Theoretical Concepts in Retailing

7/31/2019 Theoretical Concepts in Retailing

1/25

Click to edit Master subtitle style

Ranjan Chaudhuri

Some theoreticalConcepts

retailing


2/25

Some Constructs


3/25

Theories of Retail

Development No single theory can be universally

applicable or acceptable.

The retail scenario keeps changingcontinuously.

These changes are brought by ever

changing customer requirement,economic progress of nations and newtechnologies


4/25

Classical Theories of Retailing

Environmental Theory:A whole array of factors shape the nature of RetailEnvironments.

Factors Changes related to the Consumer

Demographic changes

Attitudes and preferences to purchasing, brands andproducts

Changes in Life Style Economic Influences

Changes in Technology

Changes in Competition :The competitive strength ofactual or alternative channels of distribution dependingupon nature and type of Retail organization.


5/25

NATURAL SELECTION An earlier theory, natural selection, has the

stronger intuitive appeal for explaining changein retailing institutions. It follows CharlesDarwins view that organisms evolve andchange on the basis of survival of the fittest.

In retailing, those institutions best able toadapt to changes in customers, technology,competition, and legal environments have thegreatest chance of success.

The Ability to adapt to change,

successfullyis at the core of this theory


6/25

Cyclical Theories of Retailing:

Retailing Wheel

Retail Life Cycle


7/25

Wheel of Retailing: McNair, 1958When Retailers enter a market they compete by offering goods at lowest

possible price or bold new concept or innovation etc. in order to attractcustomers.

As they develop their experience and gain capital, they tend to increase their

level of service and quality and therefore their price.

This success allows mature retailers to move steadily into an up-market

position.

But Retailers in this position may become vulnerable due to high costs,

declining efficiency and stagnating management strategies which culminate in

down turn in salescontd.


8/25

Wheel of Retailing ..contd.

Due to low sales the retailer may plunge into decline and even be forced

to withdraw from the market.

Around the Wheel of Retailing a gap is left at the bottomend of the market.

An OPPORTINITYfor a NEW RETAILER


9/25

The Wheel of Retailing


10/25

Entry

phase

Trading upphase

Vuln

erabili

ty

ph

ase

MatureretailerTopheavyDecliningROI

InnovativeretailerLow status andpriceMinimumservicePoor

facilitiesLimited productoffering

TraditionalretailerElaboratefacilitiesHigher

rentMorelocationsHigherpricesExtended productofferings

Entry

phase

T

Vuln

erabili

ty

ph

ase

MatureretailerTopheavyDecliningROI

InnovativeretailerLow status andpriceMinimumservicePoor

facilitiesLimited productoffering

TraditionalretailerElaboratefacilitiesHigher

rentMorelocationsHigherpricesExtended productofferings

The wheel keeps on turning as the department stores, supermarkets,and mass merchandisers pass through these cycles


11/25

Retail Wheel

Basic Hypotheses:1.There are many price sensitive shoppers willing to trade customerservices, wide selections and convenient location for LOWER PRICES

2. Price sensitive shoppers are often not store-loyal and are willing to switchto retailers offering lower prices. Other prestige-sensitive customers like toshop at stores with high-end strategies.

3. New institutions are frequently able to implement lower operating coststhen existing institutions.

4. Retailers typically move up the wheel to increase sales, broaden the targetmarket, and improve store image.


12/25

The RETAILING WHEEL

Low end strategy

innovationLow prices,

Limited facilities andservices

Prices sensitive

consumers

Medium Strategy

trading up

Moderate PricesImproved Facilities

Broader base of value-and-service consciousconsumers

High End Strategy

vulnerability

High Prices

Excellent Facilities

Upscale consumers


13/25

Limitations of Wheel of Retailing

A) Focusses exclusively on changing cost andgross margin relationship as the key tounderstanding Evolutionary Retail Behaviour.

B) It was only intended to determine thepace with which retail innovations riseand fall


14/25

THE ACCORDION THEORY

The Accordion Theory, the secondcyclical theory, proposes that the retail

institutions fluctuate from the strategy ofoffering many merchandise categorieswith a shallow assortment to thestrategy of offering a deep assortment

with a limited number of categories. This expansion and contraction calls to

mind an accordion.


15/25

Figure 1(a) The wheel of retailing; (b) the retail accordion


16/25

The Dialectic Process


17/25

Retail Life Cycle(Davidson, Betes and Bass, 1976)

Retail institutions pass through A Life Cyclehaving following stages:

INNOVATION

ACCELERATED DEVELOPMENT

MATURITY

DECLINE


18/25

Retail Life Cycle

Innovation Maturity Decline

AcceleratedDevelopment


19/25

MaturityInnovation Decline


Retail Life Cycle

Number ofCompetitors

Very Few Very Few Moderate Many Direct Moderate DirectModerate Indirect Many Indirect


20/25

L



Retail Life Cycle

Growth/Profitability/Duration

Very Few Very Rapid Rapid Moderate to Slow Slow or NegativeLow to Moderate High Moderate Very Low3-5 Years 8 Years Indefinite Indefinite


21/25

L



Retail Life Cycle

Investment/Growth/RiskDecisions

Very Few Investment Min Investment High Tightly Controlled Growth Marginal CapitalHigh Risk to Sustain in Untapped Markets Expenditures, &Accepted Growth Only if

Necessary


22/25

L



Retail Life Cycle

Central ManagementConcerns

Very FewConcept Refinement Establishing a Excess Capacity & Engaging in aThrough Adjustment Preemptive Overstoring; Prolonging Run-Out& Experimenting Market Position Maturity & Revising the Strategy

Business Concept


23/25



Retail Life Cycle

Use of Management ControlTechniques

Very Few Minimal Moderate Extensive Moderate


24/25



Retail Life Cycle

Most Successful ManagementStyle

Very Few Entrepreneurial Centralized Professional Caretaker


25/25

Implications of Retail Life Cycle forthe Retailers

Stay Flexible

Analyze risks and profitsAttempt to extend maturity stageEmphasize RESEARCH

Documents

Theoretical Concepts in Retailing