Why is Retail Marketing Important for Business Growth?

Explore the essential aspects of retail marketing, including its concepts, scope, characteristics, and challenges. Discover how retailing plays a crucial role in the economy by understanding its definitions, types, infrastructure constraints, and the evolving landscape shaped by technology and consumer behavior. Learn about the impact of organized and unorganized retailing, and the strategies retailers employ to thrive in a competitive market.

Retail Marketing: Concepts, Scope, Characteristics, and Challenges

Introduction to Retail Marketing

Retailing is a fundamental part of our daily lives and is often taken for granted. Nations that have achieved significant economic and social progress typically possess a strong retail sector. Its popularity as a business method stems from the benefits it offers: easy access to a diverse range of products, freedom of choice for consumers, and high standards of customer service.

Retailing encompasses all sales channels used to approach the consumer, including mail, the Internet, and door-to-door visits. Even manufacturers, such as Dell Computers when selling directly, function as retailers.

Key Definitions and Utilities

Retail marketing involves managing marketing activities within the retail sector. Retailing is defined by a purchase intended for personal, family, or household consumption, which can occur through retail stores (e.g., hypermarkets, supermarkets, specialty shops) or non-store retailing (e.g., mail order, e-commerce, in-home sales).

• American Definition Committee: “Retailing includes all activities incidental to selling to the ultimate consumer.”
• William J. Stanton: “A retailer or a retail store is a business enterprise which sells primarily to the ultimate consumers for non-business use.”

The word ‘retail’ originates from the French retailer, meaning ‘to cut again,’ viewing the store as one that cuts off small portions from a large bulk of goods. Retailing is the final link in the product distribution chain.

Retailers create essential utilities for the consumer:

• Place Utility: Products are available where consumers want to buy them.
• Time Utility: Trading occurs when consumers want to buy.
• Possession Utility: Facilitating the transfer of ownership or use to consumers.
• Form Utility: Providing services like hairdressers, dry cleaners, or restaurants.

Scope of Retailing

Retailing has a broad scope, particularly in India where it is a fast-growing industry providing extensive employment and entrepreneurial opportunities. This growth is fueled by increased purchasing power and wider rural reach.

1. Retailer’s Perspective (Entrepreneurial): Retailing can include selling any goods (mobiles, garments, jewelry) or services (catering, hospitality). In certain regulated sectors (like chemist shops), the retailer must comply with legal formalities and licensing requirements.
2. Employee’s Perspective: The growth of large-scale retail has created numerous employment opportunities beyond traditional sales roles.
   • Purchase Department: Responsible for merchandise selection, price range, and vendor selection. Requires industry knowledge and quick decision-making.
   • Finance Department: Handles financial records, fund allocation, cash flow, investments, credit allocation, and retail audits.
   • Marketing and Sales: Manages sales promotion, advertising, public relations, and market research. Requires strong communication skills to convince customers and understand their needs.
   • Stores: Focuses on inventory management to ensure optimal stock levels, avoiding both shortages and issues like obsolescence and wear and tear from excess stock.
   • Human Resource: Manages recruitment, selection, training, and retention in this human-centric industry.
   • Technology in Retailing: Utilizes technologies like Electronic Data Interchange (EDI), Database Management, Data Warehousing, Data Mining (for CRM), Radio Frequency Identification (RFID) for supply chain, and e-tailing (e-commerce).
   • Supply Chain Management: Efficiently manages the flow of materials, services, and information to increase profitability.

Characteristics of Retailing

Retailing is a distinct and crucial part of the marketing value chain:

• Location Importance: Location is paramount for direct access to a high number of consumers.
• Large Number of Units: The sheer volume and density of population require a large number of retail units to ensure consumer accessibility.
• Direct Customer Contact: The retailer is the primary direct interface with the ultimate consumer, influencing sales and acting as a promoter/advertiser for the product.
• Promotional Activities: Retailers perform promotional activities, often guiding and persuading customers who may not have a fixed shopping list or brand preference. Impulsive, unplanned purchases are heavily influenced by store display, layout, and marketing tactics.
• Small Average Sales Quantity: Retail transactions are high in number but low in volume (for household consumption), making inventory management critical.
• Involvement of Services: Retailing includes various services like packaging, timely service, credit verification, gift wrapping, convenient delivery, and warranty provisions.
• Customer Orientation: Customer loyalty and trust in the retailer are often more important than the brand or product quality.
• Global Expansion: Modern retail is increasingly global, with fewer top retailers confined to a single country.

Nature of Retail Marketing

Retailing is a multi-faceted activity:

1. Part of Marketing: The final step that ensures the product reaches the end customer.
2. Customer Centric: The entire process revolves around attracting and serving the customer, often using discounts and promotions.
3. Multi-Dimensional: Ranges from small local kirana shops to large super malls and, increasingly, e-commerce platforms.
4. Varying Geographical Locations: Reach can be localized (local market) or global (online retailers).
5. Transformational: Has evolved from a simple profit-driven model to a customer-focused, multi-channel, and geographically expansive business.
6. Complex Management Process: Involves strategic store placement, product arrangement, suitable quantities, after-sale services, promotions, and Customer Relationship Management (CRM).
7. Assortment of Products and Services: Success requires offering a variety of goods and complementary services (e.g., a baker offering ambiance, a variety of items, and home delivery).
8. Studying Demand Pattern: Essential for the retailer to manage bulk purchasing and stock levels, mitigating risks like obsolescence and large storage costs.
9. Creation of Utilities: Creates time utility (by storing goods) and place utility (by making goods available away from the place of manufacture).
10. Private Branding and Labeling: Growth has led to retailers developing their own brands (e.g., Big Bazaar, Reliance Fresh) and customizing products to local tastes.
11. Various Other Services: Includes providing customer finance (zero interest schemes), free home delivery, installation services, and effective display/demonstration.

Types of Retailing

Retailing is broadly categorized into three major types:

1. Store-Based Retailing (Physical location exists)

• Based on Ownership:
  • Traditional Retailer: Single outlet, often specializing in one type of good (e.g., local kirana shop), family-owned, with high goodwill and personal customer contact.
  • Chain Stores: Multiple outlets under common ownership, management, brand name, and standardized in goods, outlook, prices, and ambience.
  • Franchise: A contractual agreement where a franchisor grants a franchisee the right to use their brand/product in a specified area for a fee.
  • Consumer Co-Operatives: Owned and managed by a group of customers for mutual benefit, with limited growth capability due to limited investment.
  • Leased Departments: A “shop within a shop” where one retailer leases space within another’s premises (common for jewelry, cosmetics).
• Based on Goods Offered:
  • Convenience Stores: Offer everyday items (groceries, snacks) at convenient locations, sometimes operating 24 hours (e.g., 7-Eleven).
  • Specialty Stores: Focus on a narrow product line with a deep assortment (e.g., jewelry, apparels), suitable for customers with brand preference.
  • Departmental Stores: Large establishments offering a wide range of products across various departments under one roof (e.g., Shoppers Stop).
  • Off-Price Retailers: Sell high-quality goods (often second-hand, off-season, or with minor defects) at cheap prices (e.g., Factory Outlets).
  • Catalogue Showrooms: Goods are not displayed; customers order from a catalogue, and the item is retrieved from a warehouse.
  • Super Market: Large self-service stores offering groceries, food, and non-food household items at low prices (e.g., Easy Day).
  • Hyper Market: A combination of a departmental store and a supermarket, offering a huge variety of goods and services, large discounts, and warehouse-like structure (e.g., Big Bazaar).
  • Shopping Mall: A complex combining branded stores, food courts, entertainment zones (movies, gaming), and parking facilities.
  • Kiosk: A small shop, often specialized, found in malls, airports, or bus stands, sometimes replaced by automatic vending machines.
  • Discount Stores: Provide broad merchandise at low prices by offering limited customer services.

2. Non-Store Based Retailing (Not confined to a physical wall)

• Direct Selling: Involves personal contact with the customer.
  • Party Plan: Seller invites acquaintances to a party to display and sell goods.
  • Multi-level Network: A network of people distributing goods for a commission (common for cosmetics).
  • Door-to-door Selling: Salesmen visit homes to sell products.
• Distance Selling: Uses e-commerce, where customers are reached via email, telephone, internet sites, or television (e.g., online shopping).

3. Services Retailing:

Involves selling services like banking, insurance, taxis, or hospitality, increasingly leveraging internet technology.

Organized and Unorganized Retailing

• Organized Retailing: Includes large shopping malls and complexes offering branded goods and services. Activities are registered under legal statutes (e.g., Sales Tax Act), follow advanced technology (MIS, SCM, CRM), and offer a modern, customer-centric approach.
• Unorganized Retailing: The traditional form, consisting of small operators (local kirana shops, pavement vendors) who lack technical and accounting standardization, typically dealing in unbranded, locally-acquired materials. It still dominates in small Indian cities.

Factors Affecting Retailing

Success in retail marketing is influenced by several factors:

1. Store Location: A key, permanent decision; busy market locations have a higher chance of success.
2. Store Ambience: The atmosphere must be attractive and soothing to customers (chain stores typically maintain uniform ambience).
3. Variety: A large variety of articles, especially the latest fashion, attracts more customers.
4. Store Layout: Proper arrangement, cleanliness, display, and organization positively impact customer impression and employee productivity.
5. Demographic Factors: Includes consumption habits, family structure (joint/nuclear), and the number of working women.
6. Add-on Services: Extra services like financing, free home delivery, gift wrapping, and loyalty programs.
7. Behavior with Customers: Courteous and attentive behavior from the retailer and staff increases sales volume.
8. Socio-Cultural Environment: Retail must align with the socio-cultural and moral values of the operating area.

Infrastructure Constraints in Retailing

Despite policy focus, the retail marketing sector faces infrastructure challenges, particularly in India:

• Logistic Problems: Lack of strong distribution channels outside Class I towns, poor linkage with local logistics centers, and high operational costs (10%-12% of GDP).
• Weak Supply Chain: The unorganized market (97% in India) relies on ad-hoc demand/supply, causing uncertainties. About 50% of fruits and vegetables are lost in the supply chain. Inventory turns are low (4-10%) compared to developed countries (18%).
• Ever Increasing Fuel Prices: Frequent hikes increase the price of retail goods due to high transport costs, severely impacting organized retail.
• Lack of Understanding/Vertical Co-Operation: The supply chain often seeks cost reduction at the expense of other players, a strategy that ultimately increases end consumer prices.
• Lack of Supplier Integration: Retailers and suppliers operate distinctly, exchanging information manually instead of using systems like Vendor Managed Inventory (VMI).
• The Demand Invisibility: Leads to long lead times, poor synchronization, demand distortion, buffer stock accumulation, and inability to meet short order lead times.
• Supplier Maturity and Relations: Indian suppliers often face problems with on-time delivery, required quantity, and generally provide poor service, making regular supply difficult for retailers.

Other infrastructure

• Availability of Skilled Manpower: India faces a shortage of skilled labor at both the store and managerial levels, with the retail workforce share (7-8%) lower than in countries like the US (10-11%).
• Real Estate Costs: High property costs increase fixed overheads for retailers.
• Low Adoption and Use of Technology: Indian retailers are less tech-savvy; many have not fully adopted bar code systems, lagging behind global standards like RFID, which makes complex profit analysis challenging.
• Regulatory Provision: Acts like FDI restrictions and the application of the Agricultural Produce Marketing Committee Act obstruct smooth functioning.
• Disparities in Culture and Taste: India’s diversity requires customized products and complicates inventory management for retailers, particularly MNCs.
• Concerns over Indian Retailers: Smaller retailers fear market capture by big organized players, leading to opposition.
• Psychology of Indian Consumer: The Indian customer seeks an emotional connection and localization, meaning international companies must adapt to the Indian psyche to succeed.

Changing Structure of Retailing

Retailing is a dynamic industry, constantly evolving due to changing customer demands, new technologies, intense competition, and social shifts. Technology, particularly the Internet, has increased customer information, reducing opportunities for price differentiation and forcing retailers to focus on superior customer service and value for money.

Theories of Structural Change:

1. Wheel of Retailing: A cyclical theory where new retailers enter as low-status, low-margin, low-price operations. As they succeed, they upgrade products, facilities, and services, leading to increased prices/margins. This creates a new low-price niche for the cycle to begin again.
2. Dialectic Process: Retailing evolves through the blending of two opposing store types into a superior form (e.g., the high-service speciality store resulted from the blending of a highly specialized boutique and a diversified department store).
3. Natural Selection: Retail stores that successfully adapt to changes in the macro-environment (technological, social, demographic, economic) are most likely to survive and prosper.

Security Issues (Retailer Woes)

Retailers face common problems that cause distress and anxiety, often categorized as ‘woes’:

1. Shop Lifting: Theft of goods by customers (e.g., hiding items, swapping price lists, known as ‘five finger discount’). Prevention: Safekeeping high-value items, using cameras/mirrors, displaying warnings, restricting customer bags, and ensuring good store design/lighting.
2. Employee Theft: Theft of cash or merchandise by employees, who have better access to internal resources. This includes refund fraud (fake sales then returns) and discount fraud (buying with employee discount and reselling). Prevention: Thorough background checks, setting limits on discounted purchases, establishing accountability, conducting regular inspections/audits, and training.
3. Inventory Shrinkages: Reduction in stock due to theft (shoplifting, employee), vendor fraud, or administrative errors. Value is the difference between physical and recorded stock. Prevention: Continuous stock taking, limiting discount fraud, checking large refunds, and using surveillance.
4. Cash Shrinkages: Decrease in cash balance, usually due to embezzlement by those with access to cash (e.g., cashiers). Prevention: Periodic self-balancing of cash and investigating past shrinkage reasons.

Minimizing Retail Threats Using Information Technology:

Retailers are increasingly using IT to combat security threats:

• Electronic Article Surveillance: Attaching specific tags to articles that are removed upon purchase. An alarm rings if the tag passes the store exit, preventing shoplifting.
• Biometric System: Identifies unique human characteristics (fingerprints, retina) to reduce credit card losses and accurately record employee attendance/timing.
• Wireless Technology: Enables effective in-store monitoring and communication (e.g., walkie-talkies).
• Integrated Electronic Security Management Solution (CCTV): Uses camera surveillance and video recording with remote viewing capabilities. Alarms can be set to automatically ring and send emails upon pre-defined events (e.g., illegitimate lock opening).
• Bar Code Technology: Unique codes assigned to products, read by scanners for quick, accurate billing and inventory tracking.
• Radio Frequency Identification (RFID): A technology increasingly replacing bar codes, using tags and radio waves to track goods anywhere within range, though it raises privacy concerns.