RETAIL MARKET SEGMENTATION

Prof. Raghavendran V

Prof. Raghavendran V

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Retail Location

One of the important decisions that a retailer has to make is on location of the retail outlet.

TYPES OF RETAIL LOCATIONS:Various options are available to the retailer for

choosing the location of his store. The Choice of the location of the store again depends on the target audience and the kind of merchandise to be sold. A store location may be classified as:

Freestanding/ Isolated store Part of a business district Part of a shopping center

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Isolated store or a Freestanding Location:

A freestanding location is a store located along a major traffic artery, without any other competitive retailers around. The biggest advantages of such a location is that is no competition around.

Due to above rentals are always low, parking facilities are available

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Part of a Business District

A retail store can be located as a part of a business district. A business district is a place commerce in the city.

A CBD is the main centre of commerce and trade in the city. It is characterized by peak land rates and intense developments

SBD is one, which has evolved over a period of time, with the spread of population within the city. It is characterized by a good mix of retailers, the stores are generally smaller than those in the CBD & public

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Part of a Shopping center

A shopping center id defined by International council of shopping centers as a group of retail & other commercial establishments that is planned, developed, owned and managed as a single property. They has defined 8 basic types of shopping centers, they are:

Neighborhood SC, Community SC, Regional SC,

Super Regional center, Fashion/ Specialty center, Power, Theme and Outlet center

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Steps involved in choosing a retail location

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Step1: Market IdentificationStep2: Deterring the market potential

Demographic features of the population The characteristics of the households in the

Area Competition & compatibility Laws & Regulations Trade Area Analysis

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Step3 & 4: Identify Alternate Sites and Select the Site

• Traffic• Accessibility of the market is also a key

factor• The total number of stores and types of

stores that exist in the area• Amenities available• To buy or to lease• The product mix offered

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Method of evaluating a trading area

The Herfindahl-Herschman Index

The index of retail saturationReilly’s law of retail GravitationCentral Place TheoryHuff’s Model of trading area Analysis

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The Herfindahl-Herschman Index

It is commonly as HHI, is a commonly accepted measure market concentration. The HHI is determined by adding the squares of the market shares of each competitor within the relevant product & geographic market.

For Ex: HHI is 2600 (302+302+202+202= 2600)

It takes account of a large number of firms of relatively equal size.

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The regulatory authorities in the US, believe that markets are concentrated when the HHI is above 1800, moderately concentrated when the HHI is between 1000 & 1800, and unconcentrated when is below is 1000.

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The index of retail saturationAnother commonly used measure of

market attractiveness is the Index of retail saturation. This index is based on the assumption that if market has a low level of retail saturation, the likelihood of success is higher. This theory considers the number of stores exist in a market. If a few stores are there, then it unable to satisfy the customers

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Saturation is calculated in terms of existing retail facilities and their use.

IRS= (H*RE)/ RFH= No of Households in that areaRE= Annual retail expenditures for a

particular line of trade/ household in that area

RF= The total Square footage of that particular line of trade in that area, including the proposed store.

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Reilly’s Law of Retail GravitationWhen two cities complete for retail trade area from

the immediate rural (suburban) areas, the breaking point for the attraction of such trade will be more or less in direct proportion to the population of the cities and inverse proportion to the square of the distance from the immediate area of each city.

Mathematically it is denoted as…(Ba/Bb)= (Pa/Pb)*(Da/Db)2

Ba & Bb are cities which draws for business.Pa & Pb are population density from a & b city

respectivelyDa & Db are the distance to the intermediate place.

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Central Place Theory

It describes that central place as centre of commerce of a village, town or city, which comprises of a cluster of retail organization. In this theory there are 2 important concepts– the range and the threshold

Range is distance, wherein customer is willing to travel to for particular product.

Threshold is the minimum amount of consumer demand that exist for a store to survive.

So technically, Range should be > threshold for store to economical

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Huff’s Model of trading Area Analysis

Its popularity and longevity can be attributed to its conceptual appeal, relative ease of use and applicability to wide range of problems, of which predicting consumer spatial behavior is the most commonly known. The probability (Pij) that consumer located at ‘I’ will choose to shop at store ‘j’ is calculated according to formula.

Pij=Aαj Dij –β / ∑ n j=1 Aα

j – Dij -β

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Aj= measure of attractiveness of store j, such as square footage

Dij= Distance from i to j

α= attractiveness parameter estimated from empirical observations

β= distance decay parameter estimated from empirical observations

N= total number of stores including store j

MARKET SEGMENTATION

Prof. Raghavendran V

Definition

A market segment is a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. it is distinct from other segments

(heterogeneity across segments) it is homogeneous within the segment

(exhibits common attributes) it responds similarly to a market stimuli it can be reached by a market

intervention

• Size, purchasing power, profiles of segments can be measured.

• Segments must be effectively reached and served.

• Segments must be large or profitable enough to serve.

Measurable Measurable

AccessibleAccessible

SubstantialSubstantial

DifferentialDifferential

ActionableActionable

• Segments must respond differently to different marketing mix elements & actions.

• Must be able to attract and serve the segments.

Purpose Increase marketing

efficiency by focusing marketing efforts to a particular group

Maximize scarce marketing resources

Find a market with limited competition

Select the most profitable segment

Segmentation: Geographic Criteria Geographic variables

region of the world or country, East, West, South, North, Central, coastal, hilly, etc.

country size/country size : Metropolitan Cities, small cities, towns.

Density of Area Urban, Semi-urban, Rural. climate Hot, Cold, Humid, Rainy.

Demographic Criteria

Demographic variables age gender sexual orientation family size family life cycle education income occupation education socioeconomic status religion nationality/race language

Psychographic Criteria

Psychographic variables personality life style value attitude

Behavioral Criteria

Behavioral variables benefit sought product usage rate brand loyalty product end use readiness-to-buy stage decision making unit profitability income status

Geographic

DemographicAge, gender,

family size and life cycle,

or income

PsychographicSocial class, lifestyle,

or personality

BehavioralOccasions, benefits, uses, or responses

Nations, states, regions or cities

Segmentation Criteria

Market Segmentation Process1. Determine the characteristics of

segments in the target market & separate these segments in the market based on these characteristics.

2. Verify the market segments size if adequate enough to support the organization's product.

3. Develop a marketing strategy to target this market.

1. Identify Basesfor Segmenting the Market

2. Develop Profilesof Resulting Segments

3. Develop Measuresof Segment Attractiveness

4. Select TargetSegment(s)

5. Develop Positioningfor Each Target Segment

6. Develop MarketingMix for Each Target Segment Market

Positioning

MarketTargeting

Market Segmentation

Market Segmentation Process

Mass MarketingSame product to all consumers

(no segmentation)

Mass MarketingSame product to all consumers

(no segmentation)

Segment MarketingDifferent products to one or more segments

(some segmentation)

Segment MarketingDifferent products to one or more segments

(some segmentation)

MicromarketingProducts to suit the tastes of individuals or locations

(complete segmentation)

MicromarketingProducts to suit the tastes of individuals or locations

(complete segmentation)

Niche MarketingDifferent products to subgroups within segments

( more segmentation)

Niche MarketingDifferent products to subgroups within segments

( more segmentation)

Levels of Segmentation

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ASSIGNMENT TIME to be submitted on 30-sept-2011

1. Explain the steps involved in identifying a retail location?

2. Discuss all retail theories for setting up a retail store

3. Imagine that you are setting up a retail store at hometown. Identify which theory will be beneficial to evaluate your store location and why?

4. Describe briefly purpose of market segmentation in retails

5. List out briefly the criteria's of segmentation

6. Explain with examples, levels of segmentation

7. Identify any product of your own & try analysing the product for favourable of the consumers from levels of segmentation.

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END OF THE MODULE 6

By Prof. Raghavendran V