Week 5 - IBM_Channel Management (SW).pdf

# Retailer definition and differentiation Retailers are businesses that sell goods and services directly to ultimate consumers for personal use, and they differentiate themselves in the market through five key criteria [6](#page=6). ## 1. Retailer definition and differentiation ### 1.1 Definition of a retailer A retailer is defined as an entity that sells goods and services to ultimate consumers for their personal consumption or to businesses for their own use and not for resale. This contrasts with wholesalers who sell for resale to other businesses, industrial entities, or institutions. Examples of retailers include department stores, specialty stores, hypermarkets, supermarkets, convenience stores, traditional shops, gas stations, hotels, and banks [5](#page=5) [6](#page=6). ### 1.2 Typical channel structure and strategies Retailers operate within a distribution channel that typically includes manufacturers, specialized intermediaries, wholesalers, and ultimately, the final customer. Retailers often engage in "bulk breaking," which involves selling goods in smaller quantities than purchased from the wholesaler or manufacturer. They also employ strategies related to product variety, presentation, location, waiting and delivery times, and customer service to attract and retain customers [13](#page=13) [4](#page=4) [8](#page=8). ### 1.3 Retailer differentiation criteria Retailers differentiate themselves by answering key strategic questions about their offerings [8](#page=8): * What type of products do they want to offer? * How will they be sold to clients? * Where do they want to be found? * When can customers get the goods? * Which level of service do they plan to offer? The five core criteria for differentiation are: 1. Product variety [8](#page=8). 2. Bulk breaking and presentation [8](#page=8). 3. Location [8](#page=8). 4. Waiting and delivery time [8](#page=8). 5. Customer service [8](#page=8). #### 1.3.1 Product variety (breadth and depth) Product variety encompasses two main dimensions: variety (also known as breadth) and assortment (depth) [9](#page=9). * **Variety (Breadth):** Refers to the number of different product categories a retailer offers. Retailers can have a wide variety (many categories) or a narrow variety (few categories) [9](#page=9). * **Assortment (Depth):** Refers to the number of different references or options within a specific product category. Retailers can have a deep assortment (many options within a category) or a shallow assortment (few options within a category) [9](#page=9). Retailers can be mapped based on their product breadth and depth [10](#page=10): * **Specialty stores:** Typically have a narrow variety but a deep assortment [11](#page=11). * **Supermarkets:** Offer a broad variety and a medium to deep assortment [11](#page=11). * **Convenience stores:** Characterized by a narrow variety and a shallow assortment [11](#page=11). * **Department stores:** Usually offer a broad variety with a medium depth assortment [11](#page=11). * **Superstores / Category killers:** Have a broad variety and a deep assortment [11](#page=11). * **Hypermarkets:** Combine a very broad variety with a deep assortment [11](#page=11). > **Tip:** Understanding the product breadth and depth matrix helps in classifying different retail formats and understanding their strategic positioning [10](#page=10) [11](#page=11) [12](#page=12). #### 1.3.2 Bulk breaking and presentation Bulk breaking is the process of dividing larger quantities of goods into smaller, more manageable lots for sale to consumers. Retailers differentiate based on the lot size they offer, ranging from small quantities (e.g., dollar stores, convenience stores) to large quantities (e.g., warehouse stores). Presentation strategies, such as bundle pricing or "Buy One Get One Free" offers, also contribute to differentiation [13](#page=13). #### 1.3.3 Location (spatial convenience) Location is a critical differentiator, impacting how easily customers can access the retailer's products or services. This includes the physical proximity of brick-and-mortar stores (e.g., convenience stores, specialty stores in shopping malls) and the accessibility of online platforms (e.g., eCommerce platforms). For service retailers like banks, location differentiation can involve physical branches, ATMs, private banking facilities, or online banking services [14](#page=14) [15](#page=15) [8](#page=8). #### 1.3.4 Waiting and delivery time The time it takes for a customer to receive goods or services is another significant differentiator. Retailers vary in their ability to keep products in stock at all times versus offering made-to-order items. Delivery times can range from immediate (in stock) to extended periods, such as 6-8 weeks or even 18 months for specialized or custom orders. This criterion often aligns with the purchase frequency, from everyday purchases to once-in-a-lifetime acquisitions [16](#page=16) [8](#page=8). #### 1.3.5 Customer service Customer service levels represent a spectrum from high to low and are a key way retailers distinguish themselves. Retailers may invest in extensive staff training, personalized attention, and post-purchase support to offer high customer service, or they may focus on efficiency and self-service for a lower service model [17](#page=17) [8](#page=8). ### 1.4 Traditional retailers typology Traditional retailers can be categorized based on their primary focus, such as price or service, and the variety of goods they offer [18](#page=18). * **LOW PRICE RETAILING / Turnover Focus:** Retailers like discount supermarkets and warehouse clubs emphasize low prices and high sales volume. They may offer a high variety of goods but with potentially less emphasis on service [18](#page=18). * **HIGH SERVICE RETAILING / Margin Focus:** Retailers such as specialty stores, category killers, department stores, and convenience stores often focus on higher margins derived from service, convenience, or specialized assortments. This often comes with a more limited variety of goods compared to hypermarkets, which tend to bridge both high variety and potentially higher service levels [18](#page=18). --- # Retail business models and performance drivers This section explores how retail businesses generate revenue, outlining their fundamental business model components and key strategies for driving performance. ### 2.1 Understanding the retail revenue generation process Retail businesses aim to generate revenue by attracting customers, encouraging them to shop, facilitating profitable purchases, and fostering repeat business. This cyclical process can be broken down into four key stages [21](#page=21): * **Attract (Trade in):** Drawing customers to the store [21](#page=21). * **Retain (Repeat):** Encouraging customers to return for future purchases [21](#page=21). * **Grow (Trade Up & Across):** Increasing the value of each customer's transaction over time [23](#page=23). ### 2.2 The fundamental retail business model components The core of a retail business model relies on the interplay of several key metrics that, when multiplied, determine overall sales performance. These components are [22](#page=22) [24](#page=24): * **Number of clients:** The total number of customers a retailer serves [22](#page=22). * **Frequency of purchases:** How often each customer buys from the retailer [22](#page=22). * **Basket size:** The average amount or number of items a customer purchases in a single transaction [22](#page=22). These components can be expressed in a fundamental formula: $$ \text{Revenue} = \text{Number of clients} \times \text{Frequency of purchases} \times \text{Basket size} $$ [22](#page=22). An alternative perspective on this model incorporates "Traffic" as a precursor to "Conversion Rate," which then influences "Basket Size": $$ \text{Revenue} = \text{Traffic} \times \text{Conversion Rate} \times \text{Basket size} $$ [24](#page=24). * **Traffic:** Represents the number of visits to a retail location or platform [26](#page=26). * **Conversion Rate:** The percentage of visitors who make a purchase (Shoppers > Buyers) [26](#page=26). ### 2.3 Strategies to drive retail performance To achieve success, retailers must implement strategies across the customer journey, focusing on each of the key performance drivers [26](#page=26). #### 2.3.1 Attracting customers to the store (Driving Traffic) Strategies to increase footfall or online visits include: * Advertising and communication campaigns [26](#page=26). * Leveraging a seasonal calendar to align with customer purchasing cycles [26](#page=26). * Launching new products to create excitement and draw interest [26](#page=26). * Offering entertainment or unique experiences [26](#page=26). * Strategic location selection [26](#page=26). * Encouraging word-of-mouth referrals [26](#page=26). #### 2.3.2 Getting customers to shop (Increasing Conversion) Once customers are in the store or on the website, the focus shifts to converting them into buyers. This involves: * **Product Selection:** Offering a desirable and relevant range of goods [26](#page=26). * **Promotion:** Utilizing sales, discounts, and special offers [26](#page=26). * **Merchandising:** Presenting products in an appealing and organized manner [26](#page=26). #### 2.3.3 Getting customers to buy a profitable mix (Increasing Basket Size) The goal here is to increase the value of each transaction. This can be achieved through: * **Product Selection:** Curating an assortment that encourages higher spending [26](#page=26). * **Promotion:** Designing promotions that incentivize larger purchases [26](#page=26). * **Cross Selling / Up Selling:** Suggesting complementary products or higher-value alternatives [26](#page=26). * **Bundling:** Offering packages of products at an attractive price point [26](#page=26). * **Impulse Selling:** Strategically placing enticing items near checkout areas [26](#page=26). * **Margin Mix on basket:** Ensuring the products purchased contribute positively to overall profitability [26](#page=26). * **Delivery options:** Providing convenient and cost-effective delivery services [26](#page=26). * **Terms/Credit options:** Offering flexible payment plans or credit facilities [26](#page=26). * **Pricing strategy:** Implementing pricing that balances competitiveness with profitability [26](#page=26). #### 2.3.4 Getting customers to return (Enhancing Loyalty and Frequency) Building long-term customer relationships is crucial for sustained success. Strategies include: * **Loyalty schemes:** Rewarding repeat customers with points, discounts, or exclusive access [26](#page=26). * **Customer service:** Providing excellent support and a positive shopping experience [26](#page=26). * **Repeat Visits:** Directly aiming to increase the frequency of customer shopping [26](#page=26). ### 2.4 Examples of retail business models Different retail formats employ variations of these fundamental principles: * **Outlet Factory Village:** Often relies on high traffic driven by perceived value and discounts, with the aim of selling excess or past-season inventory at lower prices [25](#page=25). * **Amusement Park:** A model where the core offering is an experience, with revenue driven by ticket sales (attraction), on-site spending on food, merchandise, and additional attractions (basket size and frequency within the visit) [25](#page=25). > **Tip:** Understanding how these components interact is vital. A retailer might struggle with low traffic but could compensate with a high conversion rate and large basket size, or vice versa. Analyzing each driver allows for targeted strategic interventions. > **Tip:** The "Grow" aspect (Trade Up & Across) is critical for increasing customer lifetime value and is often achieved through effective cross-selling, up-selling, and loyalty programs. --- # Retailer roles and value proposition This section explores the multifaceted roles of final-tier trade channel players, their distinct business and compensation models, and the differentiated value propositions offered by various retailer types. ### 3.1 Roles of final-tier trade channel players The roles of final-tier trade channel players can be understood as extensions of the vendor or as distinct entities serving specific customer needs, defined by their knowledge and competencies. These roles can be categorized as follows [28](#page=28): #### 3.1.1 Extension of vendor These players act as an extension of the original vendor, primarily focusing on operational aspects. Their core functions include [27](#page=27): * **Order handling process:** Managing the flow of orders from the customer to the vendor [27](#page=27). * **Logistics specialist:** Efficiently managing the transportation and delivery of goods [27](#page=27). * **Inventory management:** Optimizing stock levels to meet demand while minimizing costs [27](#page=27). * **Cost sensitivity:** These players often operate with a strong focus on cost efficiency in their operations [27](#page=27). #### 3.1.2 Product completer This role involves providing products that are either bespoke or part of packaged solutions designed to meet specific customer requirements. Their primary knowledge lies in configuring products to fit particular needs [27](#page=27) [28](#page=28). #### 3.1.3 Service provider Service providers focus on offering value-added services and possess technical expertise that spans horizontally across various products or systems. Their knowledge enables them to make products work efficiently on their own [27](#page=27) [28](#page=28). #### 3.1.4 Solution integrator These players offer specialized support for complex product or service configurations. They possess deep vertical or technical expertise, enabling them to understand how products work together within a broader system [27](#page=27) [28](#page=28). #### 3.1.5 Advocate to customer This role involves a deep understanding of customer needs and the ability to define business requirements. These players provide objective advice to customers on which products best meet their needs (#page=27, 28). Their knowledge focuses on understanding the customer's requirements and matching them to suitable products [27](#page=27) [28](#page=28). ### 3.2 Business and compensation models The business and compensation models for these partner roles vary significantly, reflecting their differing contributions and value delivery [29](#page=29). * **Extension of vendor:** * **Business Model:** Activity-based, defined by contracts and service level agreements (SLAs) [29](#page=29). * **Compensation Model:** Vendor pays per activity, potentially modified by the achievement of specified service levels [29](#page=29). * **Product completer:** * **Business Model:** Value and risk-based model [29](#page=29). * **Compensation Model:** Customer pays for bespoke value [29](#page=29). * **Service provider:** * **Business Model:** Value and performance-based model [29](#page=29). * **Compensation Model:** Vendor pays for function and performance [29](#page=29). * **Solution integrator:** * **Business Model:** Customer pays fees [29](#page=29). * **Compensation Model:** Not explicitly detailed in the document for this role, but implied to be tied to the fees paid by the customer for integrated solutions [29](#page=29). * **Advocate to customer:** * **Business Model:** Customer pays for bespoke value [29](#page=29). * **Compensation Model:** Not explicitly detailed in the document for this role, but likely tied to the value of the advice and solutions provided to the customer. ### 3.3 Differentiated retailers value proposition Retailers differentiate themselves by how effectively they attract customers to the store, encourage them to shop, persuade them to buy a specific mix of products, and foster repeat visits (#page=30, 31) [30](#page=30) [31](#page=31). #### 3.3.1 Mass merchants Examples include Carrefour, Walmart, and Auchan [30](#page=30). * **Get customer to the store:** Convenience of store location, coverage of weekly needs [31](#page=31). * **Get customer to shop the store:** Comprehensive range of products, store layout and merchandising, promotions [31](#page=31). * **Get customer to buy the mix:** Hot spot locations within the store [31](#page=31). * **Get customer to return to store:** Not explicitly detailed for this category beyond general shopping drivers (#page=30, 31 [30](#page=30) [31](#page=31). #### 3.3.2 Category killer An example is Home Depot [30](#page=30). * **Get customer to the store:** Price-led communication [31](#page=31). * **Get customer to shop the store:** Choice and assortment within the category, promotions [31](#page=31). * **Get customer to buy the mix:** Hot spot locations within the store, loyalty programs, broad range within the category [31](#page=31). * **Get customer to return to store:** Not explicitly detailed for this category beyond general shopping drivers (#page=30, 31 [30](#page=30) [31](#page=31). #### 3.3.3 Discounters Examples include Lidl and Costco [30](#page=30). * **Get customer to the store:** Price-led communication [31](#page=31). * **Get customer to shop the store:** Store layout and merchandising, driving volume through promotions (e.g., buy 2 get 1 free) [31](#page=31). * **Get customer to buy the mix:** Everyday low prices [31](#page=31). * **Get customer to return to store:** Not explicitly detailed for this category beyond general shopping drivers (#page=30, 31 [30](#page=30) [31](#page=31). #### 3.3.4 Specialists An example is FNAC [30](#page=30). * **Get customer to the store:** Targeted communication [31](#page=31). * **Get customer to shop the store:** Advice, choice, and assortment [31](#page=31). * **Get customer to buy the mix:** Advice, choice, and assortment [31](#page=31). * **Get customer to return to store:** Quality of service [31](#page=31). #### 3.3.5 Department stores An example is Globus [30](#page=30). * **Get customer to the store:** Service-led communication [31](#page=31). * **Get customer to shop the store:** Advice, choice, and assortment [31](#page=31). * **Get customer to buy the mix:** Advice, choice, and assortment [31](#page=31). * **Get customer to return to store:** Quality of service [31](#page=31). --- # The store as a third place concept The concept of a store functioning as a 'third place' signifies a retail environment that transcends mere commercial exchange to become a social hub, distinct from home and work, fostering community and experience [34](#page=34). ### 4.1 Defining the 'third place' The 'third place' concept was introduced by sociologist Ray Oldenburg defining it as a social environment separate from one's primary spheres of home and work. Characteristics of such places, applicable to retail, include [34](#page=34): * **Open and inviting:** Accessible without formal invitations or appointments, allowing for flexible entry and exit [35](#page=35). * **Comfortable and informal:** Creating a sense of belonging for visitors [35](#page=35). * **Convenient:** Located within easy reach for frequent visits, ideally in the local neighborhood [35](#page=35). * **Unpretentious:** Promoting equality among visitors, devoid of exclusivity or excessive expense [35](#page=35). * **Presence of regulars:** Often featuring recurring patrons and a host who acknowledges arrivals [35](#page=35). * **Conversation as the main activity:** Fostering discussion, debate, and informal exchanges [35](#page=35). * **Frequent laughter:** Characterized by a light-hearted and playful atmosphere where joking and witty banter are encouraged [35](#page=35). ### 4.2 Discussion questions for retailers The aspiration for a store to become a 'third place' raises several critical questions for retailers [36](#page=36): #### 4.2.1 Beyond commerce This explores the expanded roles retailers adopt beyond transactional selling. Such retailers engage in functions like community building, education, storytelling, and fostering lifestyle connections [36](#page=36) [37](#page=37). > **Example:** Apple Stores offering "Today at Apple" sessions, Lululemon hosting yoga events, and Aesop providing sensory experiences exemplify retailers moving beyond commerce to offer experiential and social value [37](#page=37). #### 4.2.2 Tensions and trade-offs This examines the challenges and risks inherent in a store attempting to be both a commercial and social space. Key tensions include [36](#page=36): * **Financial tension:** Increased footfall does not always equate to higher conversion rates, leading to a trade-off between the costs of providing an experience and the sales generated per square meter [37](#page=37). * **Cultural tension:** Balancing the need for authenticity in community building with marketing objectives [37](#page=37). * **Operational tension:** Staff roles shift from primarily sales-focused to those of hosts and community facilitators [37](#page=37). #### 4.2.3 Impact on channel and retail strategy This considers how the 'third place' ambition influences strategic decisions regarding store placement, size, design, staffing, and the integration of physical and digital channels. Strategic impacts include [36](#page=36): * **Store locations:** Shifting focus from pure traffic zones to cultural hubs [37](#page=37). * **Store formats:** Adoption of smaller, curated formats with experiential design elements like coffee corners or workshop spaces [37](#page=37). * **Key Performance Indicators (KPIs):** Introduction of new metrics such as dwell time, brand advocacy, and customer lifetime value [37](#page=37). * **Online/Offline complementarity:** The physical store serves as 'brand theatre', while e-commerce handles convenience [37](#page=37). #### 4.2.4 Omnichannel and hybrid implications This probes whether the 'third place' positioning strengthens or weakens a retailer's standing against online competitors, and why [36](#page=36). * **Strengthening position:** Enhanced brand loyalty, increased perceived value, and the generation of social content that drives online traffic [37](#page=37). * **Weakening position:** Higher fixed costs associated with physical spaces and challenges in scalability compared to digital-only rivals [37](#page=37). * **Ideal hybrid model:** A strategy where the physical store builds brand meaning and emotional connection, while online channels capture operational efficiency [37](#page=37). --- # Case study: FNAC's survival strategy This case study examines FNAC's strategies for survival and adaptation in the modern retail landscape, particularly against e-commerce competition [40](#page=40). ### 5.1 FNAC overview FNAC was established in 1954 and has grown into a significant retailer. As of the case study's context, it operates 1,010 stores worldwide and employs over 26,000 staff. A pivotal development was its acquisition of Darty in 2016, leading to the formation of the Fnac Darty Groupe in 2019. FNAC holds the position of the number one non-grocery retailer in France, Belgium, and Switzerland [41](#page=41). ### 5.2 FNAC's original mission and product democratization FNAC's initial mission was to act as a "cultural agitator". This mission involved democratizing access to cultural products such as photography, books, and music [43](#page=43). ### 5.3 FNAC's independent product testing laboratory (Labofnac) FNAC's independent product testing laboratory, known as Labofnac, has been instrumental in differentiating its retail offering. This feature has played a crucial role in building consumer trust, even as competitors, including e-commerce pure-players, have emerged [43](#page=43). ### 5.4 Integration of physical and digital retail channels FNAC has implemented strategies to integrate its physical and digital retail channels. These integrated approaches have been key to the company's ability to maintain a strong market presence [43](#page=43). ### 5.5 Integration of cultural services into retail strategy FNAC has strategically incorporated cultural services into its broader retail strategy. Examples of these services include the sale of concert tickets and the sponsorship of cultural events [43](#page=43). ### 5.6 Maintaining identity amidst modern retail challenges As FNAC continues to adapt to contemporary retail trends, it faces the ongoing challenge of preserving its identity as a cultural destination. This requires balancing its cultural ethos with adaptations to e-commerce growth, evolving consumer preferences, and the imperative of sustainability [43](#page=43). > **Tip:** The case study prompts highlight key areas of FNAC's strategic adaptation, focusing on its historical mission, differentiation through services, omnichannel integration, and the future of its cultural identity in a competitive market [43](#page=43). ### 5.7 Key takeaways from financial output analysis While specific financial outputs are mentioned, the key takeaways from this section emphasize broader strategic considerations. These include [45](#page=45) [46](#page=46): * The distinction between direct and indirect recommendations, contingent on company priorities [46](#page=46). * The strategic choice between rapid market share acquisition and profit enhancement [46](#page=46). * Assessing management's propensity for financial risk in the initial years of a product launch [46](#page=46). * A potential two-step approach: outsourcing initially, followed by internalization to capture profits [46](#page=46). * The need to validate the applicability of economic models in real-world scenarios [46](#page=46). * The importance of due diligence to ensure partnerships with the right entities possessing appropriate capabilities, such as strong retailer relationships, effective recruitment and training of personnel, and a shared long-term business vision [46](#page=46). --- ## Common mistakes to avoid - Review all topics thoroughly before exams - Pay attention to formulas and key definitions - Practice with examples provided in each section - Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Retailer | An entity that sells goods and services directly to ultimate consumers for their personal consumption, or to businesses for use and not for resale. | | Wholesaler | An entity that sells goods to businesses, industrial entities, or institutions for the purpose of resale or for use in their operations. | | Product Variety (Breadth) | The number of different product categories a retailer offers. A broad variety means many categories, while a narrow variety means few categories. | | Product Assortment (Depth) | The number of different references or stock-keeping units (SKUs) within a specific product category. Deep assortment means many choices within a category; shallow means few choices. | | Bulk Breaking | The process by which retailers divide large quantities of goods purchased from manufacturers or wholesalers into smaller, more manageable units suitable for sale to individual consumers. | | Spatial Convenience | Refers to the ease with which customers can access a retailer's physical location. This includes proximity to customers' homes or workplaces and accessibility via transportation. | | Waiting & Delivery Time | The duration customers must wait to receive their purchased goods. This can range from immediate availability in stock to made-to-order items with long lead times. | | Customer Service | The assistance and advice provided by a retailer to customers before, during, and after the purchase of a product or service. It encompasses various levels from low to high. | | Discount Supermarket | A type of retailer that focuses on offering a wide variety of goods at low prices, characterized by high turnover rather than high margins per item. | | Category Killer | A large retail store that focuses on a specific product category and offers an extensive selection of merchandise within that category, often at competitive prices. | | Hypermarket | A very large store combining a supermarket and a department store, offering a wide range of food and non-food products under one roof. | | Convenience Store | A small retail store that offers a limited range of everyday items, typically with extended opening hours and convenient locations, but at a higher price point than supermarkets. | | Warehouse Club | A retailer that operates on a membership basis, offering a limited selection of products in bulk quantities at discounted prices, often in a no-frills warehouse environment. | | Department Store | A large retail establishment offering a wide range of consumer goods in different product categories, such as clothing, home furnishings, and electronics, organized into distinct departments. | | Conversion Rate | The percentage of potential customers or visitors who complete a desired action, such as making a purchase, signing up for a newsletter, or filling out a form. In retail, it often refers to the percentage of shoppers who become buyers. | | Basket Size | The average monetary value of a customer's purchase in a single transaction. It is calculated by dividing total sales revenue by the number of transactions. | | Traffic | In a retail context, traffic refers to the number of people who visit a store or website within a given period. It's a key metric for potential sales. | | Margin Mix on Basket | Refers to the combination of products a customer purchases that maximizes the retailer's profit margin. It involves understanding the profitability of different items and encouraging their purchase. | | Cross Selling | The practice of selling additional products or services to an existing customer that are related to their initial purchase. | | Up Selling | The practice of encouraging customers to purchase a more expensive or premium version of a product or service they are considering. | | Third Place | A concept, popularized by sociologist Ray Oldenburg, referring to a social environment that is distinct from home (first place) and work (second place), where people gather for relaxation, social interaction, and community building, such as cafes, parks, or community centers. | | Omnichannel | An integrated approach to sales and marketing that provides customers with a seamless experience across multiple channels and devices, including online, mobile, and physical stores. | | Hybrid Implications | Refers to the consequences and effects of combining different elements or strategies, particularly in the context of retail, where physical and digital channels are integrated. | | Listing Fees | Payments made by manufacturers or brands to retailers to secure shelf space or placement for their products in a store, especially in high-traffic areas or for new product introductions. | | Private Brands | Products developed and marketed by a retailer under their own brand name, often sold at a lower price point than national brands and intended to compete directly with them. |