding Governments policy have been favorable for the growth of retail
industry. For example in Mumbai, the Government is releasing unused textile mill land for retail
development. In Delhi the Government has released large tracts of land for retail development.
Consequently, at 40%, the Delhi & NCR region has the highest mall density in India. The other
State Governments are also becoming conscious of the easy collection of revenues from land
sales and tax from retail development on otherwise useless land. At the same time, while it is
difficult to get quality real estate in central locations largely due to private holdings, old
regulations and zoning laws, the future will see land and rent reforms driving development in
these areas as well. High rental yields will also ensure stronger negotiations between developers
and local government bodies.
8 Relaxation of FDI norms
The procedures for FDI in retail are simplified so as to avoid multiple layers of approvals
required in some activities. Till now, Government approval was required for FDI in wholesale
cash and carry trading and FDI beyond 51% in export trading. To facilitate easier FDI inflow,
FDI up to 100% is allowed under the automatic route for cash and carry wholesale trading and
export trading. FDI up to 51% is allowed with prior Government approval for retail trade in
Single Brand products with the objective of attracting investment, technology and global best
practices and catering to the demand for such branded goods in India. This implies that foreign
companies can now sell goods sold globally under a single brand, such as Reebok, Nokia and
Adidas. Retailing of goods of multiple brands, even if the goods are produced by the same
manufacturer, is not be allowed. Going ahead, the Government is expected to adopt a highly
calibrated approach to allowing further FDI in the retail space. There is a possibility that the
relaxation of FDI restrictions may take another 3-5 years. This may deter some international
retailers from investing in a big way. However, regardless of the restrictions, international
retailers are entering India. The returns on FDI in retailing in India are likely to be greater than
those in China because large Indian retailers are much smaller than their Chinese counterparts.
International retailers will find the competitive environment easier on the market share and the
growth fronts.
9 Establishment of Supply chain
In the last 2-3 years, several retailers, ranging from F&B operators to discount clothing, have
implemented Supply Chain Management (SCM) solutions to improve core business processes
such as global sourcing, distribution, logistics, innovation, transparency and visibility in
financials and inventory, compliance and management of point of sale (POS) data. Going ahead,
Indias FMCG and retail sectors are likely to see an increase in adoption of SCM. However, most
Indian retail players are under serious pressure to make their supply chains more efficient in
order to deliver the levels of quality and service that consumers are demanding.
10 Entry of the corporate sector
The entry and investment in retailing by corporate are visibly enhancing due to the potentials
available. Large conglomerates like the Tats, ITC, the RPG group, Reliance etc have increased
the investment in retail business. Oil companies like HPCL(Speed Mart), IOCL(Convenio) and
BPCL (In & Out) are also expanding from fuel retailing to grocery and convenience stores. Big
business houses are in a position to provide the Indian masses with shopping satisfaction,
entertainment, quality products, polite salespersons, product information and discounts. Though
the margins are low at the moment because of high property cost and poor infrastructure, the
growth potential are high.
11 New Entrepreneurs
The growing attractiveness of the retail trade has began to attract new entrepreneurs with ideas
and venture capitalists with funds. Many retailers have expanded their operations in terms of
number of stores as well as scales of operations. Venture capitalists like ICICI and IL&FS are
also willing to invest in retail business.
12 Technology Impact
Technology is a most important ingredient initiating the growth of retail industry. The
computerization of the various operations in a retail store including inventory management,
billing and payments , data base management, customer relationship management, supply chain
management, and retail information system has enhanced the performance of retail industry. Use
of technology enables to serve the customer in a better manner leading to an enriched shopping
experience.
CHALLEGES TO RETAILING
1) Global economic slowdown impacting consumer demand
The current contraction in overall growth has not been so severe ever since the one
witnessed during World War II. The sub prime-triggered crisis in the US during end of 2007
gradually spread across other parts of the world; as a the fallout of this crisis, credit availability
dropped sharply in advanced economies and their GDP growth contracted incessantly during the
last quarter of 2008. The financial crisis continued to trouble advanced and developing
economies in spite of policymakers attempts to replenish liquidity in these markets.
The financial crisis and global economic slowdown resulted in job losses around the world,
which weakened consumer demand. The unemployment rate remained high in the US during
first quarter of 2009, Europe and emerging economies like Brazil; for instance, the annual
unemployment rate in the US reached 5.8% in 2008 from 4.6% in 2007, which further went up to
9.4% in May 2009. In future, the rising unemployment rates in advanced economies as well as
economies that are heavily export-oriented will further dampen consumer spending; as a result,
the retail sectors growth will remain under threat. In the US, the retail trade sales growth (both
retail and food services) contracted by 0.7% in 2008 from 3.3% growth in 2007. The downward
trend in retail trade sales continued during the first six months of 2009 (Jan- June), as it went
down by 9.3%13 as compared with the previous year. In EU27 countries, the total retail trade in
volume terms continued to contract during the first five months of 2009; for instance, during
May 2009, the retail trade in volume terms in EU27 contracted by 3.1% against the same period
in the previous year.
2) Consumption declines in the advanced economies
Private consumption expenditure is an important indicator of overall economic growth. In the
last couple of quarters, the decline in consumption has further affected the global economic
downturn. Moreover, widespread financial crisis severely hit credit availability and household
disposable income. For instance, US households lost 20% (US$ 13 trillion)14 of their net worth
as a percentage of disposable income from the second quarter of 2007 to the fourth quarter of
2008. The stock prices across the world started falling during the second quarter of 2007 and
continued its losses throughout 2008; the global stock markets lost between 40-60% in dollar
terms that translated to a huge loss of global wealth in 2008. The personal disposable income (at
current prices) in the US registered negative growth (3.9% and 2.1%) during the last two quarters
of 2008, respectively. The consumer demand situation was aggravated further by reduced capital
availability and consequent fall in investments.
3) Competition from the unorganized sector
Organized retailers face immense competition from the unorganized retailers or kirana stores
(mom-and-pop stores) that generally cater to the customers within their neighborhood. The
unorganized retail sector constitutes over 94% of Indias total retail sector and thus, poses a
serious hurdle for organized retailers. If put numerically, the organized retailers are facing stiff
competition from over 13 million kirana stores that offer personalized services such as direct
credit to customers, free home delivery services, apart from the loyalty benefits. During the
current economic slowdown, the traditional kirana stores adopted various measures to retain their
customers, which directly affected organised retailers. Generally, it has been observed that
customers shop impulsively and end up spending more than what they need at organised retail
outlets; however, in kirana stores, they stick to their needs because of the limited variety. During
a downturn, many customers may not like to spend more as is evident from the past few months
trend that shoppers are increasingly switching from organised retail stores to kiranas.
4) Retail sector yet to be recognized as an industry
The retail sector is not recognized as an industry by the government even though it is the
second-largest employer after agriculture. Lack of recognition as an industry affects the
retail sector in the following ways:
Due to the lack of established lending norms and consequent delay in financing activity,
the existing and new players have lesser access to credit, which affects their growth and
expansion plans
The absence of a single nodal agency leads to chaos, as retailers have to oblige to
multiple authorities to get clearances and for regular operations
5) High real estate costs
Even though the real estate prices have subsided recently due to the slowdown in
economies and the financial crises, these prices are expected to go up again in the near
future. Presently the sector faces high stamp duties, pro-tenancy acts, the rigid Urban
Land Ceiling Act and the Rent Control Act and time-consuming legal processes, which
causes delays in opening stores.
Earlier on the lease or rents on properties were very high (among the highest in the
world) at some prominent locations in major cities. The profitability of retail companies
were affected severely because real estate costs constituted a major part of their operating
expenses. Now companies are moving out from prominent malls of tier I cities and are re-
negotiating the rental agreements with landlords to reduce costs. Some are even focusing
on setting up shops in tier II and tier III cities.
6) Lack of basic infrastructure
Poor roads and lack of cold chain infrastructure hampers the development of food retail in India.
The existing players have to invest substantial amounts of money and time in building a cold-
chain network.
7) Supply-chain inefficiencies
Supply chain needs to be efficiently-managed because it has a direct impact on the
companys bottom lines. Presently the Indian organised retail has an efficient supply
chain but it appears efficient only when compared with the unorganised sector. On an
international level the Indian organised retailers fall short of international retailers like
Wal-Mart and Carrefour in terms of efficiencies in supply chain. In the following
paragraphs some key challenges that the retailers face during procuring goods from
suppliers to delivering the same to end-customers are discussed.
Inventory management is the first challenge that retailers face at the local store level as
well as at the warehouse level. Excess inventory often leads to an increase in inventory
costs, and then to lower profits, so retailers like Pantaloons and Shoppers Stop have IT
systems in place for inventory management. SCM-IT has helped retailers to plan their
stock outs, replenish their stock on time, move stock from warehouse to stores, maintain
adequate stock at a store to match consumer preferences etc. However, the retailer may
still face a big challenge in terms of efficiently implementing the supply-chain software
across stores and integrating it with the central warehouse, which can be a time-
consuming process, requiring trained personnel.
Logistics is another challenge related to the supply chain. It is imperative for any
organised food and grocery retailer to establish a robust cold chain. Amul is the best
example of this scenario, as it has developed a cold storage chain across India. Until and
unless organised retailers like Reliance and Food Bazaar fully develop integrated-cold
chains, they would continue to incur loss of considerable amount of money through
wastages of perishable items while moving huge quantities from one place to another.
The third challenge related to the supply chain is procurement. Big organised retailers
enjoy economies of scale based on their size and expansion plans. The economical
benefits of scale in procurement are achieved when procurement is made in thousands or
millions of units; however, the main challenge here is to procure adequate amount of
stock according to customer requirements, failing which the resultant rise in inventory
can affect bottomlines.
7) Challenges with respect to human resources
The Indian organised retail players shell out more than 7% of sales towards personnel costs. The
high HR costs are essentially the costs incurred on training employees as there is a severe
scarcity for skilled labour in India. The retail industry faces attrition rates as high as 50%, which
is high when compared to other sectors also. Changes in career path, employee benefits offered
by competitors of similar industries, flexible and better working hours and conditions contribute
to the high attrition.
8) Shrinkage
Retail shrinkage is the difference between the book value of stock and the actual stock or the
unaccounted loss of retail goods. These losses include theft by employees, administrative errors,
shoplifting by customers or vendor fraud. According to industry estimates, nearly 3-4% of the
Indian chains turnover is lost on account of shrinkage. The organised industry playershave
invested IT, CCTV and antennas to overcome the problem of shrinkage.
Government of India Policy Implications on Retails
Implication of FDI policy on different sub-sectors of retail
The FDI policy conditions will have a different impact on the various sub-segments of the retail
industry in India. A policy condition might have a low impact in one segment but could be a
major stumbling block for another segment. In this section we have delved on the implications of
each FDI policy condition in Mass Grocery, Apparel and specialty stores such as Beauty &
Wellness and Consumer Electronics.
Minimum FDI of USD 100 million
Minimum FDI of USD 100 million and a constraint of maximum 51 per cent stake of the foreign
entity imply that the minimum investment required by both, the foreign and the Indian partner
together, is more than INR 1000cr.Mass Grocery and Apparel are two of the fastest growing
organized retail segments. In both these segments there are large domestic retailers who could be
potential joint venture partners for foreign retailers.
Note: 1Revenue figure is of Pantaloons Retail India Ltd for 2010-11, 2Revenue figures of Trent
India Ltd for 2010-11, 3Revenue figures of Future Value Retail Ltd for 2010-11, 4Revenue
figures of Reliance Retail (all formats), 2010-11, 5Revenue from only pharmacy business in
FY12, 6Revenue from the eyewear and precision engineering division
50 per cent of FDI in backend infrastructure in three years
Minimum investment of INR 250-220cr is to be invested in backend infrastructure in the first
three years. However, different retail segments have dynamic requirements of backend
infrastructure.
Mass Grocery needs significant investment in the backend. (For example food processing unit,
cold chains, etc.). However, other segments such as Apparel, Beauty & Wellness and Consumer
Electronics have limited requirements in the backend. Further, as per the policy, land cost and
rentals that might be incurred for warehousing are not included in the definition of backend
infrastructure. Hence, meeting this policy constraint would be a challenge for any player in the
retail segment other than Mass Grocery.
30 per cent of sourcing from small industries
This policy constraint implies that retailers should have at least 30 per cent sales from private
label brands or unbranded products sourced from small industries. Segment Current sourcing
practices. Existing Mass Grocery retailers in India source many products directly from producers
and small food processing units. However, suppliers of Consumer Electronic and other
specialty stores such as Beauty & Wellness are large size companies.
Only cities with population more than one million
Only 53 cities in India qualify under this policy condition. This policy constraint restricts the
access to retail market in all sub-one million populated cities and towns. More than 80 per cent
of stores of various multi-brand retail chains (such as Spencer, Spar, Shoppers Stop, Croma,
Titan Eye+ etc.) are in cities with more than one million population. Hence, the policy condition
may not significantly affect operations in most of the retail segments.
Approval from State Government required
There are only 18 cities in India with population more than one million and the corresponding
State Government supporting FDI in multi-brand. More than 50 per cent of the existing retailer
stores (such as Spencer, Shoppers Stop, Lifestyle, Apollo etc.) are in states not supporting FDI in
multi-brand. This policy condition impacts the access to a significant market. Further, limited
cities means limited stores and reduces economy of scale.
E-commerce not permissible
Multi-brand retailers with FDI will not be able to use e-commerce, whereas, Indian retailers can
use e-commerce as another channel for sales. Most of the existing retailers in Mass Grocery and
multi-brand Apparel do not use e-commerce to sell their products. Even in specialty retailers
such as Beauty & Wellness, e-commerce does not form a significant part of their sales. Hence,
this policy constraint should not materially impact operations.
Summary
Policy conditions of 50 per cent investment in backend and 30 per cent sourcing from small
industries are the two most difficult conditions to be met for FDI in multibrand specialty retail
such as Consumer Electronics, Beauty & Wellness etc.
UNIT II RETAIL FORMATS

Organized and unorganized formats Different organized retail formats Characteristics of each
format Emerging trends in retail formats MNC's role in organized retail formats.
Organized And Unorganized Formats

The Organised retailing refers to the trading activities undertaken by licensed retailers that is
those who registered themselves for sales tax , income tax ,etc. These include the corporate
backed hypermarkets and retail chains and also the privately owned large businesses. The
various forms of organized retail are
a)Hypermarkets: They store products of multiple brands comprising food items and non-food
items.
b)Supermarkets: These are self service stores selling food and personal care products.
E.g.Subhiksha.
c)Departmental Stores: Retails branded goods in non-food categories. E.g. Shoppers stop.
d)Speciality Chains: These focus on branded product or product category. E.g.Bata Convenience
Stores.
e)Malls: A huge enclosure which has different retail formats. E.g.Pantaloon .
Whereas, Indian retail is dominated by a large number of small retailers consisting of the local
kirana shops, owner-manned general stores, chemists, footwear shops, apparel shops, paan and
beedi shops, hand-cart hawkers, pavement vendors, etc. which together make up the so-called
unorganized retail or traditional retail.
Organized retailing is based on the principle of unity and unorganized retailing is based on the
principle of singularity. Both organized and unorganized retailing is found in most of the
countries throughout the world. India and China are strong examples of countries in which
unorganized retailing dominated their markets. Today these countries have a growing economy
because of the influx of organized retailers into their markets. The last 3-4 years have witnessed
the entry of a number of organized retailers, opening stores in various modern formats in metros
and other important cities. The growth in organized retailing in recent years can also be gauged
by the rise of shopping malls as well as the rising number of modern retail formats.
Different Retail Formats
One of the main reasons for the retail formats assuming new dimension is the consumer. The
consumers today are more challenging, demanding and are very sure of what they need. From
the retailers perspective the factors like the escalation of real estate cost, increase in the prices,
the challenge of retaining the customers, pressure on the need to earn more revenue have all
contributed to the development of new formats. Understanding retail formats is needed to
develop strategies to achieve the objectives. The retail formats discussed below do not fall under
watertight compartments, they may overlap too.
Store formats
Non store- Non traditional

Ownership Store-based
based new formats.
1. Ownership based classification

On the basis of ownership the retail firms can be classified as independent store, chain stores,
franchise, leased departments, owned by manufacturers or wholesalers or consumer
cooperatives. Each ownership format differs in terms of their positioning and operating strategy.
a) Independent retailer
An independent retailer is one who owns and operates only one retail outlet. The outlet is usually
owned by the owner cum proprietor and/or few other hands or family members working in the
retail shop. Many stores are passed on from generation to generation. In India a large number of
retailers ie more than 80 percent of the total retail establishment are independent retailers called
popularly as the local baniya/kirana store.
The benefits enjoyed by the independent retailer are listed below:
The independent retail store offers great flexibility as the retailer is the sole authority deciding
the location, retail strategy etc and can change the same according to the local customers. The
policies and procedures can be customized to suit individual customer requirements.
The extent of personal involvement in the business is higher as the retailer usually makes a
personal investment which leads to strive hard and succeed.
The independent retailer has the biggest advantage of knowing not only his customer but his
family. Many times the customers are known by the names and their preferences and tastes are
remembered by the retailer. They have the unbreakable trust of the customers and also the
loyalty which runs deeper on the strings of emotional attachment.
The independent retailers do some personalized services like taking orders through telephone,
offering credit transaction and home delivery. They take orders even on holidays or beyond
normal working hours if it is needed urgently by the customers. This creates a strong binding
between the customer and the retailer.
Consistency in the policy, procedures and approach can easily be approached as the retailer
operates only one store and mostly has less number of people working for salary.
Decision making is more centralized and takes much less time as there is no need to bother
about the stockholders, directors meeting, unions etc.
Investment and operation cost can be controlled and kept to the minimum as there is no
duplication of stock , less number of salaried employees, less investment in fixtures, leases etc.
Developing and maintaining an image is much easier in case of independent stores as it solely
depends on the retailer.
The drawbacks suffered by independent retailers is listed below;
Many of the small retailers either close down the business soon or run the business at less or
no profits. They spend only less time in long-run planning as the independent retailer is more
involved in the daily operation of the business.
The independent retailer do not much bargaining power as they merchandise in smaller
quantity compared to large scale retailer. Reordering is done with much difficulty as the
quantities dealt is smaller.
The independent retailer cannot enjoy the benefits of the economies of scale as he purchases
less quantity due to financial constraints. Transportation, ordering and handling cost per unit is
higher.
Independent retailers cater to the needs of much smaller segment of customer within a limited
geographical area. Due to dearth in the availability of finance they do not opt for advertisement
in popular media and their share of consumers in the market is minimum.
The assortments available with the independent retailer and their display are not as attractive
as in the case of malls. Due to small area of operation the retailer normally stores less variety.
The ambience in the case of independent retailer is not appealing, as the retailer solely
depends on his own investment and cannot offered to spend much on the same.
The time taken to serve the customer is high as the number of employed persons is less. Also
the retailer depends on labour intensive method of recording the transaction and raising the bill.
Computerization is not still opted by many of the independent retailers.
b) Chains
When two or more outlets are under a common ownership and name, it is called as a retail chain.
The retail chains range from two stores to over thousands of stores. These stores offer similar
merchandise and ambience. Advertising and promotions strategy followed are also similar. In
developed economies, the retail chains account for nearly a quarter of the retail outlets and over
60 percent of the retail sales and employment. Examples of chain stores in India include Globus,
Shopper stop, Reliance Fresh, Food world, More etc.
The advantages of chain stores are listed below
Cost efficiency can be achieved in chain stores due to bulk purchases directly from
manufactures. This enables them to fix prices at a lower level compared to other types of
retailers.
The chain retailers can exercise a greater bargaining power as the products are purchased in
larger quantities. They are informed in case of arrival of new products, their order are taken care
and they get good sales support. They may also have exclusive rights to certain items and have
goods produced under the chains brand.
Sharing of warehousing facility, using standardized fixtures, centralized buying and decision
making and similar other practices leads to increase in the operating efficiency.
The chain stores usually have advertising in a variety of media and it reaches a variety of
consumers dispersed in a wide geographical area by going near them. This enhances their market
share.
The chain store uses computers for ordering merchandise, taking inventory, forecasting, book
keeping etc which will increase the efficiency and reduce the cost.
Most of the chains have defined management policies, procedures, defined employee
responsibilities, long term planning and formulated strategy. This provides consistency in the
operation of the chain stores and leads to building a brand image.
The chain stores suffer the following drawbacks;
High investment is needed due to operation in multiple localities leading to more real estate
cost, fixtures, salary to employees, operational cost and the like.
The chain stores usually follows consistent strategies in terms of promotion, product assortment
and the like. There is no flexibility to change the strategies according to the local conditions.
Exercising control over the operation of chain stores is difficult and time consuming process as
they are geographically dispersed. Lack of communication, delay in decision making and
executing decision are commonly found.
The employees in large chains have limited autonomy in operation as there are several
management layers and employee unions.
C) Franchising
A franchise is a contractual agreement between the franchiser and the franchisee which allows
the franchisee to conduct a business under an established name, as per a particular business
format, in return for a fee or compensation. Franchising may be of two types; product or
trademark franchising and business Format franchising. A product or trade mark franchise is a
case where the franchisee sells the product of the franchiser and/or operates under the franchisers
name. In business format franchising, the franchiser draws strategic plans and lays down the
procedures for operation so as to ensure that the similar service is provided across all the retail
outlets. The franchisee is responsible for the operations and the profitability of the stores under
the given guidelines. This sort of arrangement is common for restaurants and other food outlets,
real estate and service retailing.
There are many significant advantages to franchise ownership. In most instances, an
entrepreneur who decides to buy a franchise is purchasing a business concept with a proven track
record of success.
Franchisees benefit from any national advertising campaigns launched by the corporation with
which they have gone into business. In addition, many franchisors provide their franchises with a
wide range of point-of-sale advertising materials, ranging from posters to mobiles to brochures.
Franchisors provide franchisees with a wide range of help in the areas of administration and
general operations. The entrepreneur who becomes a franchise owner is instantly armed with
proven products and production systems; inventory systems; financial and accounting systems;
and human resources guidelines. Many franchisors also provide management training to new
franchisees, and ongoing seminar workshops for established owners.
Franchisees are often able to fill inventory needs at discount prices because of their alliance
with the franchisor, which typically has made arrangements to buy supplies at large-volume
prices.
Most small business owners are able to devote little time or money to research and
development efforts. Franchising, then, can provide a huge lift in this regard, for many
franchisors maintain ongoing research and development systems to develop new products and
forecast market trends.
It is in the franchisors best interests to do all it can to ensure the success of all of its
franchises. As a result, the entrepreneur who decides to become a franchisee can generally count
on a wide range of training and consulting services from the larger company. Such services can
be particularly helpful during the start-up phase of operations.
While the benefits of franchising are many and varied, there are well-documented drawbacks
that should be considered as well. These include:
The initial franchise fee, which in some cases is not refundable, can be quite expensive. In
addition, some franchisors require their franchisees to pay them regular royalty fees a
percentage of their weekly or monthly gross incomein exchange for permission to use their
name. Some franchisors also require their franchise owners to help pay for their national
advertising expenditures. Other costs include insurance, initial inventory purchases, and other
expenses associated with equipping a new business.
Franchisees are subject to many franchisor regulations concerning various aspects of business
operation and conduct. Areas in which franchisors generally wield significant control include the
following: Site ApprovalMany franchise agreements include stipulations that give the
franchisor final say in site selection. Some franchisors also limit franchise territories, and while
such restrictions generally prevent other company franchisees from impinging on the selected
territory, they can also act to restrict the ability to relocate once the business have become
established.
Operating RestrictionsFranchise agreements include many instructions on the ways in
which a franchisee must conduct business. These encompass all aspects of a businesss
operation, from operating hours to accounting procedures to the goods or services that are
offered.
Many franchisors cultivate a certain readily recognizable look to their outlets, as such
standards, when applied consistently, contribute to national recognition of the company name
and its products and services. The standards of appearance in the areas of decor, design, and
uniforms lead to success. However the franchisee has little freedom to change the businesss
appearance
d) Leased Department
Leased departments also termed as shop-in-shops is a section of a department in a retail store
leased/rented to an outside party. The leased department proprietor is responsible for all aspects
of its business including fixtures and normally pays a percentage of sales as rent.
From the stores perspectives the leased department offers the following benefits;
A regular income is generated from the leased departments as a percentage of sales or by other
methods of agreement
The department operators pays for some expenses which reduces the expenses
Personnel management, merchandise display and reordering items are undertaken by lessees.
The drawbacks from the stores perspective are;
If the customers are not satisfied or face any problem they may blame the store rather than the
lessee.
The lessee by his operations and dealing with the customers may affect the image of the store
The operating procedure of the lessee may not be consistent with that of the stores
The leased department operators enjoy the following benefits;
They have the shops in already established store which has an image and customers, hence the
sales will be immediately generated.
Some of the cost are shared by the stores. For example the operating expenses like the security
expenses, mainitenance, ambience etc
The image is enhanced by being everywhere the customers need them
The following drawbacks should be given due consideration;
The assortment of goods and services are usually restricted and dealt in full scale.
The lessee cannot exercise his own thoughts in operation as it has to be consistent with that of
the stores procedures.
There is a possibility that the stores may not generate the revenue
A vertical marketing system consists of all levels of independently expected.
e) Vertical Marketing System
owned business along a channel of distribution. One of the three systems may be followed for
distribution of goods viz., independent vertical marketing system, partially integrated system and
fully integrated system.
In an independent vertical marketing system, there are three levels of independently owned
firms; manufacturers, wholesalers, and retailers. This system is often used if the manufacturers or
retailers are small, intensive distribution is needed, customers are spread over a wide
geographical area, unit sales are high, company resources are low, channel members seek to
share costs and risks and task specialization is needed.
In a partially integrated system two independently owned businesses along with a channel
perform the production and distribution functions. This system is common when the
manufacturer and retailer complete transaction and other distribution functions in absence of the
wholesaler. This system is suitable if manufacturers and retailers are large selective or exclusive
distribution is sought, unit sales are moderate, company resources are high, greater channel
control is desired and wholesalers are not available or costly.
In fully integrated system, one firm performs all production and distribution functions. The firm
has total control over its strategy, direct customer contact and uniqueness in its offerings and
keeps all profits. This system is costly and requires a lot of expertise.
f) Consumer Co-operatives
A consumer co-operative is a retail institution owned by its member customers. A group of
consumers invests, elects officers, manages operations, and share the profits or saving that
accrue. The profits are divided among the members in the form of dividends. Hence even if these
stores sell at the same prices, consumer will tend to gain. The stores are managed by elected
officials. The co-operatives are mainly started to safeguard the interest of consumers from the
malpractices of retailers in terms of higher prices, inconsistent quality etc. However consumer
co-operatives suffer due to lack of expertise of consumers in buying, handling and selling goods
and services, cost saving practices etc.
2) Store based classification
On the basis of the store based strategy retail institution can be further divided into food-
oriented and general merchandise retailers on the basis of the merchandise mix offered to the
customers. on the basis of the target market catered to, the retail institution can be further
classified as specialty stores, department stores and convenience stores. In contrast, the
supermarkets, discount stores, hypermarkets and off price retailers cater to a mass market and are
often called as traditional product retailers.
Food-Oriented Retailers
Indian food retail is growing at the rate of 30%, and it is one of the major driving force for the
retail industry. The changing life styles, tastes and higher disposable income, growing need for
convenience, higher aspirations among youth, exposure to the western lifestyle and increasing
numbers of working women have revolutionized the food retail scenario of the country. Retail
food trade is growing in multiple formats. More and more corporate houses such as HUL, ITC,
Godrej and Reliance are now making inroads into food retail, with some even exploring the
integrated approach via agri business and food processing. The following section deals with the
food oriented retail formats viz., convenience stores, supermarkets, hypermarkets, box stores,
super stores or combination stores and warehouse stores.
a)Convenience Store
These are relatively small stores of about 400-2,000 sq. feet located near residential areas. They
stock a limited variety and assortment and dealt with low cost, high-turnover convenience
products. The items dealt are consumed very regularly and so purchase very frequently by the
shoppers. The products dealt can be sold easily without the problem of measuring, trying and
testing.
b) Supermarkets
A supermarket is a self-service store largely concentrating on selling food related products and is
considerably smaller in size compared to hypermarkets. The supermarkets usually price the
products low in addition to providing a neat and clean shopping environment, fast check-out
counters and attractive and organized layouts. The supermarkets target the middle-class society
in India, who are looking for fixed prices, cleaner products and faster shopping. A super market
normally sells grocery, fresh cut vegetables, fruits, frozen foods, toiletries, cosmetics, small
utensils, cutlery, stationery and gift items. In India Food World, Food Bazaar, Nilgiri, and Adani
are the leading super market operators.
c) Hypermarkets
The hypermarkets are huge retail store occupying an area which ranges between 80,000 to
2,20,000 sq.ft. They offer both food and non food item like clothes, jewelry, hardware, sports
equipment, books, CDs, DVDs etc. It combines the principles ofsupermarket, discount and
warehouse retailing. The hypermarkets ideally, stocks 60 per cent food and 40 per cent non-food
items.
d) Box store
This is a food based store that focuses on small selection of items, moderate hours of operation,
few services and limited manufacturer brands. The store carries less than 2000 items, few
refrigerated items and few sizes and brands per item. Prices are displayed on the shelves or
overhead signs. Box stores rely on low-priced private label brands and their prices are lower than
that of the super markets. Box stores cannot fulfill one stop shopping needs.
e) Warehouse store
Warehouse store is a food based discounter offering a moderate number of food items in a no-
frill setting. It focuses on one-stop food shoppers, concentrates on special purchases of popular
brands, uses cut boxes/cartons for display, offers little service, post prices on shelves and is
located in secondary sites. These store projects low price image with no frills and no service and
are usually located in very low rent areas. Customers are attracted to these outlets due to
substantial cost savings.
f) Super stores or combination stores

Combination stores or Combostores are food based retailers that stock a full line of food
products including the perishable products. Apart from the food products the stores also deal
with non-food merchandise. 60 percent of the items carried by these stores includenon-food
items like apparel, accessories, shoes, appliances, house wares, electronics, health and beauty
aids, kitchen utensils, flowers and the like. They occupy a large areas and hence situated outside
the city. The shoppers are usually attracted by the large variety of services and do not mind
travelling the distance. The shoppers generally purchase a large amount on nonfood items
through impulse purchase rather than the food items. Wal- Mart, K-Mart, Target and Best Buy
are some examples.
GENERAL MERCHANDISE RETAILING
This section discusses the general merchandise retail formats viz., specialty stores, department
stores, discount stores, variety stores, off-price chain, factory outlet, membership clubs and flea
market.
a) Specialty store
Specialty stores are those which specialize in a specific range of merchandise and related items.
These stores are often called as limited-line store attract customers in a particular line of
merchandise by offering an extensive width and depth of stock in the item they specialize and
provide high levels of service and expertise. The specialty store focus on a narrow market
segment or a niche market. The pricing policy is generally in the medium to high range, They
differ from department store and supermarkets which carry a wide range of merchandise. For
example the specialty stores may exclusively deal in art, clothing, hobby, outdoor, electronic
games, toys etc.
b) Department stores
Department stores are very large stores which are usually multi tiered and stock a vast range of
products in separate departments. It is a retail establishment which specializes in selling a wide
range of products without a single predominant merchandise line. The variety of merchandise
stocked by department stores is much wider than any other retail format. Department stores
usually sell products including apparel, furniture, appliances, electronics, and additionally select
other lines of products such as paint, hardware, toiletries, cosmetics, photographic equipment,
jewellery, toys, and sporting goods.
c) Discount Department Store/Super-Store
A discount department store has the following characteristic features;
It is a high-volume, low-cost outset selling a broad product assortment for less than the
conventional prices.
It deals with the product lines in the department stores including the electronics, furniture,
appliances, housewares and the like.
Shopping carts and centralized checkout service are provided.
Customer service is not usually provided within store departments but at a centralized area.
Products are normally sold via self-service with minimal assisatance.
In case of nondurable goods private brands are offered whereas in non durable segment
emphasize is on well known manufacturers brands.
Less fashion sensitive merchandise are dealt.
d) Off-Price Retailer
In off-price retail setting the merchandise is sold at less than the retail prices. It has the following
features;
Most products are name-branded.
Products may be over-runs, seconds, or last seasons stock liquidated from department stores or
may be in odd sizes, unpopular colours, or with minor defects.
Product mix typically emphasizes womens clothing and may include mens clothing,
childrens clothing, shoes, accessories, perfume, toys, housewares, or packaged gourmet food.
Stores are most frequently located in power centres but may also appear in shopping malls.
In india the off price retail stores include-Big Bazaar ,Foodworld ,Hyper Mart ,Lifestyle
International ,Pantaloons,Shoppers Stop ,Spencers,Westside
e) Variety stores
Variety store or price-point retailer is a retail store that carries a large variety of usually
inexpensive merchandise with a single price point for all items in the store. Typical merchandise
includes cleaning supplies, candy. cooking supplies, small tools, personal hygiene supplies,
kitchen supplies, organizational supplies, small office supplies, holiday decorations, electronics
supplies, gardening supplies, home decor novelties, toys, pet supplies, out of print books, DVDs
and VHS tapes, food products and automotive supplies.
f) Factory outlet
An outlet store or factory outlet is a retail store in which manufacturers sell their stock directly to
the public through their own branded stores. The stores can be brick and mortar or online.
Traditionally, a factory outlet was a store, attached to a factory or warehouse. Factory outlets
basically sell manufacturer closeouts, discontinued merchandise, irregulars, factory overruns and
cancelled orders. This format offers branded goods at a reasonable price, ranging from 30 to 70
per cent lesser than the normal retail price.
g) Membership club
A membership club also called as warehouse club is a retail store, usually selling a wide variety
of merchandise, in which customers pay annual membership fees in order to shop. The clubs are
able to keep prices low due to the no-frills format of the stores. It aims at the price conscious
consumers, who must be members to shop there. In addition, customers are required to buy large,
wholesale quantities of the stores products, which makes these clubs attractive to both bargain
hunters and small business owners. The membership club is located in inexpensive or isolated
industrial locations. It relies less on advertising and offers merchandise at lower price. The
general merchandise dealt includes consumer electronics, appliances, food and sundries, health
and beauty aids, tobacco, candy and the like.
h) Flea market
Flea market or swap meet is a place where vendors come to sell or trade their goods at discount
prices in plain surroundings. The goods are usually inexpensive and range in quality depending
on several factors, which might include urban or rural location, part of the country, or popularity
or size of the flea market. It relies heavily on the traditional street selling where shoppers touch
and sample items and bargain over prices. The vast majority of flea markets in rural areas sell
goods that are second-hand.
i) Catalogue showrooms
In catalogue showroom the customer walks into the retail showroom and goes through the
catalogue of the product he would like to purchase. The product code numbers are handed over
to the clerk who arranges for the product to be brought out from the warehouse for inspection
and purchase. They deal in hard goods such as houseware, consumer electronics, fitness
equipments.
3) Non-store Based Classification
Non-store retailing refers to retailing done without conventional store-based locations. This is a
fast growing method used by retailers to sell products through methods that do not have
customers physically visiting a retail outlet. In fact, in many cases customers make their purchase
from within their own homes. The consumer contact occurs outside the confines of the retail
store, such as vending machines and electronic shopping, at home personal selling,
telemarketing, mail order, and catalog buying.
a) Direct selling
Direct selling industry in India is generally defined as a Low investments and high returns affair.
It involves the making of a personal contact with the end consumer at his home or at his place of
work. The Indian Direct Sellers Association (IDSA) has compiled a comprehensive report on
domestic and international patterns followed by the direct selling industry. Direct selling is
facing the following challenges:
Increase in single-person and working-couple households decreases the chances of finding
someone at home.
Home-party companies are having difficulty finding non-working women who want to sell
product part-time;
Increases in crimes against individuals has made consumers reluctant to invite strangers into
their homes; and
Recent advances in interactive direct-marketing technology mean that the doorto- door
salesperson may be replaced by the telephone, the television, and the home computer.
b) Direct marketing
Direct Marketers are retailers who are principally selling via direct methods. They may have a
primary location that receives orders but does not host shopping visits. Orders are received via
mail or phone. It involves various non personal methods of communication. Although direct
marketing initially consisted mostly of direct mail and mail-order catalogs, it has taken on
several additional forms, including telemarketing, direct radio and TV, and on-line computer
shopping.
The following aspects have led to the popularity of direct marketing;
Higher cost of driving including traffic congestion and parking problems
Longer waiting time, checkout lines
Availability of toll-free numbers
Availability of credit through increased use of credit cards
Increase in use of computer and internet
Increased time pressures on consumers
Direct marketing has the following advantages;
The cost is lesser due to the need for fewer inventories, lack of need for display to attract the
customers, lack of need for prime location. These aspects will lead to low startup cost.
Customers can do the shopping conveniently due to lack of crowds, parking congestion or
checkout lines. They can visit the shop at their convenient time.
Due to reduced startup costs the products are priced lesser.
Specific consumer segments could be targeted through database marketing efforts which will
result in more successful efforts.
The various forms of direct marketing viz., the catalogue marketing, television shopping and
electronic shopping are discussed below;
(i) Catalogue retailing
The catalogue retailing focuses on specialty products. Catalogue are sent to customers from
which the products are chosen and orders are placed. The products are delivered to the customers
without them having to visit the shop. It offers greater convenience to the shoppers. The
catalogues are also sold in bookstores, supermarkets, airports apart from hosting the same in
companies websites.
(ii) Television shopping
The product is advertised on television along with the details regarding product features, price,
gurantee/warrantee etc. The toll free number in various cities is given through which the buyer
can make a call and place the order. The products will be delivered home. TV retailing has two
components; shopping networks and infomercials. On shopping network the program focuses on
merchandise presentations and their sales usually through telephone orders. For eg., Home
shopping Network.
(iii) E-tailing
The shoppers use the web to surf information regarding products they want to buy. The
percentage of shopping on the internet is very less due to security issues and reduced credit card
usage. However the sale of books, CD, services like air ticket, train ticket, hotel reservations are
preferred by the shoppers.
4) Other non traditional form of retailing

This section deals with some of the emerging trends in retailing viz., automated vending, video
kiosks, airport retailing, cash and carry outlets and shopping malls/multiplex.
A) Automated vending
Selling through automated vending machines gained momentum after the second world war. The
products usually dealt in vending machines are softdrinks, candy, cigarettes and newspapers. Tea
and coffee machines are popular sight at the airports in India. The expensive equipment and
labor required to stock and service vending machines makes this a costly channel of distribution
and the prices of vended goods are often 15- 20% higher than those in retail stores.
b) Video Kiosks
Video kiosks are an interactive electronic computer terminal that displays products and related
information on a video screen. It has a touch screen which enables the consumers to make
selection. The video kiosks are used in some store to enhance customer services whereas it can
also be used to place orders and complete transactions. In a store where a number of items of
stored , the video kiosks enables the shoppers to easily find what they want without moving
around and hence it makes shopping easy and enriches the experience.
c) Airport retailing
There is a spur in the number of passenger in airways. Subsequently the airports have moved a
long way from merely being a transportation hub to providing greater ambience to the
passengers. Airports now hosts a number of retail outlets dealing with apparels, jewellery, food
marts, bookstores etc. Inside the flight too, catalogues are present wherefrom the customers can
choose and order the product. The facility to bid for the products is available too.
d)Cash & Carry outlets
In cash & Carry outlets the customers do their own order picking, pay in cash and carry the
merchandise away. It is a wholesale format aimed at small retailers and businessmen. It provides
one stop shopping experience offering a wide assortment of goods both food and general
merchandise. The shops are open for longer business hours enabling the customer to do shopping
at a convenient time.
e) Shopping Malls
Shopping malls are not retail stores in the real sense. It is a common mall in which a large
number of stores are located. The shopping mall has one or even a couple of anchor stores. The
variety of retailers that are located within them are usually quite different from each other. The
anchor stores are usually given the sites at much subsidized rates as the promoter of the shopping
mall has a lot to gain from their mere presence. The anchor stores bring in substantial customer
traffic which attracts other retailers to the open the stores in the mall. Multiplex are also making
a foray in India. The multiples host a number of cinema theatres along with retail stores dealing
with food and general merchandise along with services like personal care, ATM centres.
Multinational Corporation (MNC)
A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation that
is registered in more than one country or that has operations in more than one country. It is a
large corporation which both produces and sells goods or services in various countries. It can
also be referred to as an international corporation. They play an important role in
globalization. Small retailers claim that large firms, especially multinational retailers, will rob
them of their livelihoods. Large businesses say that they can provide better and cheaper products
and bring badly needed investment, efficiency, organization, and know how to retailing.
The modernization of Indian industry has traditionally been held up by yet another fear, which
is now being extended also to the modernization of the retail sector: that the large retailers will
lead to monopoly and hence should not be permitted. This fear is implausible. But we argue that
anti-competition practices could be minimized in a variety of entry-facilitating ways rather than
by shooting oneself in the foot by denying the benefits of a modern retail sector. Multinational
companies in India have delivered higher returns across sectors such as FMCG, pharmaceutical,
automobile ancillaries and capital goods over the last three years compared with their Indian
peers, riding on the back of superior technology, products and brand equity.
The Indian units of global consumer goods firms such as Hindustan Unilever, Nestle and
Colgate-Palmolive have posted returns of over 95%, 110% and 150%, respectively, on an
average during the last three years, more than double the 35-42% returns reported by Indian
companies such as Dabur and Godrej Consumer.
UNIT III RETAILING DECISIONS

Choice of retail locations - internal and external atmospherics Positioning of retail shops
Building retail store Image - Retail service quality management Retail Supply Chain
Management Retail Pricing Decisions.
CHOICE OF RETAIL LOCATION
Though a number of formats are emerging like e-tailing, catalogue marketing etc as discussed in
the previous section, most of the shopping is done by the consumers in the stores. Hence choice
of location is a most important strategic decision in retailing. It is a major factor contributing to
the success or failure of a retail business. A good retail location may lead to a success even if
merchandise dealt is limited, prices are high and promotion is not done in an attractive manner.
On the other hand even if the assortments are wide, prices are affordable and promotion is very
attractive a retail firm may fail if the location decision is made wrongly.
Location is a crucial decision due to the following reasons;
It is one of the most important factor consumers take into consideration while choosing a store
It is the least flexible element in the strategic mix. A retailer cannot keep changing his location
due to the fixed nature, huge investment and the length of lease agreement. Even if the lease
agreement can be terminated, it will lead to customer loss and cause irritation among them.
As mentioned above a bad location can lead to failure. On the other hand a good location will
definitely contribute to success even if other strategic mix or not favourable.
The location of the store contributes a greater extent to the stores image.
The store location affects the long run and the short run planning. A retailer must choose the
site which is consistent with the mission, goal and target market for an extended time.
The retailers should follow the following four steps in deciding the location.
1. Evaluate alternative geographic (trading) areas in terms of the potential characteristics of
Residents , offices, commercial establishments and existing retailers.
2. Determine the desirable location from the three basic formats viz., isolated, unplanned district
or planned shopping centre.
3. Select the general location for the store and evaluating the alternative store sites
4. Computing the overall rating and making the selection.
Factors To Be Considered In Location And Site Evaluation
Extensive analysis is required to select a general location and a specific site. An optimum site is
called the one-hundred percent location. The optimum site differs from one retail unit to the
other ie what is optimum for a apparel store may not be optimum for a convenience store. Two
firms may rate the site differently based on their requirements. However the following factors
will be generally considered in selection of a location and a specific site.
1. Traffic
Traffic refers to both pedestrian and vehicular traffic. The traffic that passes the site is an
important determinant of the potential sales to be generated in the store. The pedestrian traffic
refers to the number and type of people passing by. Not all the passers by are counted, some
retailers use selective counting where only the passers with carrying the shopping bags are
counted. While counting the pedestrian the age and gender should be taken into consideration.
The time should also be taken into account which will allow the retailer to identify the peak and
slag hours. Likewise in taking the vehicular traffic counts, the retailer should study the extent
and timing of congestion.
2. Transportation
Nearness to the transportation facility is important for people who do have their own vehicle.
The availability of buses, taxis, subways, trains and other kinds of public transport should be
taken into account. The nearness to the major roads, driving time, transportation network etc
should be rated before selecting the location. A related factor is the the road condition which
includes the age, number of lands, number of stoplights, congestion, state of the repair and
maintenance work etc. For eg a site in old, narrow, congested road which needs to be repaired is
not a good selection.
3. Parking facilities
Availability of parking facility is assuming an important role in the shoppers choice of a store.
Increase in the vehicle population, has made it difficult to get a parking slot. The extent of
parking facilities required depends on the stores trading area, type of the store, the proportion of
shoppers using a car, the existence of other parking lot and time spend in a shopping trip (it
determines the turnover of spaces), the flow of shoppers and parking made by the non shoppers.
4. Visibility
Visibility refers to customers ability to see the store and enter the parking lot safely. Good
visibility is less important for stores with established and loyal customers and for stores with
limited market areas as the customers already know the place where the store is situated. The
extent of visibility should be kept in mind while choosing the location and site.
5. Amenities available
The availability of other services like restaurants, banks, ATMs, petrol bunks etc should be
considered in the selection process.
6. Store composition
A market with a large number of stores usually has more people visiting the area than locations
where one or two stores exist. The type of stores that exist in the area is also equally important.
The type of stores should be compatible with the kind of business that the retailer wishes to
conduct. The type of competition also needs to be taken into account along with the presence of
food, entertainment avenues and the like. If the store in a given location complements, blends
and cooperate with one another, and benefits from others presence, affinity exists. When the
affinity is strong, the sale of each store will increase due to higher customer traffic. The
compatibility can be measured with the degree with which the stores exchange customers.
7. Product mix offered
The kind of product mix to be offered by the retailer affects the choice of location. A food and
grocery retailer or a supermarket would need to be located near or in a residential area. Locating
the supermarket in a purely business district may not be suitable. Similarly a boutique dealing
with highly priced, designer collection should be situated in the area where the residents could
afford the same ie upmarket area which suits the image of the boutique.
8. Specific site
The specific site considered for situating the retail outlet should be reviewed in terms of
visibility, placement in the location, size and shape of the building, condition and age of the lot
and building. Visibility is already discussed above. The site is normally expensive in view of the
inherent benefits. When a retailer rents an existing building for the business then the size and
shape of the building along with the condition and age of the building should be given due
consideration.
9. Terms of occupancy
Terms of occupancy refers to decision regarding the type of ownership/ the type of lease, for
each prospective site. If the store is leased then the terms of lease should be carefully scrutinized.
The length of lease period should not be too long or short. If the lease period is too short, the
retailer may have to change the stores location which will leading to loosing the customers and
the store image. The lease rent should be justifiable for the location because paying too high a
rent will erode the profit share of the retailer.
10. Legal issues
Legal issues like the inflexible zoning, rent, strong pro-tenancy laws and taxation should be
considered while selecting the location and site. The legal restrictions freeze the land available
for new retail outlets and the residential buildings. The law also restricts competition. The zoning
restriction affects the kind of the stores allowed, store size, building height, the type of
merchandise carried.
11. Competition and Neighbours
Other businesses in the prospective location can actually benefit or affect the prosperity of the
retail shop. Due consideration should be given to determine if the types of businesses nearby are
compatible to the store. For example, a high-end fashion boutique may not be successful next
door to a discount variety store.
12. Location Costs
Besides the base rent, all other costs involved should be considered while choosing a retail store
location. Some examples are listed below;
Expenses involved in building maintenance, utilities and security
Payment to be made for the upkeep and repair of the buildings/cooling system/amenities etc
The additional marketing needed to attract consumers in case of remote location.
The average utility bill to be incurred
Repairs or remodelling to be done in a location to fulfil the specific needs
The property taxes to be paid
Apart from the above factors other consideration like the demographics of the people living in
the area, economic base characteristic (discussed in the selection of trade area), global issues on
location, cost of operation, difference in various taxes among the alternative sites etc should also
be weighed properly in selecting a location and specific site.
RETAIL STORE IMAGE
Retail image refers to how a retail store is perceived by consumers and others. A retailer uses the
store to establish a competitive advantage and communicate its offering to the consumer. The
store image is how the shopper perceives the store in terms of the products available in store, the
store itself and the experience he or she expects when shopping at the store.The key to success in
retailing is to create a store image that is liked and perceived positively by the consumers.
However constructing a store image is a complex process.
A retail store could be perceived as upscale or discount oriented, as dealing in specialized or
general merchandise, as innovative or traditional etc. The key to successful image is that
consumers view the retailer in the manner in which the firm has projected it. Positioning refers to
the strategy adopted by a retail firm to project the image. The various steps involved in
positioning and the basis of positioning where discussed in detail in the previous section. In a
retail atmosphere, where everything viz., the type of products, ambience, store layout and the
like could be replicated, the retail image can play a great role in differentiating a firm from that
of its competitors. Retail image enables a firm to create a niche in the consumers mind relative to
the competitors. Retail image will enable a firm to attract, retain and expand the customer base.
Creating and communicating a retail image involves complex and multistep process. Maintaining
the store image in tune with the retail firms objective is equally important which makes the task
as an ongoing process. There are several factors relating to the store and its environment that
contributes towards building store image; target market, firms positioning, customer service,
store location, pricing, attribution of physical facilities, shoppers experience, community
service,promotion tools, store specific factors. All these factors are discussed throughout the
chapters. A brief overview of the same is presented below;
1. Target market
Target market refers to the group of consumers whom the retail concern wishes to focus upon.
The target market is decided based on the goals of the retail firm, goods/ service category, the
size of various segments, the resources needed etc. The target customers needs, demographic
features, attitude, their purchase decision making process etc should be taken into account.
2. Firms positioning
Positioning involves designing strategies to project the image of the retail concern. The strategies
should differentiate the retail concern from that of its competitors and gain positive consumer
response. A firm could be positioned as upscale retail firm like the Spencers or as discount
specialty retailers like Subhiksha.
3. Customer service
Customer service refers to intangible activities undertaken by the retailer in addition to the
goods/services sold. The dress code of the customer contact employees, their attitude towards the
retail firm and the customers, the empathy, their personality, knowledge regarding the
merchandise dealt etc., contributes to the retail stores image.
4. Store location
The location of a particular store determines the range of potential customers. Location
determines the sorts of purchasing that the customers are expected to make. The store must also
fit the general area and surroundings. Customers often visit the small corner shop, as part of their
wider shopping activity. This type of store is compact and offers the customer convenience
rather than extensive merchandise displays.
5. Retail format
The retail store format plays a compelling part in forming a consumers image of the store.
People tend to link the products they purchase with a particular retail format. The traditional
department store uses various departmental layouts to suggest the type of merchandise on offer
and the price customers can expect to pay. Similarly the discount warehouse present images of
value retailing and limited service levels.
6. Pricing
Indian consumers are mostly price conscious and give more importance to price. To some
consumers high the price may be synonyms with high quality. At the same time high price may
deter the customers from purchasing. Hence price of the products have to be carefully fixed
taking into consideration the image the firm wants to project among the shopper.
7. Shoppers experience
Providing a good shopping experience has a positive effective on the store image. In order to
provide an enhanced shopping experience a retail store should try to minimize the annoyances
inside the retail store. Setting up wider aisle can help to avoid the crowded/ cramped feeling.
Providing air conditioned environment, neat and tidy restroom facilities, clean atmosphere, good
melodious music, play station for children, providing water facilities, valet parking, delivery at
car and the like can enhance the shopping experience and create a positive store image.
8. Community service
The manner in which the retailers contribute to the societys well being contributes a lot to
building up the store image. The extent of care taken by a retail concern towards the
environmental protection, avoiding child labour, sponsoring for good cause, donating money to
school, temples, charity purposes etc., contributes in building a good store image and shoppers
will be happy to shop at a retail stores which care about the community. This will create a
positive image in the minds of the shoppers.
9. Promotion tools
The type of promotional tools utilized viz., advertising, sales promotion, publicity etc has an
impact on the store image. In advertisement the type of media used viz., the print media,
television, radio used have an impact on the image of the stores. The type of print media viz the
magazine or choice of new paper, or the type of notice designed and method of distribution of
the same affects the type of image a retail store wants to project.
10. Store specific factors
Store specific factors viz, store amenities, assortment, merchandise quality, support services,
value perception and overall impression about the store are discussed below:
Store amenities
This factors refers to the store amenities like water, dressing room and refreshment available for
the convenience of shoppers.
Assortment
Assortment is the number of different items in a merchandise category (ie) the depth of
merchandise category. In soft good merchandise like apparel garments this means the size
colour, designs and styles. Assortment refers to the variety of items available for a given product
category in terms of price, ranges, size, design, colors etc.
Merchandise quality
It is one of the most important attributes building store image. This factor refers to the overall
quality perceptions of merchandise at the store.
Support services
This refers to the supporting services, which are provided by the store to benefit its customers. It
includes all the extra services, which the store extends to satisfy its customers. The supporting
services include; acceptance of all debit/ credit cards, facilities of return/ exchange of
merchandise, alteration facilities, child care and children entertainment services.
Value perception
Value perception refers to the perceived value of product and service quality relative to price
paid.
Overall impression about the store
This factors refers to the general perception of the customer regarding the retail store. The
perception may be due to past reputation of the store as well as the impression that a shopper has
after visiting the store. The impression is based on general attribute dimension of the store.
Store atmosphere
Store atmosphere can be divided into three key elements: Exterior, general interior and store
layout.
11. Store layout
Store layout plays a major role in building store image. To develop a good store layout, store
designers must balance many objectives that often conflict. For example, the store layout should
entice customers to move around the store to purchase more merchandise than they may have
originally planned. However, if the layout is too complex, customers may find it difficult to
locate the merchandise they are looking for and decide not to patronize the store. The store
layout is decided based on the allocation of floor space, classification of store offerings,
determination of traffic flow pattern and arrangement of individual product. Discount retailers
are more apt to skimp on consumer areas; those with upscale images provide their customers
with ample amount of space for many or all of these factors.
12. Consumer specific factors:
Consumer specific factors also play a major role in building store image. The image of a store
may be perceived differently depending upon their demographic profile viz, gender, age,
education, income, occupation, family size etc. For eg. Women may tend to attach more
importance to aesthetic appeal likewise people with higher income may perceive a store with a
luxurious appeal more favourably.
Atmospherics
Atmospherics refers to the design of an environment via visual communications, lighting,

colours, music and scent to simulate customers perceptual and emotional responses and
ultimately affect their purchase behaviour. Atmospherics complements the other aspects of the
store design and merchandise. It is important that the atmospheric elements to work other in
order to create a positive impact on the customers. The elements are discussed below;
Visual communications
Visual communication comprises graphics, signs and theoretical effects, both in the store and in
windows which will help to boost sales. It also provides information on products and suggests
items or special purchases. It also enables the customer to locate the department and the
merchandise apart from adding to the stores image. Two types of visual communication viz.,
interior and exterior signage are explained below;
Exterior signage creates the first impression of a store. It acts as the advertisement and also
communicate the image of the store. A retailer should not overdo or underplay the signage. A
right balance should be achieved between the two. The signage should synchronize with the
surroundings yet should be distinctively different. While choosing the font size and style
importance should be given to clarity. Most of the exterior designs are illuminated from inside
the store by using tubes or spotlights.
Interior graphics are used for the purpose of selling merchandise , giving information and
providing direction to move inside the store. The signs that provide direction should be simple,
whereas the signs that help in selling process can be complex. The bottom line is to communicate
the message.
The Elements Of Atmosphere
A brief explanation of the contribution of elements listed to the store image is dealt below
Exterior
A stores exterior characteristics have a powerful impact on its image and should be planned
accordingly. It comprises of the various elements discussed below:
Store front
A store front is the total physical exterior of the store itself. With its store front, a retailer
presents a conservative, trendy, lavish, discount or other image to the consumer. When passing
through an unfamiliar business district or shopping center, consumers often judge a store by its
exterior. Besides the storefront itself, atmosphere can be enhanced by trees, fountains and
benches in front of the store likewise the modular structure, prefabricated structure, prototype
store, recessed store front and unique building design.
Marquee
A marquee is a sign used to display the stores name. It can be painted or a neon light, printed or
script and alone or mixed with a slogan and other information. Image is influenced because a
marquee can be gaudy and flashy or subdued and subtle.
Entrances
The number of entrances, the type of entrance and the walkways affect the store image.
Display windows
Display windows have two main purposes, to identify the store and its offerings and to induce
people to enter. By showing a representative merchandise offering, a store can create an overall
mood. Display of fashion or seasonal goods, shows that the store is contemporary. Arranging
sale items in window display enables a store to lure price-conscious consumers. Eye catching
displays will also attract pedestrians attention. The store can also indicate its concern for the
community by showing public service messages. Considerable planning is needed to develop
good display windows, which leads many retailer to hire outside specialists. Decisions include
the number, size, shape, color and themes of display windows and the frequency of changes per
year.
Height of the building

Exterior building height can be disguised or non-disguised. Disguised building height occurs if
part of a store or shopping center is beneath ground level. Non-disguised building height occurs
if the entire store or center can be seen by pedestrians.
Visibility
Few firms can succeed without good visibility. This means pedestrian and / or vehicular traffic
clearly see store fronts or marquees. A store located behind a bus stop has poor visibility for
vehicular traffic and pedestrian across the street. Many firms near highways use billboards since
drivers pass by quickly.
Uniqueness
The goal in every case of stores design, is to make the store or center appear unique and eye
catching.
Surrounding stores
As a retailer plans its exterior, surrounding stores and the surrounding area should both be
studied. Surrounding stores present image cues due to their price range, level of service and so
on.
Surrounding area
The surrounding area includes the demographic and life styles of those who live nearby. An
overall area image rubs off on the individual firm because people tend to have a general
perception of a shopping center or a business distinct. An unfavourable atmosphere would exist
if vandalism and crime are high, people living near the store are not in the target market, and the
area is rundown.
Parking facilities
It can add to or detract from store atmosphere. Plentiful, free nearby parking creates a more
positive image than scarce, costly, distant parking. Some potential shoppers may never enter a
store if they drive around looking for parking and not finding it, go elsewhere or return home.
Other customers may run in and out of a store to finish shopping before parking meters expire.
Congestion
Store atmosphere is diminished if the parking lot, sidewalls, and /or entrances are jammed.
Consumers who feel crushed in the crowd generally spend less time shopping and are in poorer
moods than those who feel comfortable.
General interior
Once customers are inside a store, there are numerous elements that affect their perceptions. The
general interior element of store atmosphere are as followed.
Flooring can be cement, wood, linoleum, carpet and so on. A posh, thick carpet creates one
kind of atmosphere, and a concrete floor creates another. Because people use cues to form store
perceptions, flooring materials and design are important.
Colors and lighting affect a stores image. Bright, vibrant colours contribute to a different
atmosphere than light pastels or plain white walls. Lighting can be direct or indirect, white or
colours, constant or flashing. A teen-oriented apparel boutique could use bright colours and
vibrant, flashing lights to foster one atmosphere and maternity dress shop could use pastel
colours and indirect lighting to form a different atmosphere.
Scents and sounds influence the customers mood and contribute to the atmosphere.
Store fixtures should be planned on the basis of their utility, as well as their aesthetics. Pipes,
plumbing, vents, beams, doors, storage rooms, and display racks and tables should be considered
part of interior decorating. A store with an upscale image dresses up and disguises its fixtures. A
store with a discount image might leave fixtures exposed because this is inexpensive and
portrays the desired image.
Wall textures can enhance or diminish atmospherics. Prestigious stores often use fancy, raised
wallpaper.
Store temperature affects the customers mood and the way of achieving it. This can shorten a
shopping trip or enhance it. In another words, the store image is influenced by the use of central
air-conditioning, unit air-conditioning, fans or open windows.
Width of the aisles has an impact on retail image. Wide, uncrowded aisles create a better
atmosphere than narrow, crowded ones. People shop longer and spend more if they are not
pushed and showed while walking or looking at merchandise.
Dressing facilities can be elaborate, plain or non-existent. A prestigious store has carpeted,
private dressing rooms. An average quality store has linoleum-floored, semi-private rooms. For
some apparel shoppers, dressing facilities are a big factor in store selection.
Vertical transportation in multilevel stores take the form of elevator, escalator, and/or stairs.
Larger stores may have a combination of all the three. Traditionally, finer stores relied on
operator-run elevators and discount stores on stairs. Today, escalators are quite popular and
gaining stature. They provide shoppers with a quite ride and a panoramic view of the store. Finer
stores decorate around their escalators with fountains, shrubs and trees. The placement and
design of vertical transportation determine its contribution to atmosphere. Stairs remain
important for some discount and smaller stores.
Dead areas are caused by light fixtures, wood or metal beams, doors rest rooms, dressing
rooms and vertical transportation. These are awkward spaces where normal displays cannot be
set up. Some times it is not possible for such areas to be deployed profitably or attractively.
However, retailers have learned to use dead areas better. Mirrors are attached to exit doors.
Vending machines are located near rest rooms. Ads appear in dressing rooms. One creative use
of a dead area involves the escalator. It lets shoppers view each floor, and sales of impulse items
go up when placed at the escalator entrance or exit. Many firms plans escalators so customers
must get off at each floor and pass by appealing displays.
Personnel- the number, manner and appearance of personnel reflect a stores atmosphere.
Polite, well-groomed, knowledgeable personnel generate a positive atmosphere. Ill-mannered,
poorly-groomed, unknowing personnel engender a negative one.
Self service minimizes the personnel employed in store and creates a discount, as well as
impersonal image.
Prices contribute to image in two ways. 1) Price levels yield a perception of retail image in
consumer minds. 2) The way prices are displayed is a vital part of atmosphere.
Technology used by the store and the modernization of its building and fixtures also affect
image. A store with state of the art technology impresses people with its operations, efficiency
and speed. Stores with slower, older technology may have impatient shoppers. A store with a
modern building and new fixtures fosters a more favourable atmosphere. Renovations are easier,
faster and less costly than building or opening new stores. The main reasons for remodelling are
improving store appearance, updating facilities, expansion and the need to reallocate space. It
results in strong sales and profit increases after completion.
Cleanliness is an important component of store image. No matter how impressive a stores
exterior and interior may be, an unkempt store will be perceived poorly by customers. People
open the door and form an image right away hence there must be a plan for keeping store clean.
Store layout
Store layout plays a major role in building store image. To develop a good store layout, store
designers must balance many objectives that often conflict. For example, the store layout should
entice customers to move around the store to purchase more merchandise than they may have
originally planned. However, if the layout is too complex, customers may find it difficult to
locate the merchandise they are looking for and decide not to patronize the store. The store
layout is decided based on the allocation of floor space, classification of store offerings,
determination of traffic flow pattern and arrangement of individual product. Discount retailers
are more apt to skimp on consumer areas; those with upscale images provide their customers
with ample amount of space for many or all of these factors.
POSITIONING OF RETAIL STORES

Positioning of a retail store refers to the position the store occupies in the minds of consumers
and it is always relative to the competition. In the present retail situation where is less or no
difference between the product or services offered by the retailers in terms of ambience, price,
product choice, value added services etc., craving a market niche is very complicated.
Positioning of retail stores would enable the consumers to get a mental fix on a store which
would otherwise be undefined or vague. Successful positioning is based on thorough
understanding of the target markets preferences and the characteristics of the competitors
offerings.
Positioning strategies enables a retail store to create and maintain a distinctive difference which
would lead a firm to develop a long-term relationship with the customers. Positioning analysis as
a diagnostic tool enables to make decisions regarding the type of products/ services to be dealt,
service delivery, pricing and promotional measures.
Steps Involved In Developing A Positioning Strategy
The steps involved in developing a positioning strategy are explained below.
Positioning strategy begins with market analysis which includes evaluating the overall trend of
retailing and identifying the demand potential. The composition of existing retail stores and their
market share should be studied. The various ways in which the shoppers could be segmented, the
potential size and share of each segment should be taken into consideration.
The next step is to perform the internal analysis which involves identifying the available
resources in terms of finance, human resources, facilities and the like. Within the limitations or
constraints a retail store should select the target market segments that can be profitably served.
Competitor analysis enables the retail stores to identify the competitors strengths and
weaknesses which would enable them to arrive at opportunities to differentiate. However it is
important to understand competition from the customers point of view which means that that the
various retail stores considered by a shopper in making a purchase decision should be taken into
account.
The competitor analysis is followed by assessing the consumers perceptions of each retail
store who are considered to be the competitors.
Based on the information gathered from the previous steps positioning map can be done to
arrive at the position of each firm as perceived by the shoppers. Positioning maps can be used for
the purpose of understanding where they are compared to their competitors. Positioning map
refers to mapping a firm and its competition on a graph based on two major criteria. A retail
store may map the image of various stores on the basis of price and quality. It may lead to a store
being perceived as dealing with high price - high quality product or high price but not
equivalently good quality, low price but offering good quality, low price and low quality
products and services.
Once the relative position of each retail store is clearly arrived at, the next step involves
analyzing the consumer preferences to each of the stores. The information regarding why the
consumers prefer a store over other is obtained by conducting a study.
The information obtained will lead to making a position decision. For eg an apparel retailer
may be positioned as a specialty store exclusively dealing with high end dress material or a store
which deals with low priced , low variety merchandise.
The positioning decision will enable a retail store to implement its new position or reinforce the
current position through activities like method of atmospheric, pricing, distribution and
promotional strategies.
Methods of positioning
A retail store could choose any of the following methods of positioning;
A retail store could be positioned on the base of its attributes ie what it does best. For example
Krishna sweets tries to position itself as the best in providing high quality sweets. Vivek & co as
the best in dealing with variety of electronics goods.
Retail stores could positioned on basis of the type of product or service they are dealing with.
Reliance fresh tries to position itself as dealing with the farm fresh products, Spencers daily tries
to position itself as dealing with all provision under one roof.
Price/quality relationship can be used for positioning. There are apparel stores which position
themselves as boutiques dealing with designers wears and also stores which deals with low
priced apparels too. Peter England showrooms position itself in ready made segments as dealing
with fashionable mens wear at affordable price.
Retail stores can be positioned based on the class of consumers they target at. Eg
The type of shoppers
The type of competitors
PRICING FOR RETAIL
Price is one of the most important variables influencing the retail decision making. Specifically
in the Indian context where most of the consumers are price conscious. From the customers view
point, price is the most important reason for shopping in a particular store. Customers often seek
value for the money paid. Value is the relationship of what the customer gets (goods/services) to
what he has to pay for it. Some customers may feel that a good value means always getting a low
price. Others may be willing to pay more as long as what they get in terms of product quality or
service is assured.
Factors Influencing Pricing Decisions

The decision regarding pricing is the outcome of interaction of various factors which should be
taken into consideration while fixing the price. The factors affecting the pricing decisions are
highlighted below;
1.Merchandise
The retailers should set the price by carefully analyzing the features and attributes of the
merchandise and the value the consumers attach to the same. The retailers can control the price
through either the cost of goods sold or the gross margin that is added to the cost. The retailer
can either buy the merchandise at a lower cost or charge a higher markup to sell at a specified
price. The retailer can also buy merchandise that costs more, but sell at a lower margin to
maintain price line.
2.Customer services
Customer services is an important factor which attracts a customer to the retailer and it is the
distinguishing factor which would enable a retailer to carve a niche in the retail arena. Retailer
can offer a variety of services like delivery of product at the car or door steps, sales assistance,
alterations etc. the retailer may charge higher prices for offering certain services which may
result in higher profits. In case of some services the retailer can provide the option of charging
separately for the additional services or add the charges into the product prices. But many times
the retailer do not charge anything extra for the services, the services are rather provided free of
cost to enhance value for the customers.
3. Credit
The requirement for purchasing the product on credit increases the price of the product. Offering
credit may lead to generating greater demand rather than offering discount for cash paying
customers. Credit purchases help the retailer to sell more merchandise and at the same time earn
from financing the transaction.
4.Location
The location of the retail store in terms of nearness to customers and competitors has a
significant impact on the price that can be charged. A store located in proximity to its
competitors with comparable merchandise and customer service has less pricing flexibility.
Likewise the distance between the store and its customers also has an impact on its pricing
decisions. If the distance is more, the store may increase its promotional efforts or reduce its
price of merchandise in order to attract customers.
5.Promotion
Promotion and pricing decisions are usually interrelated. When a retailer brings a change in its
prices and offers discounts or other modifications, high promotion may be needed in order to
create awareness about the offer to the consumers. A retailer who uses promotion heavily and
also prices merchandise competitively may increase sales more than a retailer who uses high
promotion or low price strategies independently.
6. Store image
The customers unconsciously link the retail prices with its image. The pricing polices and
strategies interact with store image policies and strategies. For eg. If a store dealing with
designer dresses starts to offer discounts regularly, it may lose the image of being an exclusive
store.
7.Legal constraints
The legal constraints and the impact of the legal environment, especially the retail laws
applicable should be taken into consideration while the retailer fixes the price. In some countries
reducing the prices is easy like in the case of United states whereas in Japan which has a vertical
monopoly of market distribution the prices are kept high by large manufacturer. In case of India,
most packaged products has a mandatory maximum retail price which has to be followed. The
retailer has to keep the MRP in mind while fixing the prices.
8. Other environmental factors
Other factors such as the channel relationships, demand pattern, seasonality and competition
should also be considered in formulating the overall pricing strategy. If the channel has too many
members, the merchandise when reaching the retailer would be priced high and the markup in
pricing by the retailer cannot be high as it will increase the prices. If the demand is elastic, then it
means that with the change in the price there will be a change in demand and accordingly the
retailer can change the price to increase or decrease the demand. If the competitor charges a low
price for similar merchandise, the retailer cannot fix a high price unless he occupies a niche
which is appreciated by the customer to the extent of paying more.
Approach For Pricing
The retailer can choose among three options viz., cost oriented, demand oriented or competition
oriented. Cost oriented pricing strategies are followed when the retailer want to make profit. The
demand oriented pricing strategies focus on what the customer will be willing to pay for the
merchandise. On the other hand the competition oriented price takes into consideration the prices
fixed by competitors as the customers shop around and compare prices. In India the retail price is
usually pre-determined by the manufacturer, which is compulsorily printed on the package
without which no branded product can be sold. The Maximum Retail Price (MRP) is fixed by the
Government above which the retailer cannot sell the product. A retailer can only decide how
much lower than the MRP he can sell so as to satisfy the customer as well as make a reasonable
margin. The cost, demand and competition oriented pricing policies are discussed below;
1. Cost-oriented method
In cost oriented method, the retail price is determined by adding a fixed percentage to the cost of
the merchandise. A retailer would generally get the best deal in buying the merchandise and then
would decide the markup to be fixed over the cost of the goods to arrive at a reasonable retail
price.
2. Demand oriented method
In demand oriented pricing the retailer sets prices based on the consumer desires. The retailer
determines the range of prices acceptable to the target market. The top of this range is called the
demand ceiling. This strategy is usually followed in case of products not branded, is of low
quality and generate low volume sales. It is also undertaken for very expensive product where
the retailer wishes to gauge the value of the product from the customers. The demand oriented
pricing method is used to determine the correct balance of pricing and margins whereby the
profitability of the merchandise could be maximized.
3.Competition oriented method
In competition oriented pricing a retailer sets the based on the competitors pricing policy. The
competitors prices are taken as guide and studied and applied. The retailer will not change the
prices based on the cost or demand unless the competitor alters the price. The competition
oriented retailer can price below, at or above the market. A retail firm with a good location,
quality service, wide assortments, favourable image and popular brands can set prices above
competitors. It is not suitable for a retailer who is not innovative, relies on self service and
situated in a not so popular location. The retailer can start with the price based on the cost and
profit goals, consider competition and perform test to understand the acceptable price level to the
consumers so as to determine the most profitable price.
Specific Pricing Strategy
1.Every Day Low Pricing (EDLP)
One version of customary pricing is everyday low pricing (EDLP) strategy. Every day low price
(EDLP) is the pricing strategy used by retail stores that provides low prices to the customers
every single day without any special pricing discount, sale, comparison shopping etc.
Traditionally, retail stores used to keep regular pricing discounts, coupon clipping promotions,
etc. to promote their sales and increase the footfall in their stores. But, this needs a lot of effort in
terms of monetary aspects and physical aspects making it difficult to sustain the competitive
advantage. The strategy of EDLP helps to convince the consumer that they will get better and
low prices than other competitive stores everyday even though the promotions of competitors at
regular intervals might provide lowest prices but they will not be available everyday.
EDLP also helps the retail stores to reduce their demand fluctuation that would occur due to
promotions on some days, and also reduces the probability of consumers receiving time degraded
products. Stores like Walmart and Spencers have used the EDLP strategy to a very good extent
for their success.
2. One-price policy and flexible pricing
Under one-price policy a retailer charges the same price to all customers buying an item under
similar conditions. This policy may be used along with customary or variable pricing. This
method is easy to manage, does not require skilled sales people, makes shopping quicker,
enables self-services, and puts the customers under a relatively less pressure. Flexible pricing
allows customer to bargain over prices. The customers who are good at the same obtain lower
prices, however they should have prior knowledge to bargain successfully. Flexible pricing
encourages customers to spend more time, gives the feeling that the firm is discount-oriented and
generates high margins from shoppers. It requires high initial prices and good sales people.
3. Odd pricing
Odd pricing is a form of psychological pricing where the prices are set at levels lower than the
even rupee values such as Rs.9, Rs.99, Rs.149. This pricing make the customer think that the
prices represent discounts or that the amounts are beneath the consumer price ceilings.
4. Leader pricing
In leader pricing, a retailer advertises and sells selected products /assortments at less than the
usual profit margins. The retailer aims to increase customer traffic for the retailer so as to sell
regularly priced goods and services in addition to the specially priced items. It involves usually
frequently purchased goods, national brands and high turnover products as it is easy for
customers to detect low prices.
5. Multiple unit pricing
In multiple unit pricing the retailers offer discount to customers who buy in quantity or a product
bundle. A retailer attempts to sell more than normal sales at a regular price. The multiple unit
pricing may be followed by a firm for making the customers increase total purchases of an item.
The approach enables the retailer to move the slow moving and end of season merchandise. It
also enables to increase the sale of related items. In bundled pricing a retailer combines several
elements in one basic price. This approach increases overall sales and offers people a discount
over unbundled service.
6. Price lining
In price lining retailers offer a limited number of predetermined price points within a
classification. For example the retail store may offer only products only at Rs. 25, Rs.50 and
Rs.100.
Pricing Adjustments
In order to generate sales the retailers may perform price adjustments to the initial retail price.
Price adjustments enable retailers to use price as an adaptive mechanism. Price adjustment may
take the form of markdowns, additional markup, coupons and rebates.
Markdowns
Markdowns are reductions in the initial retail price. A markdown from an items original price is
used to compete with the lower price offered by another retailer or to adapt to inventory over
stocked, clear out obsolete stocks, reduce assortments of limited quantity in odds and ends, and
to increase the customers footfall and sales. It attracts more number of price sensitive customers
and induces them to buy more merchandise.
Additional Markup
An additional markup increases an items original price because demand is unexpectedly high or
cost is rising. The additional markup can be computed as a percentage of sales or as a percentage
of original price. Ex - Mineral water bottles are sold above MRP in hotels & tourist places.
Coupons
Coupons offer a discount on the price of specific items they have purchased at a store. It provides
an incentive to price-sensitive customers to purchase more merchandise. Coupons may be issued
by manufacturers and retailers in newspapers, on products, on the shelf, at the cash register, over
the internet and through postal mail. Coupons are used to induce customers to try products for
the first time, convert the first-time users to regular users, encourage large purchases, increase
usage and protect market share against competition.
Rebates
A rebate is portion of the purchase price returned to the buyer. The customer will be given a
refund if the customer produced the proof of purchase. Rebates are attractive and useful when the
purchase price is relatively large. Otherwise the customers may not be interested in sending the
proof and earning the refund. The rebate should compensate the time and postage expenditure
spent by the consumer in redeeming the same. From the retailers perspective rebates are more
advantageous than the coupons as the retailer has no handling costs.
SUPPLY CHAIN AND LOGISTICS

Supply chain management is the process of making the right goods available to the right people,
and at right price. Efficient supply chain offers two major benefits for customers viz., fewer
stock outs and ability to get assortments of merchandise as required in time and place they want
it.
Type Of Supply Chain
Reverse logistics stands for all operations related to the reuse of products and materials. It is "the
process of planning, implementing, and controlling the efficient, cost effective flow of raw
materials, in-process inventory, finished goods and related information from the point of
consumption to the point of origin for the purpose of recapturing value or proper disposal.
Data warehousing
A data warehouse is the coordinated and periodic collection of data from various internal and
external sources in a form amenable for analytical and informational processing. The information
stored in the data warehouse is accessible by the buyers, vendors, retail stores and distribution
centers. Data can be accessed at the merchandise level i.e. Stock keeping Units, on the basis of
vendor categories, department level, by each division or in aggregation. The information flow
back and forth from retailer to vendor and is made possible Electronic Data Interchange.
Electronic Data Interchange (EDI)
Electronic data interchange is the computer-to-computer exchange of business documents from
retailer to vendor and back. The data transferred include the sales details, purchase orders,
invoices, purchase returns etc. The retailers can also get from the vendors advance delivery
notification which in electronic format.
LOGISTICS
Logistics is that part of supply chain process that plans, implements and controls the efficient
flow and storage of goods, services and related information from the point of origin to the point
of consumption in order to meet customers requirements. It is the total process of planning,
implementing and coordinating the physical movement of merchandise from manufacturer or
wholesaler to customer in most timely effective and cost-efficient manner possible. Logistics
regards order processing and fulfillment, transportation, warehousing, customer service and
inventory management as interdependent functions in the value delivery chain. Efficient logistics
management will reduce stock-outs, enable to hold less inventories and improve customer
service. Supply chain management includes logistics but it is more comprehensive and strategic
concepts that includes customer relationship management, inventory management and vendor
relations.
Order processing and fulfillment
In order to optimize the order processing and fulfillment task many retail firms use Quick
response delivery system (QR). Quick response delivery systems are inventory management
systems designed to reduce the retailers lead time for receiving merchandise, thereby lowering
inventory investment, improving customer service levels and reducing logistics expenses. QR
system offers the following benefits to the retailer;
Reduces lead time: Lead time is the amount of time between the recognition that an order
needs to be placed and its arrival in the store, ready for sale. By eliminating the need for paper
transactions using mail, EDI in the QR system reduces the lead time. since the vendors computer
acquired the data electronically no manual data entry is required on the recipients end.
Increases product availability and reduces inventory investment: Generally the retailer
maintains more inventory so as to avoid losing customer due to stockout situation. With QR
system the ability to satisfy demand increases with a decrease in the need to maintain inventory.
The retailer can make purchase commitment or get product delivery within a lesser time
duration, the inventory investment is lesser.
Reduced logistics expenses: With QR system, many retailers receive the merchandise in their
distribution center, store it, consolidate shipments from multiple vendors, attach price labels and
then reship the merchandise to stores. Retailers use cross docking or a direct delivery system. In
cross docking warehouse system products are prepackaged and need only less storage space.
Direct delivery eliminates all distribution center cost and transportation costs from distribution
center to the stores.
Transportation and warehousing
Regarding transportation a number of decisions involving the following aspects are be decided
by a retailer;
The number of times the merchandise needs to be shipped to the retailer
The manner in which small order quantities will be dealt with
The logistic to be taken care by the manufacturer, retailer or third party specialist
The transportation form to be used
Special consideration needed for perishables and expensive merchandise
The way in which the shipping terms are negotiated with the customers
The delivery options available for retailers customers.
The type of logistics infrastructure available viz access to refrigerated trucks, airports, waterway
docking , highways and the traffic congestion, parking and other factors too affect the transport
effectiveness.
As regards the warehousing, the retailer focuses on the central or regional distribution centers.
The retailers can also have the goods shipped right from suppliers to individual stores through
direct store distribution in case of high turnover, bulky and perishable products.
The benefits of central warehousing are;
Efficiency in transportation and storage
Mechanized processing of goods
Improved security
Efficient merchandise marking
Economical due to bulky transaction
Major drawbacks are excessive centralized control, extra handling cost for perishable goods,
high cost for small retailers, and delay in processing orders. The warehouses are now replaced by
distribution centers which does the following; coordinating the inbound transportation, receiving
and checking, storing and cross docking, getting merchandise floor-ready filling orders and
coordinating outbound transportation. There are three types of distribution centres viz.,
traditional, cross docking and a combination of the two. The traditional distribution center is a
warehouse in which merchandise is unloaded form trucks and stored until the same is needed by
the retailer. On receiving order the merchandise is transported to a staging area where it is
consolidated and made ready for shipment to stores. In cross docking center the vendor ships
merchandise prepackaged in the quantity needed for each store. The merchandise is ready for
sale with the price tags etc. once the order is received it is loaded on the truck and sent.
Customer transaction and customer service
The management of outbound logistics ie., transportation from distribution center to stores has
become increasingly complex. It involves turning over merchandise to the customers. It can be
very simple like the customer picking up the product form the shelf, pays for the same in the
check out counter and takes the delivery in their own vehicle. It can also be complicated for
example a customer placing an order in the web which needs shipment from vendor to the
customer. To handle complex transportation problem, the center can use computers to perform
complex routing and scheduling issues. The system develops most efficient route possible after
taking into consideration the rate of sales in the store, road conditions and transportation
constraints. This will enable to arrive at an accurate estimated time of arrival and maximum
utilization of vehicles involved.
A retailer should take care of Reverse logistics too for customer returns. Reverse logistics is a
flow back of merchandise through the channel from the customer to the store, distribution center,
and vendor. It is quite a complex problem involving much cost specially when the items are
damaged and requires special handling. Transportation cost will be high due to small quantities.
In view of the trouble involved the retailer may sell it on auction instead of undertaking the
trouble and incurring cost in returning the merchandise.
In order to streamline the operations and make more productive use of assets and personnel,
retailers are resorting to outsourcing of logistics function. This may reduce the cost and enhance
the efficiency. Third party logistics(3PL) companies are firms that enable the movement of
merchandise from manufacturer to retailer but are independently owned. They provide
transportation, warehousing, consolidation of orders and documentation. 3PL is especially more
helpful for small retailers.
Inventory Management
As a part of logistics effort, retailer utilizes inventory management to acquire and maintain
proper merchandise assortment while ordering, shipping, handling, storing, displaying keeping a
control on the selling cost. The various aspects of inventory management in terms of retailers
task, inventory levels, merchandise security, reverse logistics and inventory analysis are dealt.
Retailer task
In order to perform inventory management in an effective manner, the retailers expect the
suppliers to perform some of the tasks like packaging, price tagging, marking etc so as to make
the merchandise floor ready for sales. if suppliers do not perform the same it is outsourced to
third party. The inventory management activity involves identification of responsibility for
source tagging with the manufacturer or retailer.
Inventory level
The retailer should balance between too much and too less of inventory level. Too much
inventory will increase the inventory investment and creates a complex situation in case of
fashion items. In case of too less inventory, the retailer may loose a cutomer due to stock-out
situations. It is also difficult to predict accurately the customer demand and allocate the shelf
space based on the forecast. The Quick response delivery system and Electronic data interchange
enables the retailer to hold leaner inventories and still serve customers in an efficient manner.
Merchandise security
Inventory shrinkage arising due to employee theft, customer shop lifting, vendor fraud and
administrative errors contribute to a greater extent of retail sales loss. To reduce the merchandise
theft, combination of security measures should be developed. Employees should be educated and
loss prevention measures should be included as stores are designed and built. Product tags,
guards, fixing of video cameras, employee surveillance and burglar alarms can be used to reduce
the inventory shrinkage. Electronic article surveillance can be used where special tags are
attached to products which can be sensed by electronic security device at the store exists.
Mystery shoppers can also be hired to watch for shoplifting. While devising the security plan, the
retailer should take into consideration the impact on its image, employee morale, shoppers
comfort and relationship with vendors.
Reverse logistics
Reverse logistics as mentioned above includes all merchandise flow from retailer through the
supply chain. It involves items returned due to damages, defects or less than anticipate sales.
Retailer should take the following decisions regarding the reverse logistics;
The condition under which the returns are accepted by retailers
The refund policy to be followed for returning the money to customers
The documentation to be provided by customer as a proof of purchase date and payment
made
Extent of employee empowerment to process customer returns
Inventory analysis
In order to access the success of inventory management, inventory analysis should be performed
in regular intervals. Computer softwares can be used to perform the same in a accurate and
timely manner. In order to analyse inventory performance various measures like the gross margin
percentage, inventory turnover , gross margin return on inventory and the average in stock
position can be used.
RETAIL SERVICE QUALITY MANAGEMENT
Customer service plays a greater role in differentiating a retail concern from that of its
competitors. Among other thing being constant like the merchandise dealt, location, ambience,
price etc., customer service would enable a retail firm to achieve sustainable competitive
advantage. It has two dimensions the services and the service. Services are facilities, concessions
or infrastructure offerings extended to customers. Service is how well they are offered by the
store. It other words customer service is the set of activities and programs undertaken by retailers
to make shopping experience more rewarding for their customers. The retailer may follow a
customized or standardized approach in delivering the service. The customization approach
encourages the service providers ie the customer contact employees to tailor the service to meet
the each customers personal needs. Each customer get a superior service as it is based on the
requirement. However there may not be consistency in the service delivery process as it depends
on the judgment and capabilities of the service provider. In case of standardization approach, the
service delivery is based on a set of rules and procedures. Inconsistencies could be avoided in
this approach. The shoppers evaluate the retail services by comparing the perception of the
service they receive with the expectations. The shoppers will be satisfied when the perceived
services meet or exceed the expectations otherwise they will be dissatisfied and chances of the
shopper not coming back to the retailer is high. Customers perceptions are affected by the actual
service delivered.
Five service characteristic features are used by the customers to evaluate the service quality viz.,
the reliability, assurance, tangibility, empathy and responsiveness. Reliability in retail setting
may take the form of accurate billing, timely delivery of products/services. Assurance is denoted
by the guarantees and warranties. A service standard should be set along with the service
strategy, systems and people. The retail concern should manage the people and processes to
deliver the same. The following steps are involved in delivering quality service.
Defining the service objective
The first step in improving the quality of service is defining the objective for service
performance in the organization. a retailer should have a clear vision of which type of target
market he want to position himself and how he what to do the same. The target customer
segment, their needs and expectations should be a criteria in deciding the service objective. The
service objective should be clearly spelled out and communicated to the employees who are
involved in the service delivery process. The relevant strategies and system should be identified.
Defining the customer profile and expectations
The customers expectations may differ based on the age, gender, income level, education level,
occupation, lifestyle, personality traits etc., Identifying and defining the target customers will
enable the retail firm to understand their expectations.
Mapping the processes
The customer service process starts with the identifying the customer needs and ends with
fulfilling the same. The elements of the expected service process should be identified. This
should be compared with the existing service process and map them according to the desired
level. The process should end in an operational plan for service delivery. While mapping the
process the following aspects should be considered;
Dependability ie whether the services promised or taken into consideration?
Responsiveness whether the service is provided on time?
Authority whether a feeling of confidence is created in the minds of the customer during
service delivery process?
Empathy- has the customer point of view taken into account?
Tangible evidence whether the evidence of service delivery is created?
Setting standards and developing a service strategy
After mapping the process, the areas which require improvement are redesigned. New standards
should be set for service delivery with customer as the focal point. For example If in a
departmental store, the billing process is identified as taking long time, then the process should
be revamped by opening more billing centre so as to enhance the level of customer service.
Managing and developing Human resources
Customer service is delivered through the customer contact employees. They should be trained to
deliver the most efficient customer service. the customers look at employees as the projections of
the retail firm for which they are working. In other words they are considered as the face of the
organization. The employees should be informed about the organizations objectives, plans,
policies and procedures. Training programmes can be devised to enable them to work more
efficiently.
Monitoring, measuring and filling gaps in service quality
The quality of service delivered should be monitored so that the service goals are achieved. It
will also enable to ensure that the service strategies are successful. Monitoring service quality
involves continuous measurement of service quality parameters and evaluation of the same.
Measuring service quality enables the retail firm to identify the opportunity for improvement.
Hence this should be a continuous process. The gaps in service quality is discussed in the next
section.
Improving service quality: The Gaps model
The service quality may be perceived as poor if the retailer is not able deliver the service upto the
customer expectations. If the customer expectations are higher than their perception of the
delivered service, the customer will be dissatisfied. The difference between the customer
expectations and perceptions is known as the service gap. This gap should be reduced so as to
enhance the level of customer satisfaction. Four factors affect the service gap viz., the knowledge
gap, standards gap, delivery gap and the communication gap. In order to reduce the service gap
the retailer should try to reduce these gaps.
The knowledge gap
Knowledge gap refers to the difference between customer expectations and the retailers
perception of the customer expectations. The retailer should be able to understand what the
customer wants. If the retailer lacks the information about the customer needs and wants, it may
lead to poor designing of service delivery strategies.
The Standards Gap
Once the retailer has gathered the information about the customers expectation and perception,
the next step involved is to set standards for delivery of high quality service. At this stage the
standards gap may arise due to the difference between the retailers perception of customers
expectations and the customer service standards it sets.
The delivery gap
The delivery gap refers to the difference between the retailers service standards and the actual
service delivered to the customers. Setting standards alone is not enough in achieving excellent
service quality. It has to be delivered as per the specifications fixed.
The communication gap
The communication gap refers to the difference between the service promised by the retailer and
the actual service delivered. Overstating the services offered will raise the customers
expectation. Ultimately when the promised services are not delivered the expectations will
exceed the perceived service leading to customer dissatisfaction.
UNIT IV
RETAIL SHOP MANAGEMENT
Visual Merchandise Management Space Management Retail Inventory Management

Retail accounting and audits - Retail store brands Retail advertising and promotions
Retail Management Information Systems - Online retail Emerging trends
The success of a retailer to a greater extent depends on his ability to provide right goods to the
right consumer at the right place at the right time and at right price. Merchandise planning and
buying enables a retail to provide the right merchandise to the customers. The steps involved in
merchandise planning and various aspects involved in merchandise buying are dealt in detail in
this unit. Retail branding enables to differentiate the merchandise of a retailer form that of his
competitors. In this context the various types of branding and the importance of branding a retail
store along with private labels are highlighted. Indian consumers are in general price conscious.
A retailer cannot afford to loose the customer due to wrong pricing decisions. Hence the various
factors affecting the pricing decision and the types of pricing policies along with the methods of
pricing are discussed. Though it is said that a good product will sell by itself, in todays
competitive environment a retailer should resort to communicating with customers so as to
inform, educate and persuade prospective customers. In this context the various elements of
promotion mix are discussed along with the factors to be considered in making the decision. The
role of Supply chain and logistics in making an effective distribution and maintaining low
inventory is highlighted along with the quick response delivery system. This unit ends with the
discussion on the various retail strategies available to a retailer to build sustainable competitive
advantage so as to carve a niche in the minds of customers.
MERCHANDISE MANAGEMENT
Merchandise management is an integral part of retailing and also the most challenging function.
Merchandise management is the core of retail management as it can contribute to a greater extent
to the success or failure of a retail firm. The term merchandising has different meanings to
different retailers. Merchandising can be termed as the planning, buying and the selling of
merchandise. Merchandise management can be termed as the analysis, planning, acquisition,
handling and control of the merchandise investment of a retail operation. Merchandise analysis is
performed to understand the need and wants of the target market. Planning is concerned with
procuring the products in advance so as to enable the availability of the same when demanded by
the customers. Once the planning is done the product should be procured from distributors or
manufacturers which require a series of steps to be performed which is dealt is acquisition.
Handling deals with determining where the merchandise is needed and ensuring that the
merchandise reaches the required stores at the right time and in right condition. Merchandising
involves spending of lot of money in buying the products, transporting and storing the same,
hence control is necessary to keep track of the money spent on buying. The process of
merchandise management include strategies to ensure that the right product is bought at the right
prices and is available in the right place, at right time in the right amount so as to satisfy the
needs of the target market.
The merchandising function is influenced by various aspects discussed below;

Type of the store to a greater extent influence the bargaining power in performing the
merchandise function. In case of a chain store the purchase of merchandise will be done in a
huge volume in varied assortments, however in case of independent retailers the the volume and
assortments dealt will be limited. Likewise the type of purchase done by a mail order business
retailer differs as he has to plan in advance regarding the production of catalogue. In case of the
e-tailer, the type of products the consumer would be willing to buy in net should be taken into
consideration.
Merchandise to be carried influences the retailers buying and selling process. The retailer who
deals in the basic products has to perform the merchandise process differently from that of a
dealer in fashion products. The basic products can be kept in stock as the same will be in demand
for a longer time as against the fashion products which may sell during a particular duration and
may not move at all in other seasons. A merchandiser dealing with the fashion products should
spend a long time in the market identifying the products that will be attractive to the consumers.
The fashion trends and forecasts in the international markets should also be kept in mind. If the
retailer runs a discount store then the merchandise should be identified at right price. The
products need not be unique but only price competitive.
The organization structure affects the merchandising function. Some organization may consider
the role of buyer and the role of merchandiser as a separate function, while in smaller
organization a single person may perform all the duties.
Size of the organization in terms of investment and square feet occupied also matters in
merchandising function. A large retail store may carry huge variety and assortments whereas a
small store may invest relatively in merchandising. The nuances of merchandise management are
discussed under two major heads viz Merchandise Planning and Merchandise buying.
Merchandise Planning
Merchandise planning is an essential function to be carried out by small as well as big retailers.
A number of decisions are to be made about the thousands of individual items to be purchased
from hundreds of vendors. Proper planning regarding the various activities involved would
enable the retailers to carry out the buying process without difficulty. The planning activities are
discussed under the following heads
Organizing buying process by categories
Setting the objectives
Sales forecasting
Developing the assortment plan
Organizing the buying process by categories
Category management is the process of maximizing the sales and profits of a category. It
is a process by which a company manages a set of categories as independent and strategic
business units with focused attention to deliver enhance consumer value. Selecting and deciding
on every individual category is very important task as every category should be made up of a
group of products and brands that must necessarily be related to each other.
The key elements of category management are presented below;
Since every category comprises a group of products and brands that are related to each
other, each one is considered as a individual business unit. Most of the items in a category could
be substituted by others and hence any decision made relating to a particular product in the
category would have an impact of the performance of the other product within the category. If a
single team is entrusted with the management of a category, the decisions would be well
balanced. Developing a category plan will include a set of all guidelines related to pricing,
merchandising, promotions and product mix decisions which will have a major impact on the
categorys sales and in turn the profits. All the elements of the marketing viz., pricing,
merchandising, promotions and product mix should be coordinated to achieve the category goals.
Coordinated decision making involving the individual category managers should be made at all
times which will enable to avoid the communication gap.
Setting the objectives
Objectives in merchandise planning are set in terms of finance. The performance

measures are based on gross margin return on inventory investment (GMROI). GMROI
measures the gross margin earned on every rupee of inventory investment. It is similar to the
concept of return on assets, but the components are under the control of the buyer rather than
other managers. It comprises of two ratios viz., inventory turnover and gross margin percentage.
Gross margin percentage X Sales-to-stock ratio

GMROI =
Gross margin X Net sales
Net sales Average inventory

Gross margin =
Average inventory
GMROI enables to combines the both profits and turnover. This enables to compare the different
departments and identify the most feasible one. If the turnover alone is compared it may lead to a
wrong picture. Comparing the profit to the turnover will enable to evaluate the departments,
merchandise classifications, vendor lines and items. However it should be noted that pricing
decisions will affect the gross margin component of GMROI.
Measuring Inventory Turnover
Inventory turnover refers to the speed with which the merchandise moves in and out of the retail
store in a given period of time. it is usually calculated for a period of six months or a year. It is
defined as follows;
Average inventory at retail
An higher inventory turnover leads to increased sales volume as fresh merchandise will be
available to customers which will sell faster than the old merchandise. The risk of obsolescence
is less as the merchandise moves out of store soon. It will result in improved sales person morale
as sales person will be happy to deal with new and variety of merchandise than the old, stale
ones. Higher inventory turnover leads to take back the money invested in merchandise so that
more money is available to buy merchandise with high profitability. The operating cost will be
lesser as the carrying cost of inventory is less leading to significant savings in the cost.
An high inventory turnover can also be harmful to a retail concern. If the retailer deals with items
with high inventory turnover only, it may lead to disappointing the customers if other items are
not dealt by the retailer. In order to achieve high turnover, the merchandise must be bought more
often and in smaller quantities which will not enable the retailers to avail the quantity discounts
and transportation economies. The operating expenses also increases as the buyer has to spend
the same amount of time in meeting with vendors and carrying out the orders, however small the
amount may be.
Sales Forecasting
Sales forecasting is an integral part of merchandise planning. It will enable to make decision
regarding the quantum of purchase to be made. While forecasting the sales, the category life
cycles should be given due consideration ie the retailer should predict the sales of various
product categories over a period of time. The sales may be less during the introduction stage and
it may gain momentum in the growth stage. In the maturity stage the sales may grow at a
relatively lesser rate and then it may decline. This pattern may vary from category to category
and it could be affected by the activities of the retailers. For example setting a low price in the
initial stage may increase the rate of adoption of the product. Likewise in the decline stage the
introduction of sales promotions measure may enhance the sales.
The process of developing the sales forecasts involves the following steps;
Reviewing past sales A review of past sales records is necessary to establish if there is any
pattern or trend in the sales achieved. Past sales records would give an indication of the sales in
the current year, if the situations or conditions remain constant.
Analyzing the change in the economic conditions The change in the economic patterns will
have a direct link to the consumer spending patterns. The inflation rates, economic slowdowns,
increased unemployment, the business cycles etc has an impact on the merchandise sales.
Analyzing changes in the sales potential the changes in the demographics of the target
market should be related to the store and the products and sales projection can be made.
Analyzing the changes in the Marketing strategies - The sales forecast may be affected by the
marketing strategies of the retail concern and the competitors. The factors like remodelling,
redesigning and opening of new store or new line of product etc considered by the competitor
should be taken into consideration apart from the general trend in retailing.
Creating the sales forecast - All the factors mentioned above are taken into account and the
estimate of projected increase in sales is arrived. The same is applied to various product
categories to arrive at the projected sales figures at the store SKU level.
Developing Assortment Plan

Assortment plan in general involves decisions regarding what should be carried in a particular
merchandise category. To arrive at the decision the retailer should take into consideration the
relative importance of variety, assortment and product availability. Variety is the number of
different merchandising categories within a store or department. It is also referred to as breadth.
Assortment is the number of Stock Keeping Units within a category. It is also referred to as
depth. Stores with large assortments are said to have good depth. Product availability refers to
the percentage of demand for a particular Stock Keeping Unit that is satisfied. It is also referred
to as the level of support or service level. A retailer should arrive at a trade off between the
variety, assortment and product availability. Of the three issues variety assumes more importance
as it plays a greater role in positioning the retail store in the minds of the consumers.
In determining the variety and assortment the following factors should be considered;
The profitability of the merchandise mix has to be taken into account as the retailer invests both
in terms of money and space in merchandise. The corporate strategy regarding assortment will
enable the buyer to determine the number of styles and colors to purchase. If the portfolio is
more diversified there will be less risk of huge losses. At the same time the retailer has to face
the risk of breaking sizes i.e. running out of stock on particular sizes.
The physical characteristics of the store ie the physical space for each category should be
considered. If more styles and colors are dealt in assortment, much space will be required to
properly display and store the merchandise.
A balance between too much assortment and too little must be arrived at. Too much assortment
may lead to confusing the retailer, like wise too little assortments may lead to less choice which
may dissatisfy the shoppers who need a one-stop shopping. Hence the expectations of target
market should be taken into account while deciding the assortment size.
The retailer should consider whether the merchandise under consideration complements other
merchandise in the department. Product availability is defined as the percentage of demand for
SKU that is satisfied. If the product availability is to be maintained at a higher rate then the
percentage of backup stock to be stored will also be higher so as to ensure that out of stock
situations does not arise. An optimum backup stock should be ascertained because if the backup
stock is too high, it will lead to unnecessary locking up of financial resources. Likewise if the
backup stock is too low, the stock out situation will arise leading to dissatisfied customers and
declining sales. The backup stock is also known as buffer stock, or safety stock. To determine
the buffer stock level the following aspects should be considered.
The demand and lead-time pattern for each Stock Keeping Unit should be calculated. This will
avoid overstocking of SKUs with smooth demand and out of stock situation for SKUs with
erratic demand.
The decision made by the retailer regarding the product availability affects the buffer stock level.
If the retailer wishes to satisfy all the customers need then more number of merchandise has to
be stocked. However if a retailer wishes to satisfy only 75% of demand, only to that extend the
buffer needs to be maintained.
Fluctuating demand pattern enhances the need for more buffer stock. If the sales is less than
average, the retailer may end up carrying more buffer stock, on the other hand if sales is more
than average, it will result in out-of-stock situation.
Lead time affects the buffer stock level. Lead time is the amount of time between recognition
that an order needs to be placed and the time at which the merchandise arrives in the store and
ready for sale. If the lead time is more, more buffer stock should be maintained to avoid of out of
stock situation.
Product availability of vendors affects the back up stock requirements. If the product availability
of vendor is restricted, the same will be passed on to the retailer resulting in the need to maintain
more safety stock.
Merchandise Buying
Merchandising planning culminating at assortment plan enables to identify the type of

merchandise to be carried. Merchandising buying systems enables to determine how much to
buy. Two distinct types of buying systems are used by the retailers viz., stable merchandise
system and fashion merchandise. The demand for stables can be forecasted based on the previous
year sales history and projections using statistical techniques. However sales history cannot be
used as standard for fashion merchandise. The buyers have to forecast sales at the category level.
This section discusses the following aspects involved in merchandise buying
Buying system for Staple merchandise and fashion merchandise
Open to buy systems
Allocating merchandise to stores
Analyzing merchandise performance
Staple Merchandise
Stable merchandise system is followed in case of merchandise whose demand pattern can be
identified ie the order- receipt-order cycle is predictable. For example merchandise in grocery or
food category the cycle is fairly predictable. A number of inventory management systems are
available for staple merchandise. The system enables the buyers to identify how much to buy and
when to buy. It basically provides three functions viz., monitoring and measuring average current
demand at the stock keeping Unit level, forecasting future demand taking into consideration the
seasonal variations and other contingencies and developing ordering decisions rules for
restocking the merchandise.
Unlike the forecast for fashion merchandise, the sales forecast for stables can be made
mechanically. Softwares can enable the preparation of budget plan in an easy manner. Some of
the concepts used in budget plan like the exponential smoothing, order point and order quatity is
explained below;
Exponential smoothing is a forecasting technique in which sales in the previous time periods are
used along with an assigned weight. The following formula can be used for forecasting sales;
New forecast = Old forecast + (Actual demand Old forecast)
Alpha () takes the value between 0 and 1 which depicts the influence of actual demand on the
new forecast. High value of alpha ie .5 and above causes the forecast to react quickly whereas
the low value of alpha such as .1 is used when the demand is changing very slowly.
Order point is the minimum quantity of stock required to avoid the out of stock situation until
the next order arrives. The order point can be calculated using the following formula;
Order point =[( Demand/Day) (Lead time + Review time)] + ( Backup stock)
Lead time is the amount of time between placing the order and receiving the same.
If the lead time is zero then the buyer can wait until the stock is completely used and then order
and replenish the merchandise immediately.
Order quantity refers to the decision regarding number of merchandise the buyer should order
when the quantity available is less than the order point. The important aspect to be kept in mind
is that the order should be enough such that the minimum stock required is not depleted and sales
is made from the backup stock.
Fashion Merchandise
Fashion merchandise has a high demand for a relatively short period of time. The demand for the
product exists for a limited time and hence buying right quantities at the right time is of great
importance for this category of products. Excess buying may result in heavy markdowns at the
end of the season when the product becomes out of fashion. The monthly additions of stock in
case of fashion merchandise should be calculated taking into account various aspects i.e. the
Sales, Reductions, Beginning of the month and End of the month stock. These aspects are
explained below;
Calculation of monthly sales percent distribution to season, projects what percentage of the
total sales is expected to be sold in each month. Historical records provide the basis for
calculating this percentage. Tracing the percentage change in sales in each month over a period
of years would enable to check the significant changes. Due consideration should be given for
changes due to marketing strategies of the concern and that of the competitors.
Monthly sales should be calculated which is the forecast sales for six months period multiplied
by sales percentage calculated as above. The various methods of forecasting sales are explained
in previous sections.
Monthly reduction percent distribution to season enables to take into account the various
factors that reduces the inventory level. This aspect should be considered to support the monthly
sales forecast. The value of inventory is reduced by primarily the sales made. The other reasons
are the mark downs, shrinkage, and the discount to employees. These additional reductions
should be taken into account, otherwise the retailer would be under stocked. Markdowns are
price reduction offered to customers. It can be forecasted from the historical records taking into
consideration the competition, changes in the environment etc. discounts refers the price
reduction provided to employees. Shrinkage is the inventory reduction caused due to shop lifting
by employees or customers. It also includes misplacing merchandise, damaged or poor book
keeping.
Monthly reduction should be calculated in the same manner like the monthly sales. The total
reductions are multiplied by an percentage
The beginning of month stock to sales ratio specifies the amount of inventory that should be on
hand at the beginning of the month to meet the sales forecast and maintain inventory turnover
objective. The formula for calculating the ratio is;
Beginning of month inventory

Stock to sales ratio =
Forecasted sales for the month
The ration is equivalent to the amount of monthly supply on hand at the beginning of the
month.
The amount of inventory to be held during the beginning of the month(BOM stock) is
calculated as below;
Monthly sales X Beginning of month stock-to-sales ratio
BOM Stock of the current month is the End of month stock of the previous month.
After calculating all the above aspects the monthly addition to stock can be calculated as shown
below;
Additions to stock = Sales+Reductions+EOM InventoryBOM Inventory
Open- to-buy
Open-to-buy system helps the buyer to plan the purchase of merchandise. It starts after the
merchandise is purchased using the budget plan discussed above. The open-tobuy system enables
to keep track of the merchandises flows while they are occurring ie., it enables to identify how
much is spent each month and how much is left to spend. The method for calculating open-to-
buy varies for the past periods and the current period. Calculation of open-to-buy at the end of
the period is easy as the period is already over and the actual End of the month stock (EOM) is
equal to projected EOM stock. In case of calculation of open to buy for the current period, there
is no EOM stock actual as the period has started but has not finished, hence projected EOM stock
should be calculated. This projected EOM stock is a new and improved estimate of the planned
EOM stock arrived from the merchandise budget plan. The formula for projected EOM stock
plan is
Projected EOM stock = Actual BOM stock+Actual monthly additions + On order Sales plan
Monthly reductions plan
The open to buy formula for the current period is simply the difference between what is
originally planned to end with from the merchandise budget plan and what is the actual EOM
stock plan calculated based on the information collected during the month. It can be expressed as
below;
Open-to-buy plan = EOM stock planned Projected EOM stock
An assortment planning process can be more complicated. It requires a fine mix of subjective
and experienced judgments, good information system, and a systematic method of keeping
historical records.
Allocating merchandise to stores
After planning and buying the merchandise as discussed above, the merchandise purchased
should be allocated to stores. The merchandise should be replenished either by the vendor or
through distribution centers. Retailers can use historical sales information for the purpose of
allocating units to stores. However, close attention should be paid to current supply and demand
situations so as to determine the proper inventory allocation. In the case of chain stores the
allocation of merchandise may differ from one store to another. A core assortment is a relatively
large proportion of the total assortment that is carried by each store in the chain regardless of the
size. The core assortment is necessary to maintain the image of the chain particularly in the case
of small stores. If the assortments are minimized in a chain store then the customers would
perceive that the smaller stores have an inferior assortment. Hence the smaller store may require
a higher-than average stock-to-sales ratio. The retailers can follow pull or push strategy while
allocating the merchandise. In case of pull strategy, orders for merchandise are generated at store
level on the basis of demand data obtained at the point-of-sale terminals. In case of push strategy
merchandise is allocated to the stores on the basis of historical demand, the inventory position at
the distribution center and the needs of the stores. A pull strategy is where the retailer decides the
allotment in responsive to the customer demand.
Analyzing merchandise performance
The merchandise performance could be analyzed using three procedures viz., ABC analysis,
Sell-through analysis and by evaluating vendors using the Multiattribute model.
ABC analysis
ABC analysis orders the merchandise into three categories on the basis of some performance
measure for example contribution margin, sales volumes, gross margin etc. The category may
consist of items that should never go out of stock, items that could be allowed to be out of stock
occasionally and items that should be deleted from the stock selection. The ABC analysis is
based on the principle that implies 80% of the retail sales or profits come from 20% of the
products. Contribution margin used as the performance measure can be calculated using the
following formula;
Contribution margin = Net sales Cost of goods sold other variable expenses
Merchandise with high contribution margin can be stored more, however the less profitable
merchandise should also be stored so as to draw the keep the customers satisfied. Sales margin
per square foot may also be used as performance measure to categorize the merchandise using
ABC analysis.
Item A could consist of the items that should never be out of stock . It occupy a less percentage
of total items say 5% but may represent more for eg. 70% of the sales. These items may be
expensive to carry as they generally will require high levels of backup stock to buffer against
variation in demands. B items may consist of merchandise which occupies an near equal
percentage in sales and volume. For example it may represent 10 percent of items contributing to
20 % of sales. C items account for more stock in numbers but less in total sales. for example it
may account for 65% of the stock but may contribute only 10% of the total sales. Apart from the
A, B, C items , there may be some items which may be obsolete and not wanted by customers
and accounting for only cluttering in the stores. These could be termed as D items which has to
be done away by the retailers.
Sell-Through Analysis
A sell-through analysis is a comparison between actual and planned sales. It enables to determine
whether early markdowns are required or whether more merchandise is needed to satisfy the
demand. The decision can be made based on the past experience, the steps taken to enhance the
sales etc. For example the advertising strategy for products could be changed or additional
discounts could be offered. If the actual sales is much more than the
planned sales, then a reorder should be made.
Multiattribute Method
The multiattribute method is used for evaluating vendors on the basis of various criteria.
The steps involved in evaluation are;
The decision regarding the criteria to be used for selection of vendors should be identified, it
could be vendors reputation, services offered, merchandise quality, selling history etc. Too much
of criteria will be difficult to evaluate and at the same time too short a list will lead to ignoring
some issues.
Weights should be assigned to each criteria based on the discussion between the buyer and the
merchandise manager.
Judgment should be made about each individual brands performance on each issue.
The importance and performance should be combined so as to evaluate the overall
performance. This can be done by multiplying the importance of each issue by the performance
for each brand or its vendor.
To arrive at a vendors overall rating, sum the product for each brand for all the issues.
RETAIL AUDIT
Retail audit, which is a vital evaluation tool, systematically examines and evaluates a companys
total retailing efforts or a specific aspect of it.
PURPOSE
to study what a retailer is presently doing
to appraise various performance indicator of a retailer
To investigate a retailers objectives and strategies; then examine how it has implemented
those and whether its organisation structure is adequate to implement those.
WHAT DOES RETAIL AUDIT INCLUDE

Store layout and visibility management
In-store management
Customer relations and interface
Visual merchandising
Ambience and hygiene management
Manpower planning and responsibility allocation
Sales and cash management
DETERMINING WHO DOES THE AUDIT

COMPANY AUDIT SPECIALIST:-
Advantages
An internal employee whose prime responsibility is the retail audit.

Auditing expertise
Thoroughness
Knowledge about the firm
Ongoing nature (no time lags).
Disadvantages
Costs (especially for retailers that do not need full-time auditors)
Auditors limited independence.
DEPARTMENT MANAGER:-
Advantages
No added personnel expenses
He is knowledgeable about the firm and its operations.
Disadvantages
Managers time away from the primary job
Potential lack of objectivity
Time pressure
Complexity of companywide audits.
OUTSIDE AUDITORS:-
Advantages
Auditors broad experience, objectivity, and thoroughness.
Disadvantages
High costs per day or hour
Time lag is long as he needs time for being familiar with the firm
Failure of some firms to use outside specialists continuously
Reluctance of some employees to cooperate.
DETERMINING WHEN AND HOW OFTEN THE AUDIT IS CONDUCTED
Logical times for auditing are end of the calendar year, or end of the retailers
annual reporting year (fiscal year), or when a complete physical inventory is conducted.
However, audit must be conducted at least once a year, although some retailers
desire more frequent analysis.
Same period should be fixed to make meaningful comparisons of projections with
actual and then make proper adjustments.
DETERMINING AREAS TO BE AUDITED
Retail audit typically includes more than financial analysis; it reviews various
aspects of a firms strategy and operations to identify strengths and weaknesses.
Horizontal retail audit analyzes a firms overall performance, from the
organizational mission to goals to customer satisfaction to the retail strategy mix and its
implementation in an integrated and consistent way. It is also known as a retail strategy
audit.
Vertical retail audit analyzes in depth a firms performance in one area of
the strategy mix or operations, such as, credit function, customer service, merchandise
assortment or interior displays. A vertical audit is focused and specialized.
The two methods should be used in conjunction with one another because a
horizontal audit often reveals areas that merit further investigation by a vertical audit.
CONDUCTING THE AUDIT
Management specifies how long the audit will take.
Prior notification to the employees to compile some data in advance to save time
With a disguised audit, employees are unaware about audit taking place.
With a nondisguised audit, employees know an audit is being conducted. This is desirable
if employees are asked specific operational questions and help in gathering data.
Some audits should be done while the retailer is open, such as
Assessing parking adequacy
In-store customer traffic patterns
Use of vertical transportation
Customer relations
Others should be done when the firm is closed, such as:-
Analysis of the condition of fixtures
Inventory levels
Turnover
Financial statements
Employee records.
REPORTING AUDIT FINDINGS AND RECOMMENDATIONS TO MANAGEEMNT
An audit report must be formal and it should be concise and self content.
It must present findings and recommendations to management.
It is the role of management not the auditor to see what adjustments (if any) to make.
Decision makers must read the report thoroughly, consider each point and implement the
needed strategic changes.
RESPONDING TO AN AUDIT
After management studies audit findings, appropriate actions are taken.
Areas on strength are continued and areas of weakness are revised.
These actions must be consistent with the retail strategy and noted in the firms retail
information system.
POSSIBLE DIFFICULTIES IN CONDUCTING A RETAIL AUDIT
An audit may be costly
It may be quite time-consuming.
Performance measures may be inaccurate
Employees may feel threatened and not cooperate as much as desired.
Collection of incorrect data
Management may not be responsive to the findings.
ESSENTIAL REQUIREMENTS OF GOOD AUDITING
Audits must be conducted regularly.
In-depth analysis is made
Data are analyzed systematically.
An open-minded, unbiased perspective is maintained.
There is a willingness to rectify weaknesses to exploit strengths
Decision makers must be responsive to the recommendations made in the audit report.
Management Information System
Management information system is a program that helps retail executives to identify and use key
data for effective decision making and manipulate the same in any form they wish. The system
would enable preparation of report which provides information to the retailers to manage the
operations more effectively. For example the sales of various products in a category can be
compared to find out the best selling product item. This will enable in placing orders, scheduling,
space management etc. comparing the sales of previous years enables to track performance. The
data from various chain stores/ departments can also be compared and analyzed to provide
insight for objective decision making. Information can be provided in the form graphs and charts
to help in easy understanding and to highlight pertinent data. Trends analysis, projections and
what if situations where the cause effect relationship among the variables can be easily tracked
and reports can be generated. Thereports can be an exception, interactive or an adhoc report.
Exception reports highlight the items that requires immediate action for eg., a out-stock- report.
Interactive reports enable to query the information needed. For example the sales related
information can be acquired on the basis of branch, product, areas, date and the like. Adhoc
reports are used to get information specific to a particular situation. The reports are requested on
the fly and the format and criteria may be used only once. For example the information regarding
the performance of a particular department in a specific product category on a specific day may
be reported which may not be requested in future.
Information Technology in Communication
Large scale retailing is increasingly preferred by both retailers and the consumers due to inherit
benefits. Malls with thousands and millions of square feet are attracting more footfall. However,
communication both within the retail store and outside has become more important and
challenging as the information to be exchanged is more dynamic. Internal communication within
the various departments in the retail store can be made in an agile manner with the help of
softwares like Lotus Notes. Various branches can also be networked and information can be
shared without loss of time. Various applications like electronic data exchange, Data
warehousing, data mining and the like would enable effective communication 24 hours a day and
seven days a week. Electronic Data Interchange (EDI) is a form of computer- to- computer
transmission of business information between the retailer and the vendor. Through the EDI the
retailer will be able to transmit the data and other information to this vendors and vice versa all
data relating to inventory, orders, payment etc in a minute. EDI is a two way communication tool
that enables the retailers to place online orders, obtain order status and to make payment to their
vendors.
The vendors will also be able to provide invoices and intimate price changes etc. Use of
information technology reduces the tedious paperwork and other mailing formalities. It reduces
the costs, eliminates unnecessary time delays and minimizes the possibility of errors. Thus the
overall operational efficiency of the retail concern enhances with the use of information
technology. It can be deployed to enhance the services provided to the manufacturer/wholesalers,
suppliers, customers, employees and all concerned. Due to automation the time involved in each
transaction made with the customers, suppliers etc can be reduced. The supply chain
management can be performed more effectively. All this will contribute significantly in
increasing the return per square feet.
Online Retailing
Electronic retailing, involves the selling of goods and services to the consumer market via the
Internet, is also called online retailing, e-tailing, e-retailing and electronic commerce (EC) in the
business-to-consumer (B2C) market. E-tailing in India is on the verge of gaining momentum.
According to the Internet and Mobile Association of India (IAMAI) eCommerce Report 2005,
online shopping revenues were Rs. 5.7 billion in 2004-2005 and were expected to increase to Rs.
23 billion in 2006-2007. One of the key factors for the emergence and growth of online shopping
in India is the higher penetration of personal computers (PCs) and increase in number of Internet
users. According to IAMAI, the number of Internet users in India was expected to reach 100
million by the end of 2007 from an estimated 25 million in 2005. Some of the other important
factors that facilitated the growth of online shopping was the increase in number of broadband
Internet connections (1.3 million broadband subscribers as on March 31, 2006), the growing
purchasing power of the middle class, limited personal time, increased use of credit and debit
cards, and more importantly a large young population that spent a considerable amount of time
online. There is a shift in the attitude of people, who are more receptive to the experience of
online shopping. Customers are increasingly becoming aware of the advantages of online
shopping. The benefits from the consumers perspective are listed below;
On-line retailing offers a broad selection. The consumers can browse a vast number of
alternatives before making a decision. Consumers need not undergo the problem
of visiting many stores to compare the variety, price and the like.
E-tailing offers more convenience to the shoppers as they have the opportunity to compare the
features and price of various product brands, read consumer reviews, and make the purchase
decision at a leisurely pace. Moreover it offers 24 hours 365 days shopping freedom.
The online retailers offer more information that helps the consumers to make informed
decisions. Like a sales assistant, the electronic channel can respond to consumers inquires. The
consumers can drill out any amount of information needed without having to face the impatience
of the salesmen.
The most significant benefit of the electronic channel is the ability to economically personalize
the information for each customer. The product category which the customer is interested and the
new arrivals, discounts and the like related to the customers preferences can be sent. The
electronic channel has the potential for preparing an individually tailored catalog for the
customer each time the customer goes shopping. This will enhance the shopping experience.
Due to the economies of operating in web, the retailers will be able to price the merchandise at
a lesser cost than the brick and mortar store. The consumers will be able to get products at a
relatively cheaper price.
Virtual communities, chat rooms and bulletin boards can be created to share information.
This s a network of people who seek information, products and services and communicate with
each other about specific issues. This will create a sense of belongingness among the customers
and add to the image of the concern at no cost. From the retailers perspective the following are
the benefits of online retailing;
It enables the retailers to project their presence and thereby add to the image.
It enables to increase the sales volume by adding the online sales as a complimentary form to
the traditional shopping methods.
E-tailing enhances the geographical reach of the consumers. Location of the consumers is no
more a constraint to sell the products. This non-geocentric approach will enable to reach wider
spectrum of consumers.
Unlike physical presence, retailers are not constrained by the space availability as they have
visual density in the web. Visual density is all about virtual space utilization like space
management in retail. The visual appeal attracts the browsers and makes them stay in the website
for a longer duration.
Online retailing enables the retailer to have an unlimited number of Stock Keeping Units
(SKUs) on display. This is because of the unlimited virtual space.
Tracking the shoppers and contacting them is easier in e-tailing environment. With the help of
cookies the non-buyers who visit the site can also be traced.
Online retailing is not faced with the threat of obsolescence. There is no carrying cost for the
inventory.
Providing and adding information in the electronic channel is much easier and cost effective
rather than training entire group of salesmen. Moreover the information in online sites can be
easily updated within a short time.
Introduction of new products and demonstration of the features is easier on the web.
More personalized services can be provided to attract and retain the customers.
It enables to reduce conduct the retail business in a cost effective manner.
Promotional offers and Interactive advertisement could be more attractively displayed in the
web.
Online retailing in India is very minimal and at the nascent stage. Like the brick and mortar
stores, facing the problem of converting the footfall into fruitful transactions, etailing is also
having the problem of converting the clicks. Some of the problems of E-tailing is listed below;
There are a large number of consumers base who are not connected to net. The websites
however attractively designed will not be reached by them.
Unlike some countries, Indian consumers pay for the time on the web. This limits the time
spend by them in surfing. Also the downloading capacity is a major constraint which makes
many shoppers to quit browsing.
The key hurdle for the growth of online retailing is the issue of credit card fraud. The payment
mechanism is viewed by consumers with suspicion.
Indian consumers like to touch and feel the product before they buy. The personalized
customer service and the emotional experience enjoyed in the case of brick and mortar is not
available in online retailing environment.
For many consumers, shopping is a relaxing and a pleasant past time experience. They would
not be willing to sacrifice the same by way of online shopping.
Online shoppers are not willing to make payment using credit card details on the net. The
security and privacy issues are posing serious threats to e-tailing.
Some of the other challenges for online retailers are assessment of online customer behavior,
managing the supply chain and logistics in order to avoid delays, making up for the ambient
shopping experience in physical formats, establishing brand recall, establishing consistency in

pricing across channels, and managing purchasereturns.
Key Factors for a Successful e-Tailing
Some of the new entrants to e-tailing includes Pantaloon Retail (India) Limited (PRIL). It has
launched its online retail arm, futurebazaar.com on January 02, 2007. This marked the entry of
Indias leading retail chain into the online retail segment. Tata Indicom, a mobile and Internet
service provider, entered the online retail market with its website, www.ichoose.in, to provide
online mobile connection services. The retail division of Godrej & Boyce Mfg. Co. Ltd. (G&B)
had also launched an online portal that offered its customers all the consumer durable products
that were available at Godrejs Lifespace retail stores. Prior to the entry of these new players,
the e-commerce market in India had established firms the e-commerce market in India had
established firms like, Rediff.com, Fabmall.com, Baazee.com, eBay.in, indiatimes.com, etc.,
which had achieved fair success in creating a brand recall among online customers. However for
many e-tailers the websites have remained as telling sites rather than selling sites. In order to
be ensure a profitable existence the following aspects should be considered;
Indian shoppers are in the threshold of trying out the e-buying. Hence a well known brand
name and brand image would attract them. In a brick and mortar retail setting a retailer competes
with other retailers in the local area. However the retailers electronic channel competes with
innumerable URL which is growing every minute.
The reputation of the retailer is a very important aspect in e-tailing. The shopper cannot see the
merchandise before buying, they have to depend on the retailers reputation. The shoppers should
trust the retailer to provide a secured credit card payment, deliver good quality product as
described in the web and ensure privacy of transactions.
The unique benefit of e-tailing is the ability to customize the information presented to each
customer based on their needs and preferences. Hence the retailer should have the access to
information about the preferences and past behaviour of the customers.
The retailer should provide opportunity for the shoppers to do multiple items shopping of
complimentary merchandise. This will reduce the shopping cost and enrich the shopping
experience as the customer gets to know the complimentary products which can be bought along
with what they are looking for.
Comparison in terms of price and variety offered is easy for a online shoppers. Hence in order
to attract and retain consumers, the e-tailer should offer unique merchandise in the electronic
channel. To ensure uniqueness the retailer can opt for private label brands, co-brands,
prepackaged assortments and the like.
The websites should be designed keeping in mind the constraints of the e-shopper in terms of
money and time. The multimedia usage could enrich the page content and visual appeal, however
it will also increase the downloading time. Ease of navigation and sensory experiences play an
important role in stimulating purchase, promoting multi item purchase and encouraging repeat
visits. Hence website design plays a major role in the success of e-tailer.
The e-tailers should take adequate measures to alleviate the perceived risk of eshopping. The
perceived risk is related to the credit card payment and potential privacy violations. Though the
usage of encryption and other sophisticated technology provides safety, it is not convincing the
suspicious customers. The retailers can resort to measures of collecting payment on delivery of
products in person or through other measures to reduce the risk of payment. The ability of
retailers to collect information regarding the purchase history, personal information, search
behaviour on the net and the like should be tackled by retailer by earning the trust and
confidence of the consumers.
Keeping in mind the psychology of the consumers to touch and hold the products, the e-tailer
should carefully choose the products to be sold in the online mode.
UNIT V RETAIL SHOPPER BEHAVIOUR

Understanding of Retail shopper behavior Shopper Profile Analysis Shopping Decision
Process - Factors influencing retail shopper behavior Complaints Management - Retail sales
force Management Challenges in Retailing in India- Case studies.
Introduction
A retail strategy mix will be successful only if it is based on the consumers. It is critical
to understand the customer characteristics, needs and attitudes, personality, lifestyle and the like
so as to arrive at sound decisions. Such strategic decision which are based on customers will
enable to satisfy their needs better than the competitors. Against this background this chapter
focuses on understanding the shopping process and the factors influencing the same. The various
stages involved in shopping process is dealt in detail.
Understanding the various factors influencing the shopping process will enable to
develop a good retail strategy. The factors influencing the purchase process viz., attitude,
personality, lifestyle and perception are highlighted along with a discussion of segmentation of
customers on the basis of above listed aspects.
A retailer can succeed in the long run only by delivering value to the money paid by
consumers not only in terms of merchandise but also in terms of services provided. The various
ways through which a retailer can show that he cares for the customer are highlighted in this unit.
During the course of discussion the terms shopping and buying are used interchangeably.
Likewise the terms consumer, buyer and shopper are used synonymously.
Learning Objectives
After reading this unit you will be able to understand;

a. The different types of buying decisions and the buying process
b. The various factors influencing the buying process
c. Segmentation of customer on the basis of various factors influencing them
d. Need for complaint handling and the issues involved
e. Means through which value can be delivered to retail shoppers
SHOPPING PROCESS
Shopping is an activity performed with high level of regularity and involvement. It is an
activity which appeals to the inherent nature of humans. Markets are viewed not as just place to
exchange goods and money but as leisure timer to socialize. Shopping is viewed as social
activity and it plays an important role in the social life of every individual. The concept of
shopping could be viewed from three dimensions viz., shopping environment, socio-cultural
context and from the individuals perspective.
Shopping environment
Research studies shows that shopping environment has an impact on the shoppers
behaviour. For similar products the information search process changes with the different types
of stores. A customer may pick up new brand and try the same in a departmental store but may
look for a specific brand only in case of a kirana store.
Socio-Cultural Context
Shopping is no longer looked at as a mundane chore to be performed. It is looked upon as an
experience and recreation. It is a means of satisfying non purchase related motives as well as an
instrumental means of purchasing. Primarily shopping is a means of collecting information to
enable the shoppers to take right decision. At the same time it provides emotional satisfaction to
the shoppers. Shoppers while making decision takes into consideration the information acquired
before visiting the store and the information received in the store so as to arrive at the purchase
decision. Some of the social motives the shopper try to fulfill through shopping are;
1. Pleasure of bargaining
2. Socializing with other during the shopping process
3. The necessity to shop at a store due to peer group attraction and the desire to be one in
the peer group or reference group
4. The shopping experience enables to command attention and respect and thereby
contributes to status and authority
Individuals perspective
The shoppers many times indulge in shopping not only with the motive of buying products
but for many other reasons as highlighted below;
1. Shopping may be performed as an activity arising out of learned behaviour. A person
internalize these behaviour and performs the shopping activity which is termed as role
playing. For example the role of women in shopping for groceries is a socially learned
role.
2. Retailing in Taiwan is very well developed and likely to enter a sluggish growth phase
between 2005 and 2010, recording a constant value CAGR of 2%. Although the novelty
3. Shopping may be looked as a diversion from the routines of daily life. It may be looked at
as recreation. It may even be considered as stress buster to escape from the regular
monotony.
4. Shopping may be indulged as means for self gratification too. The emotions and moods
of a person may propel him to shop
5. Shopping may be considered as means of physical activity providing a considerable
amount of exercise
6. Shopping may be performed so as to keep oneself abreast with the new trends, products
and stores.
7. Shopping is viewed as a sensory stimulation and satisfactory experience as it enables the
consumers to see-touch-feel during the process of buying.
The shopping process begins when the customers recognize an unsatisfied need.
Once the need is recognized, the consumer tries to seek information about the means to satisfy
the need, the products available and from where it can be bought. Consumers evaluate various
alternative sources of merchandise and choose a store to visit. The visit to the store may provide
additional information and may initiate more needs in the consumers mind. After evaluating the
retailers merchandise the customer make a purchase. In some situations, the time and effort
spend may be considerable less but in other situation the buying process may involve more time.
Three types of decision making process are

Extended problem solving
Limited problem solving
Habitual decision making
Extended problem solving
Extended problem solving is a purchase decision process in which the consumers devote a
considerable time and effort to analyze the alternatives. Customers face extended problem
solving situation when the purchase decision involves more risk and uncertainty.
There are many types of risk viz., financial risk, physical risk and social risk. Financial risk
arises when customers purchase an expensive product. Physical risk assumes importance if the
product under consideration may have an impact on the health or safety. Social risk arises when
the customer believe a product will affect how others view them. Customers will be engaged in
extended problem solving situation when making a buying decisions to satisfy an important need
or when they lack adequate information about the product to be purchased. In extended problem
solving situation customers will involve themselves in searching for more information. They
may rely on the friends, family members or experts and visits several retail stores before make a
purchase decision. Retailer can influence the customer by offering information needed in an
easily understandable manner. Sales men could be trained to provide more information needed
by customers. In order to reduce the risk associated guarantee could be provided.
Limited Problem Solving
Majority of consumer decision making process involves limited problem solving situation.
Limited problem solving is a purchase decision making process involving moderate time and
effort. This type of buying process happens when the customer has prior experience in the
product and the risk involved is moderate. In this situation, customer places more importance on
the personal knowledge than external sources. The customer usually chooses a retailer with
whom they have shopped before and select merchandise which they have purchased in the past.
It will be highly beneficial for retailers to reinforce this buying pattern as it involves more
reliance on the retailer. If the customers shops elsewhere the retailer needs to break the buying
pattern by introducing new information or offering different merchandise or services. In some
situation the customer may engage in limited problem solving situation regarding the choice of
store and may involve in extended problem solving in making decision regarding the product
choice. Impulse buying is a type of limited problem solving situation. It is buying decision made
by a customer on the spot after seeing the merchandise. In order to encourage impulse buying the
retailer indulges in attractive display to attract customer attention and stimulate purchase
decision. Display of profitable items in prime locations attracts the attention of customers and
leads to more impulse purchase.
Habitual decision making
Habitual decision making process involves little or no conscious effort on the part of the
consumers. Todays consumers are money rich and time poor. Due to the demand on time, the
customers may simplify their decision making process. Customers engage in this type of decision
making process mostly in cases where decisions are not very important or involve merchandise
which is regularly purchased. Brand loyalty and store loyalty are examples of habitual decision
making.
Brand loyalty means the customer specifically buy a specific brand in product category. Retailers
can satisfy customers by offering specific brands desired by them. Brand loyalty creates both
opportunities and problems for retailers. Customers are attracted to the store due to the popular
brands dealt by retailer which provides an opportunity to retailer to develop store loyalty.
However carrying high-loyalty brand involves cost as the retailer may not be able to negotiate
favourable terms with the suppliers of popular brand.
Store loyalty refers to the habitual visits by the customer to the store to purchase merchandise.
Retailers tend to enjoy more benefits due to increased store loyalty of customers. Convenient
location, offering variety of merchandise in various assortments and good quality, ambience ,
frequent purchase programs, customer service and the like could be practiced for enhancing the
store loyalty.
The buying process

Understanding the buying process would enable retailer to influence the consumers and
encourage them to buy the retailers merchandise. In this context, understanding the buying
process assumes importance. The various steps involved in buying process is dealt in this
section. A customer may not go through the various stages in the same order in which it is
presented. In addition the time and effort spent may differ depending on the type of decision
being made viz., habitual, limited problem solving or extended problem solving situation.
Need recognition
The buying process starts with the identification of unsatisfied need by the shopper.
An unsatisfied need arises when a customers desired level of satisfaction differs from the
present level of satisfaction. Need recognition can be straight forward and pinpointed by
customer or it can be ambiguous feeling that cannot be explained or something dormant in the
minds of the consumer. Needs can be classified as functional and psychological needs.
Functional needs are related to the benefits that can be derived out of the performance of the
product. Psychological needs are associated with the personal gratification customers get from
shopping or owning a product. If the products are purchased for satisfying the psychological
needs, the functional characteristics may not be considered as important by the customer.
However a product may satisfy both the functional and psychological needs. Functional needs
are referred to as rational needs while the psychological needs are called as emotional.
Successful retailer should aim to satisfy both the rational and emotional needs of the customers.
Psychological needs that can be satisfied through shopping and purchasing merchandise include
stimulation, social experience, learning new trends, status and power and self reward.
Shopping may be performed as an activity arising out of learned behaviour. A person

internalize these behaviour and performs the shopping activity which is termed as role playing.
For example the role of women in shopping for groceries is a socially learned role.
Shopping may be looked as a diversion from the routines of daily life. It may be looked at as
recreation. It may even be considered as stress buster to escape from the regular monotony.
Shopping may be indulged as means for self gratification too. The emotions and moods of a
person may propel him to shop
Shopping may be considered as means of physical activity providing a considerable amount of
exercise
Shopping may be performed so as to keep oneself abreast with the new trends, products and
stores.
Shopping is viewed as a sensory stimulation and satisfactory experience as it enables the
consumers to see-touch-feel during the process of buying.
The retailers should keep in mind that the customers have multiple needs and sometimes the
needs conflict too. For example a customer may want to have an expensive brand to gratify his
status need but may not have the budget to fulfill the same. Many times customers have to make
trade-offs between their needs. The customers may also be inconsistent in their shopping
behaviour. They may choose an expensive, premium quality of brand in one product category
and a brand of low quality in some other product category. This pattern of buying both premium
and low priced merchandise or patronizing expensive, status oriented retailers and price-oriented
retailers is called as cross-shopping. This need has to be understood by a retailer to stimulate and
satisfy the customers.
The customers have to recognize the unsatisfied need so that a retailer can satisfy the same. The
retailer can stimulate need recognition and motivate customers to visit the store by using
advertisement, direct mail, publicity, sales promotion measures and the like. After the customers
visit the store, visual merchandising and sales people may be used to stimulate need recognition.
Information search
Information search follows need identification. The search includes the need for information
regarding the retailers as well as the products to be purchased. The time spent in information
search depends on the type of buying process discussed above. Extended buying process may
involve collecting more information, visiting many retailers and deliberating for a long time
before making a purchase.
Various factors influence the amount of information searched;

Type of product purchased
Extent of involvement of the shopper
The cost of the product
Characteristics of the individual customer
The extent of choices available in terms of retailers and the brands

The time available
the risk perceived
The amount of information search depends on the value the customers may gain from the search
compared to the cost of search. Value in terms of the enhancement in the purchasing power of
the consumers as a result of the information search. For example the search should enable a
customer to find out a product at a relatively less price and good quality. The cost of search
includes both time and money. Consumer should have the time at his disposable to travel to
various retail shops, browse for the various choices and compare the prices. Internet has
empowered the customers search for information.
A click of mouse the customer may be able to fetch all information in a jiffy. Indian consumers
are slowly becoming tech savvy and this will enhance their shopping experience. Information
may be obtained from two sources viz., internal and external. Internal sources are information
from customers memory, their past shopping experience in different retail stores. If the
information from internal sources is not enough, customers use the external sources which
include the information obtained from friends, relatives, peers, sales persons, advertisements,
internet and the like.
The retailers can enhance the shopping experience of the customers by providing all the
information needed in the store itself. The retailer can do the same by adopting the following
practices;
The retailer should provide a wide assortment of products in terms of brands, colors, size etc
which will enhance the choice available to the customers and reduce the need for searching for
products outside the retail store.
The retailer can train the sales persons to provide all needed information to the customers so
that the customer need not depend on other sources
Every day low pricing concept discussed earlier section could be practiced which will assure
the customers of the low price and earn their confidence that a better price will not be available
from others.
The retailers can provide all facilities needed by consumers in the store which will enhance the
value derived from retailer and make the retail store as one stop shop. For example the credit
facility and delivery of products could be arranged by a retailer dealing in furniture.
Evaluation of alternatives
While evaluating alternatives the consumers considers the list of retailers from whom they can
shop from as well as the list of brands from which they plan to make their selection.
The choice of retailer as well the brand depends on various criteria. In the context of brand
choice of a consumer, the concepts like evoked set, inept set and inert set should be understood.
Evoked set consists of those brands the consumers consider in making a purchase. This is
otherwise called as consideration set. Inept set consist of brands that the consumer excludes from
purchase consideration as they are considered as unacceptable or inferior. Inert set consists of
brands towards which the consumer is indifferent.
The choice of the retailer depends on various criteria like the location of the retail store, retail
store image, the ambience, customer service, past experience of the customer with the retailer,
assortments available, the presence of competitors and the like.
Multiattribute model explains how the customers use information to evaluate the alternative
products and select the best. The multi attribute model is based on the collection of attributes or
characteristics regarding the retailer or a product. The model predicts the customers evaluation
of a product or retailer based on the performance of relevant attributes and the importance of
these attributes to the customers. The decision regarding the store is based on the objective
information about the store and the benefits provided by the store as perceived by the consumer.
The objective information consist of details regarding the price, delivery cost, time involved in
reaching the store, checkout time, assortment available etc. The benefit is measured in terms of
economy, convenience, availability of information etc. The consumer processes the objective
information and forms belief about the benefits provided. Different weights may be assigned by
the consumer to different attributes. The importance of the stores benefit also differs for each
customer and may also differ for each shopping visit.
The customer evaluate the various retailer stores based on the performance beliefs ie the benefits
from the store in terms of economy, convenience, assortments etc and assign weigths to each of
these criteria. The choice of retail store is ultimately based on the overall evaluation score.
In case of the choice of products also the same methodology is followed. The criteria is
identified and weights are assigned to different brands. The brands which score high are selected.
The multi attribute model enables a retailer to perform market research so as to understand the
alternative stores that is considered by the consumers, the benefits sought or criteria considered
in evaluating the stores, the weights or relative importance assigned to each criteria and the
customers rating of each stores performance. This information will enable the retailer to
reposition themselves so that they are in the consumers consideration set.
The retailers can ensure their presence in the consideration set by following advertising and other
strategies. The retailer can increase the chance of selection of the stores by increasing the belief
about the stores performance, decrease the performance belief for competing stores, increase
weights assigned by consumers and by adding new benefit.
The retailer can change the performance belief of the customers on various aspects like
economy, convenience, assortment etc. However it changing the belief involves cost. For eg in
order to make consumers believe about economy, the price of the products should be reduced.
Another approach is to reduce the belief about the competitor, which is not ethical. The
consumers also will also not believe the negative comments given by a retailer about his
competitor. Apart from this it may also invite legal action which will lead to negative publicity.
The retailer can enhance the chance of the store being selected by altering the weights assigned
by customers to various criteria. The retailer may try to do this so as to increase the importance
the customers place on the benefits for which the superior performance is offered by the store
compared to its competitors.
The retailer may add a new benefit which might be considered favourably by a customer while
evaluating the retail stores. For example a bouquet shop may take up the delivery of flowers to
the address the customer wishes in addition to offering the flower choice.
Selection of a retailer /store choice and merchandise

Several factors influence the store choice behaviour of a consumer. The extent of influence of
these factors differs according to the type of product purchased, type of store and type of
consumer. The factors influencing the stores choice as are discussed below;
Store location
Location has an impact on the store choice and loyalty. Consumers generally prefer the stores
which are closer to them. The consumers perceive location in terms of time and difficulties in
reaching the location apart from the actual location. The consumers generally overestimate both
the functional ie the actual distance and functional time. Location may also include the ability to
walk to the location or the avialbility of public transportation to reach the store. The consumers
perception of store locations is more important than the actual locations. Perception refers to the
distance and time consumers perceive they have to travel to reach and shop at the store. The
differences between the cognitive and actual arise due to the factors such as availability of
parking area, the road conditions, the traffic
congestions etc.
Store design and physical facilities
Many shoppers select the shop based on its outside appearance of architecture and signs. The
shoppers are either attracted or repelled by the store appearance. Elevators, lighting, air
conditioning, convenient washroom facilities, aisle width, parking facility, carpeting etc affect
the store image and choice (dealt in detail in Unit 3). The physical properties of retail
environment designed to create an effect on consumer purchases are referred to as store
atmospherics. The music played in the store, the colours within the store, the scent etc could be
used to create a positive, attractive and relaxing environment so as to make the customer choose
the store and also spend more time in the shopping activity. Not only the nonperson atmospherics
discussed above but the atmospherics created by shoppers within the retail store also assumes
importance. The perception regarding the crowd also affect the shopping behaviour and the
shopping trip.
Merchandise
This refers to the goods or services offered by retail store. The attributes like the product quality,
assortment, style, fashion, guarantee etc are important in the choice of the store. The reason as to
why the specialty stores succeed is due to their ability to assemble and present assortments.
Consumers generally prefer the retail stores offering wide variety of product lines, brands and
prices or depth in the assortment like the sizes, colours and styles etc.
Price
Price of the merchandise offered by the retailer is an important factor considered by shoppers in
making the store choice. However the importance assigned to price differs in according to the
type of product under consideration. Not all consumers look out for lowest prices. There may a
range of prices which are acceptable to consumers. Retailers whose offers fall within the range
are selected by the shoppers. A common mistake of the retailer is to use strategy emphasizing
lowest price in order to appeal to the minority of consumers who value lowest price the most at
the expense of losing majority of consumers who prefer other attributes to lowest price.
Advertising and sales promotion
The consumers are undoubtedly influenced by the advertising, sales promotion, displays, etc in
making the store choice. The components of various promotion mix have been dealt in detail in
Unit IV. The promotional mix may not have a consistent impact but it may vary in influence
depending on the product and store type. However as seen it the earlier chapter retail advertising
is used to inform, persuade and remind customers of the store. It is also highly influential in
building the store image.
Sales personnel
Others things being constant , a consumer would prefer to shop in a store where the sales person
are helpful, friendly and courteous. Although self service is the order of the day, knowledgeable
and helpful salespeople is an important factor influencing the choice of a store. Various research
studies shows that the personal characteristics of sales person such as the personality,
temperament, age etc have some relationship on the performance, skill level and motivation of
the sales person. The performance of sales person can be increased by providing proper training.
The sales persons ability to convince buyers depends on the following;
Perceived knowledge and expertise with respect to the merchandise sold
The extent of trustworthiness emulated by salesperson
Knowledge regarding the customers, their likings etc
The extent of adaptability of the salesperson ie his ability to respond to changing customer
needs and expectations.
Customer service
Retail stores may offer numerous services in order to attract customers. Services offered could be
classified under three categories viz.,
The services which increases the product satisfaction like the credit offers, providing
information, installation etc
Services aimed at providing increased convenience such a home delivery, parking facility etc
Special benefits like compliant offices, services dealing with purchase returns and the like
The individual attention given to the shopper contributes to a greater extent in the choice of a
retailer. The retailer by offering the services provides value addition to the shoppers and thereby
tries to built continuous personal relationship with regular customers.
Store clientele
Consumers will tend to patronage those stores where persons similar to themselves are perceived
to be shopping. The type of person who shop in a store affects the consumers purchase intention
because of the tendency to match the ones self image with the retail store. Customers may avoid
certain stores because they dont not want to be associated with the store. Thus an important
matching process occurs between the consumers self image and the stores image to in
influencing the choice of retail store. Once the consumer have selected the store based on the
various criteria listed above, he visits the store. Once the customer is inside the store, the
decision making is influenced by various factors highlighted below;
The reason as to why the shopping trip was initiated. It may be for the purchase of a
convenience product or it might be just for window shopping as a leisure time activity.
The display type and location refer to exact in-store locations of product and the types of
display ie end of aisle display, shelf display and so on.
Product shelving has an important influence on consumers behaviour. The height at which the
products are displayed and the number of rows presented can influence the sales of the products.
The signs and extender can also affect the sales.
The price of the products offered for sale affects the selection of merchandise
The extent of deal proneness of a shopper. Deal proneness refers to the shoppers propensity to
purchase products that are on sale or where some type of deal like discounts or frequent
shopper points could be offered.
The feature proneness of retailers refers to the tendency of shoppers to use or not to use
coupons or other promotional items in their shopping decisions.
The extent of consumer involvement in the overall shopping experience.
The extent to which shoppers are prone to impulse purchases.
Purchasing the merchandise
The customer may not always visit a retailer or purchase a brand which has a high score in
overall evaluation. This may be due to various reasons like stock out, lack of budget, peer
influences, associated risk and the like. The retailer can take the following steps to convert the
positive merchandise evaluations into purchases;
The retailers can have a complete assortment in different sizes, colors and choices as would be
preferred by the customers so as to avoid the stock out situation.
Offer guarantee regarding quality and price
Providing credit facility
Reducing the check out queue by having more counters. Many times a consumer may postpone
the purchase due to the fear of customers regarding the waiting time.
According to Schiffman and Kanuk consumers may resort to three types of purchase viz trail
purchases, repeat purchases and long-term commitment purchase. When a consumer purchases a
product for the first time and buys a smaller quantity than usual, it is considered as trail purchase.
It is an exploratory phase of purchase behaviour in which consumers attempt to evaluate product
through direct use. If the product satisfies the customer in trail then the consumer may repeatedly
purchase the same which may lead to long term commitment. The same holds good for selection
of a retail store too. Loundon and Della betta focuses on two types of purchasing patterns
1. The extent to which consumers develop repeat purchasing patterns and
2. The extent to which purchases are unplanned.
Repeat purchasing patterns
Repeat purchases leads to brand loyalty. The brand loyalty can be of four types viz., undivided
loyalty, divided loyalty, unstable loyalty and no loyalty. Undivided loyalty is where the
consumers buy only a particular brand in any situation eg purchase of product A is made in the
following sequence: A A A A A. Divided loyalty is where the consumers also tries other brand
but remains loyal and shifts purchases between the two brands. This can be exhibited by giving
examples of two brands A and B in the following sequence: A B A B
A B. Unstable loyalty is where a consumer buys two or more brands in an unpredictable
sequence: A A A B B B. No loyalty is shown in the following sequence; A B C D E F G. Brand
loyalty is affected by various factors like the socio economic , demographic and psychological
variable, loyalty behaviour of the leader, perceived risk involved and the like. Stock out
conditions also affects the brand loyalty.
Impulse purchasing
Impulse buying as the name suggests refers to purchase not specifically planned. It is purchase
decision made by a shopper after entering the store. Four types of impulse buying may happen;
Pure impulse : A novelty purchase made by a consumer which breaks a normal buying pattern
Suggestion impulse: A shopper sees the product for the first time and develops a need for the
same
Reminder impulse: A shopper looks at an items and remembers a need for the same
Planned impulse: A shopper enters the shop with expectation and intention of making some
purchases on the basis of special price, coupons and other price reduction measures. A careful
analysis of impulse buying would enable a retailer to plan store layout, merchandise
and display location and allocation so that an increased sale and customer patronage results.
Post purchase evaluations
The consumer evaluates the product and the retail store after they encounter the same by
comparing with the experience with their own expectations. There are three possible outcomes of
the evaluation viz.,
Actual performance of the product/retail store matches the expectations leading to
a neutral feeling
Performance exceeds expectations known as positive disconfirmation of expectations which
leads to satisfaction
Performance is below expectations causing negative disconfirmation of expectations and
leading to dissatisfaction.
The post purchase evaluation becomes a part of the customers internal information that affects
future store and product decisions. Unsatisfactory experience can motivate customers to
complain about the retailers and try other retail stores. High level of satisfaction leads to store
loyalty. Brand loyalty is an important strategy to build the competitive advantage of a firm.
An important component of post purchase evaluation is the reduction of uncertainty or doubt the
consumer might have had about the selection. Strategies should be built to reduce the post
purchase cognitive dissonance and the customers should be assured that their choice is the best.
The degree of post purchase analysis depends on the importance of the product decision and the
experience acquired in using the product or visiting the retail store.
In general the retailer should try to enhance the customer satisfaction by building store loyalty,
enhancing customer satisfaction, offering quality products at a comparable price, providing more
information and contacting customers after the sales.
INFLUENCES ON RETAIL SHOPPING BEHAVIOUR
Shopping is the act of identifying the retail store and purchasing the product. The behaviour of
shoppers differs according to the place where they shop and their level of involvement etc. The
purchase process in a store follows in part or whole a consistent pattern of see-touch-sense-
select. According to Coonly and Firth the shopping behavior can be classified into three
categories;
Blinkered mode: In this mode shopping is automatic, the shoppers confidently and efficiently
zoom in on familiar brands. The shoppers dont spent much time or interest in logical label
reading or studying the product attributes. Blinkered mode happens in case of low involvement
and repeat purchase product category.
Magpie mode: The shoppers spent time in looking at the display of different brands. The
shoppers are on the outlook for a change. This mode could be witnessed in food or fixtures
stores.
Browser mode: In browser mode shopping is done in a more rational manner. The shoppers
read the information on the package, compare the prices, ingredients and seek more information
about product attributes making price value comparison across various brands. The shoppers
normally engage in this mode when a greater perceived risk is associated with the purchase to be
made. Understanding the factors influencing the shopping behaviour will enable retailers to
frame suitable strategies to succeed in the marketing efforts. Shopping behaviour is influenced
by personal, psychological, social and cultural factors. The inputs regarding these factors
influencing the shopping behaviour should shape the design and delivery of marketing mix
strategies.
1 Personal factors
Personal factors include age, lifecycle, education, income, occupation, lifestyle and personality
and self-concept. The personal factors listed has an influence on the shopping behaviour of an
individual which is proven by various studies. In order to provide a background, brief discussion
on the demographics at the macro level and its influence follows;
In 1990 Indias population was 85 crore. Within a decade it has increased to 100 crore . By the
year 2010 , it is expected to reach 1,15.2 crore and by 2035, it may reach 146 crores. The gender
composition of males per 100 females was 107 in 1990, to 106.8 in 2000 and further expected to
decline to 106.4 in 2010. The urban population is increasing along with the increase in the rate of
urbanization.
The life expectancy in India though is low compared to the developed countries has improved
in twentieth century. In the year 1990 the life expectancy of women is 57.9 years and 57.8 years
for men while in 2000 it was 62.9 years for women and 66.6 years for men. It is expected to go
up to 67.8 years for women and 66.6 years for men in 2010. The increase in life expectancy has
to be kept in mind for retailers as there will be a considerable volume of population in older
generation who require a different approach in terms of product preference, display, delivery,
promotion etc. At the same time the percentage of younger generation in the population will be
more, which can be explored depending on the target segment on which the retailer wishes to
concentrate.
As said earlier, the proportion of working population in India will be higher. It is projected to
increase from 35.2 percent in 1996 to 40.5 percent in 2016. Those aged 45 and above accounted
for only 17.3 percent in 1995 and he proportion is likely to rise to 23.5 percent by 2016.
1.1 Age and stage in lifecycle
The age of a shopper will influence the extent of time spent in search of information, his
willingness to travel the distance to shop at a store, type of promotion mix considered as
attractive, the brands desired etc. Hence the retailer should keep in mind the type of target
customers he is addressing to while arranging the products, choosing the promotion mix, display
of the same, designing internal atmospherics etc. A retailer dealing in toys have to design the
above keeping in mind the kids, while a retailer designing a net caf near a college has to decide
the furniture, interior colours, type of music to be played and other things keeping in mind the
teenage customers visiting his cybercaf.
1.2 Income
Income of the consumers is increasing and the number of families in the middle class is on the
raise. Indias middle class is bigger than the US population and is expected to still increase. As
the households is high and middle income category are increasing their purchasing power and
type of goods bought has also changed. The National Council of Applied Economic Research
projects that the ownership of consumer durables may go up and the demand for expensive
durable goods are likely to grow. The demographic at the macro level will reflect at the micro
level. The increase in the individuals consumers income will enable him to spend more which
means an increase in the market size of the retailer.
1.3 Occupation
The occupation of the consumers will reflect on his availability of time for recreation, type of
goods preferred, the ambience craved for and the like. This has to be kept in mind by a retailer in
developing strategies.
1.4 Number of earning members in the family
More number of earning members in the family means increase in the disposable income, less
time availability for shopping and increase in the need for comforts like taking orders through
telephone , emails or even SMS, home delivery, need for 24 hours shopping facilities, more
specialization, need for increased assortments etc.
1.5 Personality and self concept
Personality is the inner psychological characteristics that determine and reflect how a person
responds to his or her environment. Marketers have tried to attract customers by exploring the
personality traits. It enables to categorize consumers into different groups on the basis of their
personality traits. Personality influences the customers reactions to advertisement, the products
they purchase, the time and method of consumption, their post purchase behaviour and the like.
This section attempts to highlight the nuances of personality so as to have an understanding of its
influences on the shopping behaviour of the customers.
Nature of personality
Three distinct properties of personality are highlighted below;

1. Personality reflects the individual differences among the consumers. The inner
characteristics that constitute an individuals personality is unique and hence no two
individuals are exactly alike. However many individuals may be similar in terms of a
single personality characteristics, but not in terms of others.
2. Personality trait of an individual is consistent and enduring. It cannot be changed by a
marketer, but understanding the personality trait which influences the shopping behaviour
would enable a retailer to arrive at strategies which appeal to the personality trait of the
target group of consumers. Personality is only one of the many variables which
influences the shopping behaviour of a person. Hence though the personality trait is
consistent the shopping behaviour varies because of the socio cultural, psychological,
environmental and situational factors that affect the behaviour.
3. An individuals personality may change due to major events in life, as a part ofageing
process and the like
Theories of personality
Various theories exist on personality traits, however Freudian theory, neo-freudian theory and
trait theory throws more light on the relationship between personality and consumer behaviour.
These theories are briefly dealt in the following section;
1.Freudian theory
The psychoanalytic theory of personality of Sigmund Freud proposes that human personality
consists of three interacting systems: the id, superego and ego. The id consist of the basic
physiological need such as thirst, hunger which are primitive and impulsive drives. An individual
seeks immediate satisfaction of these needs without concern for specific means of satisfaction.
The superego is conceptualized as the individuals expression of societys moral and ethical
codes of conduct. It makes an individual to satisfy the needs in a manner acceptable to the
society. Ego is the individuals conscious control which enables to balance the impulsive
demands of id and socio cultural constraints imposed by super ego. Application of Freudians
theory to consumer behaviour leads to the belief that consumers are mostly unaware of the true
reasons for buying the product or services they opt for. The consumer purchases are seen as
reflection of their own personality which is emulated in their appearance and possessions.
2.Neo Freudian personality theory
Neo Freudians disagree with the freuds theory and suggest that social relationship is
fundamental to the formation and development of personality. It is suggested that individuals
have more rational goals and people continuously attempt to establish relationship with others.
Horney proposes that individuals can be grouped into three personality groups: compliant,
aggressive and detached. Complaint individual move towards others. They desire to be loved,
appreaciated and wanted. Aggressive individuals move against others in the desire to excel and
win admiration. Detached individuals move away from others in the desire to be independent,
self reliant, self sufficient and free from obligations. These theories could be used to understand
the consumer behaviour. For example a research study by Morton I.Jaffe reveal that people who
are more self reliant are less likely to be brand loyal and are more prone to try different brands.
These findings could be used by marketers in developing strategies to win over customers.
3.Trait theory
Trait theory primarily focuses on measuring personality in terms of specific psychological

characteristics. Trait is defined as any distinguishing, relatively enduring way in which one
individual differs from others. Personality tests/inventories are used to identify and differentiate
individuals based on the specific traits. The personality inventories can be used to identity the
personality traits of the individuals and thereby gain insight into their behaviour.
Personality traits and consumer behavior
Schiffman and Kanuk in their book on Consumer behaviour have discussed as to how the
differentiating personality traits of consumer on the basis of innovativeness, materialism and
ethnocentrism will enable the marketers to identity target consumers who can respond favourably
and positively towards the product or services. A brief mention of
the same follows;
1.Consumer innovativeness
Consumer innovativeness refers to the extent of receptiveness of an individual to new

experiences. Consumers can be categorized as innovators or non innovators based on the
personality traits like innovativeness, dogmatism, social character, optimum stimulation level
and variety-novelty seeking.
Dogmatism measures the degree of rigidity (or openness) that individual display toward the
unfamiliar and toward the information contradictory to their beliefs. A person who is highly
dogmatic will be defensive, uncomfortable and uncertain in approaching the unfamiliar. On the
other hand a person is low in dogmatism will readily consider unfamiliar and opposing belief.
Highly dogmatic consumers will be more receptive towards new products and advertisements.
Social character is a personality trait which ranges on a continuum from inner directedness to
other-directedness. Inner-directed consumers tend to evaluate new products based on their own
inner values and standards. Other-directed consumers depend on others for direction and they are
less likely to be consumer innovators. This aspect of the personality trait is explored much in
designing advertisements.
Optimum stimulation level links the variation in the individuals need for stimulation to the
consumer behaviour. Some people prefer simple, uncluttered and calm existence while others
prefer novel, complex and unusual experience. Consumers with high optimum stimulation level
are willing to take risks, try new products, to be innovative to seek purchase-related information
and accept new retail facilities than the people with low optimum stimulation level.
There are many types of consumer variety seeking: exploratory purchase behaviour, vicarious
exploration and use innovativeness. Exploratory purchase behaviour refers to trait of
experiencing new and possibly better alternatives. Vicarious exploration refers to securing
information about a new or better alternatives and then contemplating the use of the option. Use
innovativeness refers to using an already adopted product in a new or novel way.
2. Consumer materialism
Personality traits based on consumption and possession ranges from consumer materialism to
fixated consumption behaviour to consumer compulsive beahviour. They are explained below;
Materialism refers to the extent of importance the consumer places on possessions. This
personality trait distinguishes between individuals who regard possession as essential to their
identities and their lives and those for whom possessions are secondary.
The idea of being fixated with regard to consumption and possession lies somewhere between
materialism and compulsive consumption behaviour. Fixated consumers frequently display their
purchases and share with others their involvement in the purchases made.
Compulsive consumption refers to the addiction. It refers to consumption made out of control
though the same may have damaging consequence to consumers and those around them.
3.Consumer ethnocentrism
Consumer ethnocentrism scale enables to distinguish between consumer segments that are likely
to be receptive to foreign made products and those that are not. Consumers who are highly
ethnocentric may feel it as inappropriate to purchase foreign products because of the impact it
may have on the domestic economy. Nonethnocentric consumers tend to evaluate the foreign
products more objectively basedon the extrinsic characteristics.
This trait can be used by marketers in the promotion appeals by appealing and stressing on the
nationalistic theme.
Personality and self image

Self image or perception of self is closely related to personality as an individual tend to buy
products and services and patronize retailers whose images or personalities closely correspond to
their own self images. Consumers are thought to have multiple selves rather than a single self
image as they behave in differently with different people in different situations.
Understanding the multiple selves would enable marketers to position their products within the
context of a particular self or design different products to suit different selves. The following
kinds of self images are depicted in various research studies;
Actual self image - how consumers see themselves
Ideal self image - how consumers would like to see themselves
Social self image - how consumers feel others see them
Ideal social self image - how consumers would like others to see them
Expected self image how consumers expect to see themselves at come specified future time.
Consumers may sometime wish to change themselves to become a different self. Personal care
products like cosmetics, accessories etc., enable the consumers to alter their self image. Retailer
can position and promote the store image or private labels in such a way that it enables the
consumer to create a new self image while maintaining the existing self image. Use of internet
enables consumers to try different identities using virtual self.
5.4.1.6 Lifestyle
The concept of Lifestyle is more contemporary than personality and it is a popular concept
influencing the consumer behaviour. Lifestyle is a summary construct defined as patterns in
which people live and spend time and money, reflecting a persons activities, interests and
opinions(AIOs). AIO components are explained below;
Activity: an action like shopping, leisure time activity, time spend for personal care, reading
etc. These acts are usually observable, however the reasons for the actions are seldom subject to
direct measurement.
Interest: the degree of excitement that accompanies both special and continuing attention to an
object, event or topic
Opinion: a spoken or written answer that a person gives in response to a question. It describes
interpretations, expectations, and evaluations such as beliefs about other peoples intentions or
anticipations concerning future events. Life style variables are also known as psychographic
characteristics because activities, interests, and opinions are psychologically oriented variables
that can be quantified. The lifestyle of consumers are changing some of which are highlighted
below;
1. Change in male/female purchasing roles
The increase in the nuclear family setup and the number of working women has changed the
traditional purchasing role of male and female. Women today are more affluent, independent self
confident and seek identify beyond their traditional roles. The participation of men in traditional
female roles like shopping could be witnessed in a nuclear family where both the husband and
wife are working. However the increasing role of men in homemaking activities are not
acknowledged and considered as very sensitive. Marketers should take into these changes in the
lifestyle while designing the promotion mix especially advertisements.
2. Health consciousness
Consumers are becoming more health conscious as would be witnessed in the choice of organic
foods, low calorie food items etc. The increase in the double income earning nuclear family and
more number of working hours has left relatively less time to cook and eat healthy foods. The
array of ready made foods available in the market is increasing at the same time, more number of
consumers are increasingly careful to check the nutrients contents, calories, fat etc. It could also
be witnessed that the consumers are willing to pay little more for the extra convenience
associated with the purchase of products especially food item like the fresh juice in bottle, cut
and boiled vegetable, ready to eat foods etc
3. More self-awareness
The sense of personal achievement is increasing leading to increase in the demand for products
and services that offers the same. Promotional mixes for home electronics, cars and educational
products are increasingly addressing this aspect of change in the lifestyle.
4. Value oriented lifestyle
The concept of value equated with only the price is slowly changing. The consumers are looking
for good quality with an affordable price. The shoppers need not necessarily buy expensive items
to impress others and increasing number of them prefer to buy quality merchandise at a bargain
price rather than stick on to an expensive products for the sake of popularity of brand.
5. Greater time pressures
Increased pressure on time makes the shoppers to give more importance to time saving
convenience. Relatively more number of hours are spent by consumers in work. They dont mind
spending more for saving time. Increase in the number of internet shoppers specifically in the
category of travelling, e-tickets etc emphasizes the same. Internet banking, online education,
preference for email, SMS over traditional snail mails, grocery purchases over phone, increase in
the number of restaurants etc stand to witness the time pressure on consumers. Retails who take
the extra mile to serve the time conscious consumers can carve a niche in the market.
Measuring lifestyle characteristics
The lifestyle cannot be easily and directly measured as in the case of demographic variables like
age, income etc. The most common method of measuring lifestyle is to develop an inventory of
activities, interests and opinions (AIO inventory). Two types of AIO inventories could be applied
viz., a generalized and product specific inventory. A generalized inventory can be applied across
product category. An example of generalized inventory iss one developed by Wells and Tigert.
On the basis of 300 statements measured on a six point scales 22 life style dimensions are
arrived. These dimensions could be used in the same manner as demographics to describe and
segment consumers. A product specific inventory may be developed by a manufacturer to
identify and segment the consumers who are likely to buy the new products introduced. Another
approach is to conduct consumer survey to identify activities, interest and opinions and on this
basis the lifestyle categories are developed. The Value and Lifestyle Survey (VALS ) developed
by Stanford Research Institute is an example. The VALS survey identifies eight groups viz.,
actualizers, fulfilleds, achievers, experiencers, believers, strivers, makers and strugglers on the
basis of consumer resources like money, education, self confidence, level of education and the
different ways consumers see the world. A brief description follows;
Actualizers: Successuful, active, sophisticate consumers with many resources and high self-
esteem. They place importance on their image
Fulfilleds: Satisfied, mature, comfortable, reflective people who tent to be practical and look
for functionality, value and durability in the products they buy.
Believers: Principle oriented, conservative with beliefs based on community, family and
nation. They tend to buy proven brands and products.
Achievers: Career-oriented people who like to feel in control of their lives and prefer
predictability to risk and self-discovery. Their social lives revolve around family and career.
They prefer prestige brands that signal success to their peers.
Strivers: Concerned about the approval of others and seek self-definition, security and image
of success. They emulate those they strive to be like however they lack resources to attain their
goals
Experiencers: young, enthusiastic, impulsive consumers who like risk taking, variety and
excitement. They like new and off-beat products and activities. Because of their age, they have
not formulated life values, behaviours or political affiliation.
Makers: Focus on self sufficiency, live within the context of family and work and pay little
attention to other issues. They envy only material possessions that are functional.
Strugglers: Poor and usually poor educated, have no social bonds and are concerned with
issues of the moment such as food and healthcare. They are cautious consumers and seek
security and safety. The lifestyle categorization can be used to develop market segmentation
media and advertising strategies. For example a research study conducted by Parameswaran
M.G.2003 classifies Indian shoppers into four typologies:
Pre-independence shoppers are anti-British, take pride in Indian and support local
produce, non-violence and sacrifice
Post-independence shoppers are idealistic, independent-minded, non-aligned,
sincere and hardworking.
Pre-Rajiv Gandhi shoppers are socialistic, anti-rich, license-permit drivers and
ape and bait the West.
Post-Rajiv Gandhi Shoppers are capitalistic. They have a global orientation, ape
the West, technology-savvy and believe in the survival of the fittest.
Psychological factor
The shopping behaviour of an individual is influenced by four major psychological factors:

perception, attitude, motivation and involvement and learning and memory.
1 Perception
Perception is defined as the process by which an individual selects, organizes and interprets
stimuli into a meaningful and coherent picture of the world. It can be described as how we see
the world around us. Two individuals exposed to the same advertisement or message may
interpret it in different manner. For every individual reality is a totally personal phenomenon and
is based on needs, wants, values and personal experiences. Reality to an individual is merely a
perception of what has taken place. Individuals act and react on the basis of perception and not
on the basis of objective reality. Hence for a marketer, consumers perception is more important
that the knowledge on objective reality.
Some basic concepts associated with perception as discussed by Schiffman and Kanuk are
presented below:
Stimulus is any unit of input to any of the senses. For example it includes package, product,
brand name, advertisement etc. Sensation is the immediate and direct response of the sensory
organs to simple stimuli.
The lowest level at which an individual can experience a sensation is called the absolute
threshold. Under conditions of constant stimulation the absolute threshold increases. For
example if a person is exposed to advertisements continuously then his senses tend to become
dull.
In the context of perception adaptation refers to getting used to certain sensations or
becoming accommodated to a certain level of stimulation. Sensory adaptation is a problem
associated with the advertisement. To deal with this the advertisers regularly change their
campaigns
The minimal difference that can be detected between two similar stimuli is called the
differential threshold. Marketers can use the differential threshold to identify the threshold level
for reductions in product size or quality or increase in the product price which is not readily
identifiable by the consumers. The same could be used to identify the minimum product
improvements needed to attract the attention of consumers without wasting money unnecessarily
on packaging, lowering price or increasing size.
Individuals can perceive stimuli without being consciously aware that they are doing so. This is
called as subliminal perception because the stimulus is beneath the threshold of conscious
awareness.
Perceptual process
The consumers are constantly subjected to the onslaught of innumerable number of stimuli that
are constantly and subtly changing. However the consumers recognize only certain stimuli,
organize and interpret them in accordance with their needs, expectations and experiences. The
selection, organization and interpretation of stimuli are discussed below:
Perceptual selection
Consumers are exposed to a number of stimuli like the product, its physical attributes, package,
brand name, advertisements and the like. Consumers subconsciously exercise a great deal of
selectivity regarding the stimuli to which they respond to. Stimuli is mostly selected on the basis
of previous experiences and the motives. Contrast is one of most attention-compelling attributes
of a stimulus. Advertisers often use extreme attention-getting devices to achieve maximum
contrast. Expectation is also an important aspect which influences the selection of the stimuli.
Stimuli that confirm or go in hand with the expectations receive attention. Likewise people
normally perceive the things they need or want, hence stronger the need greater will be the
tendency to ignore unrelated stimuli in the environment.
Marketers determine the needs of the consumers using research and position the products in such
a manner that it will be perceived as satisfying the needs, wants and interest of the target
consumers.
Four important aspects concerning perception are :

Selective exposure: Consumers actively seek out messages that they find pleasant and avoid
painful or threatening ones. They selectively expose themselves to advertisements that reassure
them of the wisdom of their purchase decisions.
Selective attention: Consumers pay greater attention to the advertisements that deal with the
stimuli to meet their needs or interests.
Perceptual defense: Consumers omit the stimuli they find as psychologically threatening.
They also tend to filter the information that is not consistent with their needs, values and belief
Perceptual blocking: Consumers block out certain stimuli for the purpose of self protection.
Perceptual organization
Consumers do not tend to experience each stimulus they are exposed to in a separate manner,
rather they are organized into groups and perceived. This method of perceptual organization
make things easy for consumer. Three basic principles enabling perceptual organization are
mentioned below:
Figure and ground: Stimuli that contrast with the environment attracts more attention. For
example a picture or visual illustration consisting a figure in a background. The figure can be
perceived more clearly, it appears well defined and solid and it is in the forefront. The ground is
usually perceived as indefinite, hazy and continuous. Advertisers plan their advertisement more
carefully to make sure that the stimulus they project is noticed as figure and not as ground.
Grouping: Individuals group stimuli so that they form a unified impression. Grouping can be
used advantageously by marketers to imply certain desired meaning in connection with their
products.
Closure: Individuals need a complete picture of what they perceive. In the process of making
things complete, the consumers consciously or unconsciously fill in the missing pieces. This
need of closure is used by marketers in advertising message where the audience participation is
invited to arouse interest.
Perceptual interpretation
Interpretation of stimuli is also unique and it is based on previous experience, motives and
interests at the time of perception. A number of influences distort the perception. Some examples
are physical appearance, halo effect, irrelevant cues and the like.
Marketing implications
Understanding the perceptual process and the perception of consumers would enable
a marketer to perform the following;
Perceptual mapping enables the marketer to determine how the products or services or the
retail store appears in the minds of the consumers compared to the competitors on one or more
relevant characteristics. It enables to ascertain the gaps in positioning and identify the areas
where the consumer needs are not being met. This would enable a retailer to occupy a niche in
the market.
Perception of a consumer regarding the price of the product has a strong influence on the
purchase intentions and satisfaction. If the consumer perceives that the price as unfair, it will
affect the perception regarding the product value and ultimately the willingness to patronize the
retail store. Hence understanding consumers perception regarding the price of a product would
enable a retailer to crave suitable strategies to satisfy them.
Consumers judge the quality of product or services offered on the basis of variety of
informational cues associated. The cues could be intrinsic or extrinsic. Intrinsic cues include the
physical characteristics of the product such as its size, colour, flavor etc. The extrinsic cues
include pricing, packaging, advertising etc. The cues provide the basis for perceptions of product
and service quality.
The retail store image has an influence on the perceived quality of products dealt and the
selection of a store for shopping. Retail store image is formed by the consumer on the basis of
perception regarding the various cues associated with the stores. These aspects were dealt in
detail in Unit III. Understanding the perception of shoppers regarding the store would enable a
retailer to influence the same so as to enhance the store image.
Manufacturers who are perceived favourably can introduce new products which will be
accepted more readily by retailers and consumers.
Consumers make decision regarding the choice of a retailer and product in the context of
perceived risk. Perceived risk is the uncertainty that consumers face when they cannot foresee
the consequences of their purchase decisions. The major types of risk perceived by the consumer
are:
Functional risk: risk that the product will not perform as expected
Physical risk : risk associated with the product to the consumers and other
Financial risk: risk that the product will not be worth the cost
Social risk: risk that product choice will result in social embarrassment
Psychological risk: risk that the product will not suit the consumers ego
Time risk: risk associated with the time spent on product search if the product does not perform
as expected. The above risk can also be associated with the choice of retail store. Understanding
the perceived risk associated with the choice of retailer and the product would enable marketers
to formulate strategies to overcome the same.
2.2 Attitude
Attitude is the most important subject of study in the field of consumer behaviour. Attitude
research forms the basis for developing new products, repositioning existing products, creating
advertising campaigns and predicting store choice /brand preferences as well as general purchase
behaviour. Understanding how attitudes are developed and how they influence consumers is a
vital ingredient to the success of any marketing program. Attitude is defined as the learned
predisposition to respond to an object or class of objects in a consistently favourable or
unfavourable way. It is also defined as an enduring organization of motivational, emotional,
perceptual and cognitive process with respect to some aspect of the individuals world. The
above definitions view attitude from one dimension.
Attitude can also be viewed from multidimensional perspective. This view proposes attitude
towards an object as a function of (1) the strength of each of a number of beliefs the person holds
about various aspects of the object and (2) the evaluation he gives to each belief as it relates to
the object. A belief is the probability a person attaches to a given piece of knowledge being true.
Multidimensional view of attitude shows that consumers perceive product as having many
attributes and they form beliefs about each of these attributes.
Characteristics of attitudes
Attitudes have several important characteristics viz., they have an object, have direction,
intensity and degree, have structure that are learned and occurs within a situation.
Attitude must have an object. The object can be a physical thing such as a product, or it can be
an action such as buying a consumer durable. The object can either be one item or a collection of
items and it can be either specific or general.
Attitude has a direction in the sense that a person is favourable or unfavourable towards an
object or for or against and object. Degree refers to how much a person either likes or dislikes
the object. Intensity refers to how strongly a person feels about his conviction.
Attitudes do not stand in isolation. They are associated with each other to form a complex
whole. This implies that a certain degree of consistency must exist between them. Attitude tend
to be generalizable ie attitude towards a specific object tends to generalize towards a class of
objects.
Attitudes are learned. This means that attitudes relevant to purchase behaviour are formed as a
result of direct experience with the product, word of mouth information, exposure to mass media,
advertising etc. As learned predispositions attitudes have a motivational quality ie they might
propel a consumer toward a particular behavior or repel the consumer away from a particular
behaviour.
Events or circumstances at a particular point of time influence the relationship between an

attitude and behaviour. A specific situation can cause consumers to behave in ways that are
inconsistent with their attitudes. When measuring attitudes it is important to consider the
situation in which the behaviour takes place.
Functions of attitudes
Daniel Katz suggest that attitude serve four major functions for the individual: the
adjustment function, ego-defensive function, value expressive function and the knowledge
function.
The adjustment function directs people towards pleasurable or rewarding objects and away
from unpleasant, undesirable ones. Attitude of an consumers depend to a large degree on their
perception of what is need satisfying and what is punishing.
Ego-defensive attitudes help to protect the ego or self-image from threats. For example a
consumer who has made a poor decision may defend the decision as correct.
Value expressive attitudes enable the expression of the persons centrally held values.
Consumers adapt certain attitudes in an effort to translate their values into something more
tangible and easily expressed. Marketers who understand the values which consumers want to
express and design products and promotional campaigns to fulfill the same will be successful in
their efforts.
The need for understanding things around us develops the attitude towards acquiring
knowledge. The need to know tends to be specific. Thus out of the need to know come attitudes
about what we believe we need or do not need to understand.
Sources of attitude development
The formation of consumer attitudes is influenced by personal experience, the family

and friends, direct marketing, mass media and others.
The primary means by which attitudes towards goods and services are formed is through the
consumers direct experiences in trying and evaluating them. In order to stimulate direct
experience, the marketers offer free trail, coupons, samples etc. However the factors like the
needs of the consumer, selective perception and personality will also influence the attitude
formation.
Attitude of an individual will be influenced by other members who are valued and with whom
the individual would like to associate. Family is an extremely important source of influence on
the formation of attitude. Several groups including work and peer groups, friends and relatives,
experts, cultural and subcultural groups also affect the attitude formation.
Direct marketing efforts undertaken by marketers may also have an impact on the attitude
formation. The highly personalized product offering and promotional messages in television,
print media etc., targeted at consumers may create favourable attitude towards the product or
services.
Models of attitudes
The relationship between attitudes and behaviour is explained by several attitude models
The tricomponent attitude model, the multiattribute models, trying to consumer model and
attitude towards the ad model as discussed by Loudon and Betta are presented below.
1.Tricomponent Attitude Model
According to tricomponent attitude model, attitudes consists of three major components: a

cognitive component, an affective component and a conative component.
Cognitions refer to the knowledge and perceptions that are acquired through direct experience
and information assimilated from various sources. The knowledge and the resulting perception
take the form of beliefs ie the consumers believe the object possesses various attributes.
A consumers emotions or feelings about a particular product or brand constitute the affective
component of an attitude. The emotions or feeling can be captured using five point scales or
rating such as favourable or unfavourable.
Conative component is concerned with the likelihood or tendency that an individual will
undertake a specific action or behave in a particular way with regard to the attitude object. It is
frequently treated as an expression of consumers intention to buy.
2.Multiattribute Attitude Models
Multiattribute attitude models portray consumers attitudes with regard to an attitude object as a
function of consumers perception and assessment of the key attributes or beliefs held with
regard to the particular attitude object. The object could be a product or service or an
advertisement etc. The attitude- toward-object model and attitude-toward behaviour
model are explained below;
The attitude- toward-object model is suitable for measuring attitudes toward a product or
service or specific brands. The consumers attitude towards the product, service or brand is a
function of evaluation of certain product specific beliefs or attributes. Consumers generally have
favourable attitude towards the brands they believe to possess certain positive attributes and
unfavourable towards brands they belief to possess negative attributes.
Attitude-toward-behaviour model is the individuals attitude towards behaving or acting with
respect to an object, rather than the attitude toward the object itself. This model tends to
correspond more closely towards the actual behaviour than the previous model and is more
logical. For example a consumer may have a positive attitude towards a costly cell phone but a
negative attitude regarding his prospects of purchasing the same.
3.Theory of trying to consume
Theory of trying to consume is designed to account for many cases where action or outcome is
not certain, but instead reflects the consumers attempts to purchase or consume. The desired
outcome is prevented by the personal impediments or environmental impediments.
4.Attitude-toward-the-ad models
Attitude towards ad model tries to create an understanding regarding the impact of advertising or
other promotional measures on consumer attitude toward product or brand. The model states that
the consumers form various feelings and judgments as the result of exposure to an advertisement.
These feelings and judgments in turn affect the consumers attitude toward the advertisement and
beliefs about the brand acquired from exposure to the advertisement. Finally, the consumers
attitude towards the ad an belief about the brand influence his attitude toward the brand. In
addition to creating positive attitude towards a product or a retail store, marketers may also try to
change the attitudes. Like attitude, attitudinal changes can also be learned and they are also
influenced by personality, personal experience and others. Altering attitude may be one of the
key strategies of marketers. They may try to change the negative or unfavourable attitude
towards a product and also try to reinforce the exiting positive attitude of customers.
reinforcement of favourable or positive attitude is necessary as the competitors may try to win
over the customers with special offers and other inducements. Attitude can be changes by
various strategies like changing the consumers basic motivation functions dealt above viz.,
adjustment function, ego-defensive function, value expressive function and the knowledge
function. The change can also be initiated by associating the product or service with an admired
group or event. Changing consumers belief about the competitors brand may also be attempted
by a marketer in order to enhance the market share.
Motivation
The survival and profitability of any organization depends on its ability to understand and satisfy
the needs of the consumers in a manner better than that of the competitor. The basic needs that
motivate consumer behaviour is dealt in this section. Motivation is the driving force within
individuals that impels them to action. The driving force is produced by a state of tension, which
exists as a result of unfulfilled need. Needs can be physiological or acquired needs. Physiological
include the need for food, water, air, clothing, shelter and sex. These are categorized as primary
needs. Acquired needs are the learned needs and include the need for self-esteem, prestige,
affection, power and learning. These needs are also called secondary needs or motives. An
individuals specific needs are dormant much of the time. The arousal of a specific set of need
may be caused by the following:
Bodily needs such as the need for food, water, air etc is based on the individuals physiological
conditions. These needs create a state of arousal until they are satisfied.
Emotional arousal may happen due to daydreaming which might result in the stimulation of
latent needs.
Random thoughts can lead to cognitive awareness of needs. An advertisement can trigger the
thought leading to arousal of a need.
Complex and varied environment can create many opportunities for need arousal.
Many motivational theories deal with the need priorities. Abraham Maslow formulated a widely
accepted theory based on the notion of a universal hierarchy of human needs. Five levels of
human needs are identified viz., the physiological, safety, social, self esteem and need for self
actualization. Physiological needs are the basic need which deals with the biogenic needs for
food, water and the like. Safety needs are concerned with much more than physical safety; it
includes need for order, stability, routine, familiarity and the like. Social needs include the need
for love, affection, belonging and acceptance. Self esteem need can be inwardly- directed or
outwardly directed. Inwardly directed need reflects the need for self-acceptance, self-esteem,
success, independence and the like. Outwardly directed need reflects the need for prestige,
reputation, status and recognition from others. Self actualization need refers to an individuals
desire to fulfill his or her potential and to become everything one is capable of becoming.
Maslows theory helps marketers to understand how various products fit into the plans, goals and
lives of consumers.
Consumers behaviour may be driven by rational and emotional motives. Consumers are said to
behave rationally when they carefully consider all alternatives and choose those that vie them
greater utility. Consumers may be totally guided by objective decision making based on various
criteria like size, design, weight, price etc. Emotional motives are subjective.
Characteristic features of motivation are listed below:

Motivation is highly dynamic in nature and constantly changes with experiences, individuals
physical condition, environment and interaction with others.
Human needs are never fully or permanently satisfied. Motivation theorist believe that a
hierarchy of needs exist and that new higher-order needs emerge as lowerorder needs are
fulfilled.
Needs and goals are interdependent. Individuals who successfully achieve their goals usually
set new and higher goals. The level of aspiration raises with the confidence gained in achieving
the goals. If an individual fails in achieving the need , a substitute goal is developed. The
substitute goal may be secondary in nature and may not provide as much satisfaction as
achievement of the primary goal. Failure to achieve goals will often result in frustration.
Consumer behaviour may be directed towards fulfilling more than one need. Specific goals
may be selected on the criteria that it satisfies multiple goals.
Needs and goals vary among individuals. Motives cannot be accurately inferred from the
beahviour. People with different needs may seek fulfillment through the selection of same goad
and people with same need may seek fulfillment through different goals. Understanding
motivational aspects of consumers would enable the retailer s to segment the market and design
specific promotional strategies to attract them. Understand the needs will also enable to position
the product or a retail store. It enables to identify a niche that is not fulfilled by the competing
product or retailer.
4 Learning
Learning is an important component of consumer behaviour. Learning can occur intentionally

when a problem is recognized and information about the product which might solve the problem
is acquired. However learning which occurs unintentionally can strongly influence the consumer
behaviour. Learning enables consumers to adapt to the changing environment. Understanding the
learning aspects of consumers is necessary for marketers as they are constantly involved in
educating consumers about the product attributes, potential benefits, where to buy, how to use,
how to maintain and even dispose them, how the products are different from that of competitors
offerings and the like. Marketers need to communicate to the consumers through advertisement,
packaging, price, distribution etc. In order to be effective these communications has to be
understood, remembered and recalled for which they need to know the nuances of learning
process of the consumers.
Learning can be generally viewed as a relatively permanent change in behavior occurring as a
result of experience. Consumer learning is a process by which individuals acquire the purchase
and consumption knowledge and experience that they apply to future related beahviour. Learning
is a process as it continually evolves and changes as a result of newly acquired knowledge or
from actual experience. All learning is not intentional, it may also happen without much effort.
Learning includes a total range of learning form simple reflexive response to the learning of
abstract concepts and complex problem solving.
For learning to occur, certain basic elements must be present;

Motive : Motivation is needed for learning to occur. Motivation provides energy and readiness
to respond which is essential in learning activity.
Cue: A cue is a stimuli which provides direction to motivated activity. It influences the manner
in which consumers respond to a motive. A shopping environment has lot of cues such as
promotional offer, packaging, advertisements from which the consumers can choose.
Response: It is a mental or physical activity occurring in response to a stimulus situation.
Responses appropriate to a particular situation are learned over time through experience in facing
situation. It may not be possible for marketers to stimulate an immediate response but learning
can create a favourable image in the consumers mind which can be recalled at the time of
purchase. The extent to which an individual learns is influenced by three factors: reinforcement,
repetition and participation.
Reinforcement: Reinforcement is comparing of anticipated results with the actual results
experienced from a chosen response. If actual results compare favourably with anticipated
results, response reinforcement occurs and learning takes place. Reinforcement increases the
likelihood that a specific response will occur in the future as a result of particular cues or stimuli.
Consumer tends to repeat reinforced behaviour and in order to induce the same, marketers resort
to continuous reminder of the brand or retail store through various strategies.
Repetition is the act of repeating a past experience. Learning is enhanced by performing the
same action several times.
Participation is the active involvement in learning process. An active role results in the
acquisition of more knowledge.
The retailers efforts regarding the learning process should be directed at enhancing
reinforcement, repetition and participation. Reinforcement may take the form of return and
allowance policies that confirm the retailers intent to correct product deficiencies. Frequent
advertisement of retailers product and services is done so as to enhance the learning process by
repetition. Free samples, trial sizes and demonstrations are participation devices used to guide
the consumer learning process towards retailer products.
Social factors
Human behaviour is directed towards conformity of group expectations. Consumers buy certain
products, brands and patronize certain stores so as to gain approval and support from others.
Social group influences the individual buyer behaviour to a greater extent. Human interfaces
affect the motivation, learning, perception, personality, life style and attitude formation. The
following discussion examines the impact of the family, reference group, social class and social
roles and statuses on the shopping behaviour.
Family
Family refers to a group of two or more persons related by blood, marriage or adoption and
residing together as a household. Bonds within the family are more powerful and the family
functions directly in the role of ultimate consumption. Family operates as an economic unit in
earning and spending money. In making consumption decision family members must establish
individual and collective priorities, decide on products and brands, the place from where it is to
be bought and how it might be used. Hence a retailer should understand the nature of the
familys influence on the shoppers behaviour. A family can be described in terms of the nuclear
family, consisting of a father, mother and their children or as the extended family, which
includes the nuclear family plus grandparents, aunts, uncles and cousins. The importance of the
family to planning merchandising strategies lies in the fact that every family members
behaviour is strongly influenced by the interactions that occur within the family. Family
represents both a buying and consuming unit within our economy and the consuming unit has
increased purchasing capabilities. Family influences on individual buyer behavior starts from the
childhood. Consciously or unconsciously individuals adopt their parents attitudes, values morals
and ways of doing things. As an individual leaves the family of origin and creates his own family
by getting married and having children, the influence of the spouse and children assume a
primarily role of importance in the choice of retail stores and in acquisition of products brands
and the like.
Family buying roles provides a key to understand the consumer behaviour. From a
merchandising perspective, a consumer is often not an individual but a family represented by an
individual. Therefore the retailer must understand the various roles played by various family
members within a given purchase situation. The roles are highlighted below;
Initiator the family member who first recognizes the problem
User the family member who will actually use or consume the product or service
Decision maker- the family member who decides what will be bought and at what time, place
and source
Influencer- the family member who affects the choice of the decision maker
Purchasing agent the family member who actually visits the store and makes the purchase.
Retailer can create a successful marketing program by taking into account the roles of family
members. A retailer can
Direct the informational and persuasive advertising at the initiator to so as to create awareness
Aim at decision influencer and decision maker to develop comprehension and conviction
Focus on the user to provide reinforcement
Target the purchasing agent to guide shopping trip behavior
Reference group
Reference group is a group that serves as a model or standard for an individuals behaviour and
attitudes. Reference group provide individuals with a frame of reference in making purchase
decision regarding what and where to buy. A reference group may consists of friends,
colleagues, co-workers, neighbours etc. The influence of reference group varies by product and
brand. In case of highly visible products like the cell phone, cars etc the extent of influence of
reference group might be more.
Reference group affect consumers by imparting information and by influencing value expressive
needs of the consumers. In case of a more homogeneous groups, group members have similar
characteristics and are more susceptible to attitude changes than the group whose members are
less homogeneous. There are four types of reference groups:
Membership and non-membership groups: A membership group is one to which one belongs.
Non-membership groups are groups of which an individual is not a member but may aspire to
belong to.
Formal or informal group: A formal group has a structure and some objectives and roles of
members are defined. Certain rules and regulations are followed. An informal group has no
structure. People come and go at random.
Primary or secondary group: This grouping is done based on the frequency of contact.
Primary group consists of family, close friends, peers and business associates with whom one has
regular contact. Secondary groups meet infrequently and are not so closely knit.
Aspirational groups: This represents the group to which an individual may want to belong to.
These are known as anticipatory aspirational groups. A symbolic aspirational group is one to
which a person is attached but not likely to belong to. Marketers use symbolic group by using
celebrities to advertise the products. Depending on the functions performed and the kind and
degree of influence exerted the reference groups can be further classified as normative group,
comparative reference group, dissociative group and status reference group.
Norms are unwritten codes or standards of conduct that are assigned to individuals within a
group. The normative groups uphold the norms of the groups. These norms influence the
purchase behaviour of the individuals. Normative influence is also known as utilitarian influence,
which occurs when an individual fulfills group expectations to receive a direct reward.
Comparative reference groups are groups with whom the individual compares himself and his
attitudes. Individuals compare themselves to other members of the group to find out whether
they support his view and attitudes.
Dissociative group are those from which an individual would try to distance himself from. An
individual would avoid purchasing a product or a brand which would associate himself with a
group which he does not want to be associated with.
If an individual refers to the status or position of the people in a group, it is known as status
reference group. An individual who may not belong to this group may aspire to achieve that
status and want to be a member of that group.
The degree of influence of reference group is determined by the level of knowledge possessed by
the reference group and its credibility. The reference group can change the attitudes, beliefs of
the shoppers. A wide application of reference groups is used in advertising by the by marketers.
Prominent people like celebrities are used to promote the retail store and the brands dealt.
Experts in various fields are also used in advertisement since the shoppers maybe convinced with
their expertise.
Social class
Social class is defined as the division of members of a society into a hierarchy of distinct status
classes so that members of each class have relatively the same status and members of all other
classes have either more or less status. Status is a relative ranking of members in terms of
specific status factors like wealth, power, and prestige. The concept of social class involves
families rather than individuals. Members of the same family enjoy the same status as they
belong to the same social class and share a common income and have similar values. Social
classes usually meet the following criterion.
The social classes are bound by certain tacit restrictions which include or exclude certain
individuals, places or objects.
All social classes have a hierarchy or stratification in terms of income, prestige and status that
distinguishes them from others.
The social class is mutually exclusive, an individual belongs to only one class and behaves and
acts accordingly. However the movement form one class to another is possible and it happens
with time.
It is exhaustive in the sense that every member of a social class must fit into some class and be
identified with it.
Behavioural variations exist between the members in the social class.
Warners index uses occupation, income, house and dwelling area as an index of social class.
Bases on these variables social classes are basically divided into six major categories. The
retailers can decide the target group and develop marketing strategies to satisfy the specific needs
of the different strata. The shopping behaviour of each stratum is strongly influenced by the
social class to which an individual belongs to or aspires to belong to. Social class is also linked
to demographic and geographic data. The social classes are found to live in clusters and have
relatively homogeneous geo-demographic segments in terms of housing, urbanization and other
aspects like housing, clothing, purchases, lifestyle etc. A brief summary of the characteristics of
six categories of social class is presented below:
Upper Upper Class : This is the most wealthy aristocratic class having more property. This is
a small sized segment and a retailer can target them for novelty, expensive and luxury goods.
This class has access to property, prestige and power. The buying pattern of this class often
serves as a reference point for the consumption activities of lower classes.
Lower Upper Class: This class engage themselves in consumption of a wide range of highly
visible personal, recreational, and household products and services. Their buying behaviour is
often directed at impressing lower social classes. A primary consideration of lower-upper class
purchase behaviour is social acceptability of their peer class and the acceptance of the upper
upper class . their buying behavior is directed towards achieving the status of upper upper class.
Upper Middle Class: This class of consumers are quality conscious purchasers of products
that are acceptable to the upper class, hence they tend to be cautious consumers of prestigious
products that communicate who they are to others. They are also venturesome in their
willingness to try new products and seek out new places to shop.
Lower Middle Class. They focus a considerable amount of buying behavior around
maintaining a respectable home within a do-it-yourself context. They are quite value conscious
and seek an acceptable balance between price and quality. Standardization is the key factor in
their buying behaviour. They prefer purchasing of standard products of standard design from
traditional retail stores.
Upper Lower Class consumers are less concerned with purchasing products that enhance
status and are more concerned with buying goods and services for personal enjoyment. In
comparison to other classes, they spend a lower proportion of their incomes on housing and
higher proportion of their income on household goods.
They tend to be impulsive buyers yet remain loyal to previously bought brands that they believe
to be a refection of good quality. They are hesitant to try new retail stores.
Lower Lower Class consumers main concern is to fulfill their basic physiological needs. They
need shelter, clothing food and go for economical purchases. Their first priority is price and they
cannot afford any unnecessary expenditure. They use credit extensively and impulsively
purchase highly visible products of personal nature. They prefer well-known brands and local
stores with easy credit terms.
5.4.4 Cultural factors
Culture is a distinct way of life of a group of people and their complete design for living. It is the
sum total of knowledge, attitude, symbols and patterns of behaviour that are shared by a group of
people and transmitted from one generation to the next. The cultural traits include the profound
beliefs, fundamental values and customs. The cultural environment influences are a major
determinant of human behaviour. Culture influences the pattern of living, consumption, decision
making by individuals. It provides a framework within which individuals and households build
their pattern of living and exhibit their lifestyles. Hence it is essential for a retailer to adapt and
confirm merchandising programs to the culture of the chosen target market. The characteristic of
culture is explained below;
Culture is invented by people and it consists of three independent systems or elements viz., (1)
mental component that consists of ideas, beliefs, values and ways of reasoning (2) technological
system that consists of the skills, crafts and art that enable humans to produce material goods
derived from the natural environment (3) an organizational system such as family system and
social class that make its possible for humans to coordinate their behaviour effectively with the
actions of others
Culture is learned. It begins early in life and is learned through generation. The behaviour of an
individual is molded by their culture from birth.
Culture is socially shared by people living in organized societies. The group may range from a
smaller unit such as family to a whole society.
Culture is similar yet different great variations exist from society to society which result sin
differences in consumer behaviour.
Culture is gratifying and persistent. It satisfies basic biological needs as well as learned needs.
It consists of habits that will be maintained and reinforced as long as those who practice them are
gratified.
It is integrated and organized. Every culture has some inconsistent elements; however it tends
to form a consistent and integrated whole.
Culture is acquired from family, region or from all that is around while an individual is
growing.
Culture forms a boundary within which an individual thinks and acts. When an individual
thinks and acts beyond these boundaries, he is adopting cross-cultural behaviour.
Cultures are gradually and continuously changing. Some societies are static while
others are more dynamic
There are three broad form of cultural values as shown below;
Other oriented values
This shows the relationship between individuals and the society. This relationship influences the
retailers practices and strategies. The following issues regarding the shopping behaviour is
raised;
Whether shopping behaviour is a result of individual initiation or collective activity
Is the family life concentrated around children or adults? What roles do children play in
decision making?
Whether society is male or female dominated or balances?
Are prestige roles assigned to younger or older members in society?
Environment oriented values
The environment oriented values depends on the following aspects;

The extent of stress given to cleanliness influences the scope for sale of beauty creams, soaps,
deodorants, etc.
Performance/status:
A society can be status oriented or performance oriented. The status oriented nature of society
lays emphasize on higher standard of living and chooses quality goods, established and reputed
retail stores and brand names , high priced items and the like. The performance oriented society
places importance to individuals performance rather than the status, hence less importance is
assigned to brand names
Traditional/change: Traditional oriented societies prefer the old product and resist innovation
or new techniques. In traditional societies, the scope for new products is less and the demand for
traditional products will be more. Some societies may prefer modern methods, new products and
new model. A retailer has to target the retail store according to the type of culture prevalent
among the target
customers.
Risk taking/security: The extent of venturesomeness of individuals depends on the risk taking
culture in the society. Security oriented societies have little chances of development and
innovation.
Problem solving/fatalist: A society can be optimistic and have a problem solving attitude or be
inactive and depend on fate. This culture has a marketing implication on registering of
complaints when consumers are dissatisfied with the purchase of the products or services of a
retailer.
Concern regarding nature: There are differences in attitude regarding nature and its
preservation. In a culture which focuses on environmental protection, consumers stress on
packing materials that are recyclable and environmental friendly.
HANDLING COMPLAINTS
In the era of intensified competition, it is not a healthy sign for a retailer to have a dissatisfied
customer. Having too many dissatisfied customer could be a major problem leading to the
elimination of retailer from the market. A dissatisfied customer will be encountered with a
variety of negative emotions like anger, discontentment, disappointment, self-pity and anxiety.
Following is a list of common situations which may lead to customer complaints in the retail
stores:
Lack of adequate parking facility
Dissatisfaction at the variety of merchandise offered
Low quality of merchandise
Unfair or too much price
Out of stock situations
Too much of crow during peak time
Inefficient billing
Inconvenient store timing
Poor replacement policies
Impolite sale person who are unwilling to help
Limited modes of payment
Too much bargaining and lack of fixed price
Lack of proper hygiene and cleanliness
Poor shopping environment
Long waiting time for billing and delivery of products
A customer who is dissatisfied due to the above listed complaints may respond in a variety of
ways as illustrated below:
Not all customers complain in a dissatisfied situation. Some customers are more likely to
complain then others for a variety of reasons. Customers who complain believe that positive
consequences may occur and that there are social benefits of complaining. They believe that
compensation should and will be provided to them in some form. They believe that fair treatment
and good service are the obligation of the retailer and that he has to deliver the same. Only very
small number retailers are complaining customers who complain for sake of creating trouble.
Customers who do not complain or take any action hold the opposite belief. They feel
complaining as waste of time and effort. They thing that nothing positive will come out of their
complaints. They may not know the procedures to be followed or may not know that complaints
can be lodged. The non complainer may resort to emotion-focused coping which involves self-
blame, denial and possibly seeking social support. They may feel that the dissatisfied situation
may have arisen due to their mistakes and that they do not deserve
redress. The relevance and importance of the purchase occasion may also influence the customer
complaints. For example if a shopper has purchased a product for personal consumption, he may
be more tolerant towards the product failure rather than the same purchased as a gift to someone.
Types of customer complaint actions
A dissatisfied customer can choose any of the following actions:

The shopper may complaint on the spot to the retailer giving him a chance to respond
immediately. This is a best opportunity for a retailer to retain the customer by doing whatever is
possible within his limits. The situation has to be approached by a retailer as an opportunity to
learn ways to increase customer satisfaction rather than an problem to be solved.
Customers who do not complaint immediately may resort to writing, email or may voice their
problems through telephone. Retailers who react quickly has the chance of retaining the
customers.
Customers who do not complain may spread negative word of mouth about the retailer to
friends, relative, neighbours, colleagues etc. Word of mouth has taken the form of click of
mouse which is more quick and damaging. The company has limited chances of recovery unless
the negative WOM is accompanied by a direct complaint.
Customers may complain to third parties like the consumer forums, licensing
authority, professional association or take a legal action. In case of action both action and
inaction, a customer determines whether to patronize the stores or switch to competitor based on
the retailers recovery action.
Types of complainers
Singh.J in his research paper on typology of consumer dissatisfaction response style classifies
people into four categories based on their response to failures viz., passives, voicers , irates, and
activists.
Passives are group of customer who are likely to take any action. They are unlikely to say
anything, less likely to spread negative word of mouth and unlikely to complain to third party.
They doubt the effectiveness of complaining, thinking that the consequences is not worth the
time and effort spend.
Voicers actively complain , less likely to spread word of mouth or go to third parties or switch
partornage. They actively complain giving a second chance to retain them. They believe the
consequence to be very positive and that it has social benefits.
Irates are more likely to engage in negative word of mouth communication, however they are
unlikely to complain to third parties. They are more angry and less likely to provide a second
change. They will switch to a competitor spreading negative word of mouth to friends, relatives,
neighbours etc.
Activists are characterized by above average propensity to complain in all dimensions. They
will complain to provider, spread negative word of mouth, complain to third parties. This
category of consumers is also referred as terrorists.
A customer complaint with the following expectations:

Customers in many situations are not looking for extreme actions from the firm. They expect
the retailers to provide a reason for the happenings and expect them to be accountable for their
actions or inactions.
Customers expect justice and fairness in handling their complaints. Retailers have a lot to gain
by designing and delivering excellent strategies to recover the customers. Some strategies are
highlighted;
the first thing that can be done by a retailer is to see that the complaints are not arising by way
of delivering the right product, in right quantity, at right quality and at right price. The retailer
should also provide the right combination of services expected by the customer. A situation
which ensures zero defect will enable a retailer to gain credibility and reliability.
A retailer should develop a system to keep track of complaints. Customer research can be
designed for the purpose of conducting survey to keep track of customer dissatisfaction. Toll free
numbers, pagers, email etc can be used to facilitate, encourage and track complaints.
Customers who complaints want quick responses, Hence the retailer should take care to
see that the systems and procedures are designed to act on complaints quickly. Immediate
response to customer complaints is possible by empowering employees. Employees must be

trained and given powers to solve the problems as they occur.
Retailer should take adequate steps to see that the reasons for situation causing customers to
complaints are properly explained to them. If adequate explanations are provided, customer
dissatisfaction can be abated to a greater extent.
The retailer should see that the customers are treated fairly in terms of the outcome they
receive. Three specific types of justice should be provided to customers viz.,outcome fairness,
procedural fairness and interaction fairness. Outcome fairness refers to the expected outcomes or
compensation that match the level of satisfaction.
It can take the form of monetary compensation, an apology, free services , reduced charges and
the like. Customers also expect fairness in terms of policies, rules and timeliness of the
complaint process which is known as procedural fairness. Fair procedures have clarity and they
are delivered at a greater speed without hassles. Interactional fairness refers to customer being
treated politely with care and honest.
A strong relationship with customer should be developed. This ensures that the customer will
continue their patronage even in case of problems. Customers who have good relationship will
not hesitate to complain their problems to the retailer. The chances of the switchover to
competitors are also arrested to a greater extent.
Complaints detail and the situation under which it has arisen along with specific set of solution
offered will enable a retailer to direct the future course of action. Further it enables to arrest the
situation which might give raise to problems,
Market research can be conducted among the lost customers so as to identify and correct the
reasons for defection. This will enable the retailer to prevent the conditions leading to switchover
to competitors.
Retailer can also provide guarantee so as to encourage the shoppers belief and reduce the risk
foreseen by the customers.
Mystery shopping can be performed. In this case the retailers can hire an outside research
organization to send people to the retail store and undergo the shopping experience as if they
were customers. The mystery shoppers will examine all the criteria which are important to the
customers.
Customer complaints enable a retailer to demonstrate his commitment to providing quality
products and service to the customers. A retailer can strengthen the customer relationship by
listening to complaints and handling them in a satisfactory manner.
DELIVERING VALUE TO RETAIL SHOPPERS
Competition exists among the retailers to attract the consumer traffic and retain them. Amidst
other things like the product assortment, brands choice, ambience, location etc being the same,
customers would prefer to shop with the retailers who offer value for the money paid by them.
Value to shoppers is the best combination of price, service quality and retail store image.
Perception regarding value differs from one shopper to the other due to the various aspects:
Need for the product requirement
Availability of time
Past experience with the retailers

Competitors offerings
Personal, social, psychological and cultural factors and
Risk associated with switching over to a new retail store
Apart from offering right product at right time in right quantity and right quality, retailers
differentiate themselves from the competitors through offering value added services. Some
example of value added services offered by retailers around the world are:
Car parking
Telephone orders and Home delivery
Accepting credit cards
Credit facilities
Personal assistance in selecting merchandise
Demonstration of merchandise
Customizing the merchandise
Extended store hours.
Play centers
CHALLENGES FOR RETAILING IN INDIA

The organised retail sector in India has been witnessing various issues and challenges
which are proving to be a hurdle for its fast-paced growth. Even though the organised
retail sector is in a very nascent stage in India, it provides ample opportunities for
retailers, and mitigation of a few challenges will help the sector attain higher economies
of scale and growth. Elucidated below are the challenges and risks that the sector faces:
Global economic slowdown
Competition from the unorganised sector
Retail sector has no recognition as an industry
High real-estate costs
Lack of basic infrastructure
Supply-chain inefficiencies
Challenges with respect to human resources
Margin Pressure

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HVBS- Retail Management

TRADITIONAL AND NON TRADITIONAL RETAILING

And one operational factor: Ownership Structure

1. Target Market Served

Malaysia: consumer confidence. Retail in Malaysia is still fragmented, revealing an opportunity

Trends in Indian Retail Segment

Retail in Kids market

The Retailing Macro-environment

UNIT II RETAIL FORMATS

Organized And Unorganized Formats

Non store- Non traditional

1. Ownership based classification

f) Super stores or combination stores

4) Other non traditional form of retailing

UNIT III RETAILING DECISIONS

CHOICE OF RETAIL LOCATION

Atmospherics refers to the design of an environment via visual communications, lighting,

Height of the building

POSITIONING OF RETAIL STORES

Factors Influencing Pricing Decisions

SUPPLY CHAIN AND LOGISTICS

Visual Merchandise Management Space Management Retail Inventory Management

The merchandising function is influenced by various aspects discussed below;

Organizing the buying process by categories

The key elements of category management are presented below;

Setting the objectives

Objectives in merchandise planning are set in terms of finance. The performance

Gross margin percentage X Sales-to-stock ratio

Net sales Average inventory

Measuring Inventory Turnover

Average inventory at retail

Developing Assortment Plan

Merchandising planning culminating at assortment plan enables to identify the type of

Analyzing merchandise performance

Beginning of month inventory

Allocating merchandise to stores

Analyzing merchandise performance

WHAT DOES RETAIL AUDIT INCLUDE

DETERMINING WHO DOES THE AUDIT

An internal employee whose prime responsibility is the retail audit.

Management Information System

Information Technology in Communication

shopping experience in physical formats, establishing brand recall, establishing consistency in

Key Factors for a Successful e-Tailing

UNIT V RETAIL SHOPPER BEHAVIOUR

After reading this unit you will be able to understand;

Three types of decision making process are

Extended problem solving

Limited Problem Solving

Habitual decision making

The buying process

Shopping may be performed as an activity arising out of learned behaviour. A person

Various factors influence the amount of information searched;

The extent of choices available in terms of retailers and the brands

Selection of a retailer /store choice and merchandise

Store design and physical facilities

Advertising and sales promotion

Purchasing the merchandise

Repeat purchasing patterns