Retail strategy, what to look at.

This week we have been discussing in our team, the strategies that could make a Retailer successful from a marketing point of view.

One of the conclusions that we reached is that even though marketing is just one part of the business, at the end of the day, it relates to all the other areas as well. These are some ideas to develop a successful strategy for the XXI century retailer.

Define your customer’s shopping missions:

• Destination purchases, here the store must meet needs like easy access, having stock of the products and quick customer service.
• Planned regular purchases, where people make frequent trips for items such as bread or milk. The trick here is to use merchandise density to increase shopping spend. 
• Impulse purchases, for which product location in store is important because depending on where you put a product you could create an impulse buy. (e.g. eye-sight)
• Distress purchase visit for those who require something unexpectedly like toilet paper. For this to happen, the store must of course carry certain distress items but also be open certain hours.

OPERATIONAL PLANNING:

· Inventory – FMCG models have to always have stocks of their products. 68% of customers are bothered by out-of-stocks, and only half would give the retailer a second choice to redeem themselves. This is why keeping healthy inventories through inventory planning is so important. 

· Human resources – FMCG retailers must ensure through employee training programs, that all employees provide an exceptional level of service while being friendly and polite. Also, they must be taught and required to follow the facing and fronting schematics when placing products in the store and they must be knowledgeable of in-store promotions in order to offer a better service.

· Facilities management – Facilities in FMCG retailers must always focus on pleasing the customer and offering an augmented service. Because the products they offer are so common, customer loyalty is very hard to maintain, so to do so, retail stores must always offer an augmented product such as ATM’s in the store, clean bathrooms, open 24hrs a day all days of the week, accept mayor credit cards, etc.

MARKETING PLANNING:

· Merchandise - For retail customers, convenience is of extreme importance, location and density of the stores is one of the main factors to consider when developing the merchandise plan.

Caltex for example, has more than 1,800 stores in all of Australia’s main cities, and the regional density of stores along with the type of merchandise present in each one is largely dependent on the number of customers in the area and their demographic and psychographic characteristics. For example, stores in Bondi will have higher density (more stores per Klm²) and a wider range of healthy, environmentally-friendly products that match those customers shopping characteristics.

Pricing is another aspect of merchandising that is to be considered and should be consistent with the company’s branding strategy.

· Customer service: Is used to increase spending in most retail companies, in some cases, it has become part of the core-product offering. This is because the company must know the main types of customers that they have in order to develop a customer service strategy that best suits them.

For retailers, there are convenience shoppers, discount shoppers and in-betweeners. These are chosen by their adversity to wait in line and their disposition to pay higher prices, being convenience shoppers the least likely to wait in line and most likely to pay a high price and discount shoppers the ones looking for a better price despite the wait they must do in the store.

Once the client profiles are defined, the customer services strategy can be implemented, for example, offering a more personalized customer experience to those clients that spend the most, and a more standardized in-store service to those who spend less (which happen to be the least in volume).

· Store format and environment: For retail businesses, the presentation of the products and the environment of the store are key to incentivize purchases. Also, the environment of the store should be the same for all convenience stores in order to avoid confusion in the mind of the customer.

The products facing and fronting is also very important, they must be always be facing the customer in order to increase store recognition and impulsive purchases, and always in the front of the shelves so that it looks like there is always stock. Also, convenience products should be organized by category and popularity as well.

All these techniques are used to increase impulsive purchases and client loyalty, and every FMCG retailer should think of layouts for their store that best trigger the purchasing desire on their clients.

· Customer communications: Non-personal communication is used predominantly to communicate to the discount shoppers and the in-betweeners, who are price sensitive. The approach is to communicate lower prices, discounts and savings while emphasizing quality products. To do this, retailers must use a “pull” strategy, which means the use of mass media such as TV, radio and graphic campaigns on the street in order to get to their customers.

For high margin customers, the approach must be a “push” strategy, which means that the clients must be approached by the company via a sales team and personalized marketing strategies such as email to their personal accounts and B2B marketing.

FINANCIAL PLANNING:

· Profitability – for any type of business, because risk is involved when investing on it, profitability or return on equity should always be above the risk free rate (or treasury bond rates) from the country where you will invest. This is because if there is risk involved and the rate of return is lower than the risk free rate, I would prefer to invest on a risk free asset, such as a savings account or a treasury bond, instead of investing in a retail corporation. In Australia, the risk free rate is 4.5% whereas some public listed retailer’s in Australia like Caltex or Myers, have a return on equity of ≈11% a year for example, hence, I would prefer to invest in one of these companies instead of just leaving my money in a savings account.

· Productivity – in order to be more productive, FMCG retailers should purchase their goods in large volumes in order to get volume discounts and margin more when they sell them. Productivity should be measured with asset productivity ratios or asset turnover ratios which tell us how productive the company’s products are doing and how they contribute to the financial health of the company.

· Cash-flow: must be positive in order to reduce the risk of not being able to buy last-minute stocks or pay for unexpected liabilities.

To our opinion, if most of these strategies are followed, and the mission statement of the company is kept well aligned with the working culture, it should be possible to run a successful retail company in this part of the world.