Supply Chain and its constituents (Chap I)

The supply chain can be defined as a network of suppliers, producers, channel intermediaries, and
customers. The six players permit the basic movement of goods, information and money through
the channel; product and invoicing flows run from the formers to the customer while information,
product’s demands and payment flows from the latter to the formers. The Chain starts with the:
1) Suppliers, which provides raw material and components to the chain.
2) Producers/integrators are placed as the opening stage of the distribution process and are
concerned with the development and production of the product.
3) Channel Intermediary can be as:
- Wholesalers (Middleman, provide products from manufactures to other intermediaries)
- Brokers/jobbers do not hold ownership of the inventory
- Retailers sell inventory from wholesalers or manufactures directly to customer end-use
4) End-customer is the ending point of the chain over which the entire supply chain is
devoted.

Distributor, Distribution and Intermediaries

The distributor is defined as a business that does not manufacture the selling products rather it
purchases and resells such products (APICS). It acts as third party as local representative and
distribution point for the manufacturing firms which may perform some light goods’ production
steps or provides a buffer for finished goods; distributor usually purchases largest quantity from the
manufactures and resell it in small quantitates to customers (CSCMP)
Distribution rather than n channel entity is a process and refers to the activities associated with the
movement of goods from the manufacturer to the customer, including transportation, warehousing,
inventory control, administration site and location analysis, packaging, data processing and
communication network as well as the activities related to the physical distribution as well as the
return of goods to the manufactures (APICS).
Distribution management mainly refers to business processes of dealing with flows of physical
products and information along the supply chain Managing effectively such processes can help to
reduce inventories, costs, time and energy as well as adding value to end-customers. Each supply
chain’ players typically perform a detailed set of functions, however rigid specialization structure
may not be followed.
Retailing regards the management of the final step in the distribution of goods which is the process
of purchasing products from other organisations with the intent of reselling them to the final
customer, generally without transformation, and rendering services incidental to the sale of
merchandise.
Intermediaries’ functions and the related advantages are explained by the Baligh-Richartz effect
(1964), according to which the integration of intermediaries into the distribution channel, between
suppliers and customers, has the function to reduce the contacts between the system’s players such
as payments and visits. An alternative explanation has been provided by the transaction cost
theory Williamson (1985) according to which the use of intermediaries is explained by the fact that
transaction costs of dealing with such interdependent intermediaries is lower than the internal cost
that would arise to coordinate the transaction internally; such transactions costs include search and
information costs, bargaining costs, monitoring and enforcement costs and are influenced by the
asset specify, which is the specific knowledge, infrastructure, equipment or brand reputation
required to sell a specific good, as well as the uncertainties and frequency. Manufactures of
normal products tend to use specialised intermediaries to lower transaction costs.
The channel flows that need to be performed between manufactures and the consumer include (1)
ownership, (2) physical possession, (3) promotion, (4) negotiation, (5) financing, (6) risks, (7)
ordering and (8) payment.
Traditional Retailing functions
1) Creating an assortment: retailers provide an assortment of products and service, offering
variety to allow customer’s selection (merchandise mix). Products are preselected from the broad
offering of manufactures in order to create a product range of different categories that allows
possible products’ association of customers’ choices. In addition, creating an assortment is a
marketing function that facilitates customers’ search process.
2) Breaking-bulk refers to the process of buy large quantities of products which are break down
(break bulk) in different lot sizes that would fit consumption patterns. Buying large quantities
reduce the transportation and transaction costs while customers only want to buy single packages of
products.
3) Bridging space refers to the function of retailers to provide market coverage with a network of
stores that customers can easily reach. While the manufacturing processes happen in a central
location, the consumption takes place in households spread across the whole country. Retailers
provide this spatial decentralization by offering products close to customers. Retailers nowadays
attempt to be responsible for the shipment of goods from the production facility to the customers
achieving logistic leadership, otherwise traditional logistic services are in charge.
4) Bridging time refers to the function of retailers to holding inventories providing the opportunity
for customers to buy and consume products whenever they would like. Such function reduce the
time gap between manufacturing and consumption.
5) Retailers hold the function of Creating Demand which includes making market analysis,
evaluating and identifying consumers needs and providing and using this information to suppliers
and to build the product range.
6) Carrying out transactions. Products are offered for a particular price for which customer decide
pay in order to obtain possession. Standardization and routines in terms of prices and purchase
processes are utilized to reduce costs. Sometimes routinisation is not possible, as price negotiation
may be required. In addition, retailers carry out the function of financing as they evaluate the
creditworthiness of customers that purchase on credit.
7) Product-related services refers to the actions carried by retailers that involve the final step of
the goods’ production processes, including final assembly, installation, setup, maintenance,
customer service and repairs. Such activates offer means of differentiation for the retailer, as the
complementing product process may add value to the service.
The functions stated above are not always performed by the retailer itself; however, as long as
retailers can perform distributive function more efficiency then other entities will remain active
player within the distribution channel. Retailers through the specialization strategies can achieve
economies of scale and scope, reduce customer’s search costs and to smooth fluctuation of seasonal
good’s demand.

Emerging Retailer functions

1) Coordinating the value chain: retailers nowadays can play a role in the value chain when
are involved in the production of store brand, carrying R&D activities mainly related to
product development including design, packaging , quality standards etc. Usually such tasks
are not performed by the retailer itself but are delegated to a contract manufacturer;
however rights and other marketing functions are carried by the retailer.
2) Production processes refers to the retailers own production of store brand without the
delegation to the contract manufacture
3) Closed-loop supply chain refers to the need to be sustainable and thus to carry out an
efficient waste management through a reverse logistics processes.
In conclusion, retailers are specialised actors, capable to add value to products and services by
providing a number of functions more effectively and efficiently than other institutions • With
increasing size and sophistication, retailers have started to use their position as gatekeepers to the
customer to acquire a growing share of the value chain. Today’s retailers go far beyond their
traditional distribution function and are establishing their own product development and production
competence. This leads to an interesting phenomenon where the distinction between manufacturers
and retailers is becoming blurred.
The Wheel of retailing (Chap II)
Well-established framework developed by McNari (1931) to explain developments in retail
institutions, suggesting that during such development retail institutions go through cycles. Existing
retailers upgrade their strategies and increase profit margins (trading-up phase) while other exist
the market due to the maturity of their formats (vulnerability phase) encouraging new forms of
low price retail to take place (entry phase). Trading up phase involve traditional retailer which
benefits from high demand, elaborate facilities, higher prices and increasing product variety and
assortments. Vulnerability phase involve mature retailer which have higher prices and declining
ROI. Entry phase involves innovation retailers with low status, low price, limited service and
assortment as well as modern facilitates.
Retail life-cycle
Succession of identifiable stages that a retail format goes through over time developed by Barman
and Evans (2013): (1) Development, new format is designed and launched (concept innovation),
(2) Introduction stage, low sales and profits, high costs and risks but increasing performance, (3)
Growth, successful format (intensive competition), (4) maturity, market saturation is achieved
and retail format becomes mature, aim to maintaining profitability (store erosion), (5) decline,
sales volume decline and prices and profitability decrease (need for repositioning)
Retail Formats (Slides-02)
Statistical standard classification systems assign retailers hierarchical codes based on the types of
products and service they provide (food Vs, non-food). However, retailers selling the same category
of goods do not imply a relationship of completion between such. Competition is based on other
discriminant characteristics. The understanding of different types of retail institution is crucial both
for strategy development and competitive analysis. Retail formats are a specific configurations of
retail marketing-mix maintained over time. General merchandise retailers expanded their
assortment and now sell a variety of goods: from food to near-food services and general
merchandise. Characteristics used to identify specific retail formats: Size, stock keeping units
(SKUs), merchandise, percentage food, prices, atmosphere and services and location.
- Food stores types: superette, conventional supermarket, Superstore, Hypermarket, Convenience
store, hard discounter.
- Other food/ near-food formats:
1) Drugs Stores: focused on beauty, health and personal grooming along with food items,
magazines and newspapers, toys and gifts. Frequency and purchasing pattern of the goods
sold are similar with these of food items. Characterized by small size, proximity, speciality
goods and convenient prices.
2) 2) Warehouse clubs: sell to end customers and to small/medium size companies. A
membership paid annually is required. Items presented on pallets, low prices, low
assortment, large stores, essential landscape.
3) Non-store formats: market stands, van sales, vending machines (less important in terms of
market share, address situational or urgent customers’needs), remote ordering.
- Non-food Retails
In general merchandising a variety of retail formats is used to sell non-food goods to consumers.
Differences between food retailers and non-food are based on the product characteristics such as
perishability , demand patterns, product value and turnover rates. The process of scrambled
merchandising arises when food retailers add general merchandise to sell which is unrelated to the
rest of the assortment. Types of non-food retailers are the speciality stores, category specialist,
departments stores, full-line discount stores, variety store, extreme value retailers, Off-price stores.
Non traditional non-food formats include pop-up stores which are temporary (limited time) stores
aimed at creating a limited edition of retail’s atmosphere. Highly experiential, established in vacant
business locations are aimed to increase willingness to spend and desirability due to the status of
limited edition.
On-line retailing (Chap III)
Retailers offer their products and services on the internet, presenting merchandising on virtual shop,
taking orders via electronic checkouts and also billing through electronic payments. Differences
with the traditional retailers are the absence of physical infrastructures, staffs and consumer’s
physical presence. In traditional stores, merchandise is presented inside the store, customers need to
reach the shop while payments are due on-site. On-line retailing is a relevant shopping channel,
offering every kind of products. Major sales regard books, CDs, clothes, computer software and
home electronics. Unlike physical goods, digital goods are immediately delivered through
electronic channels. For several years, electronic retailing has been the retail format with the fastest
growth due to the increase of internet users and internet acceptance. On-line shops follow different
business models:
1) Price formats: focus on pricing strategies in order to differentiate from competitors.
Online-low-price: formats include online value retailers, off-price stores and factory stores.
Private shopping clubs: offering high discounts to club members, sales events (time
limited) are also widespread. Customer can purchase only if is registered. Merchandising is
shopped directly from the brands.
Internet auctions: auctions are processes of buying and selling goods by making offers or
offering them for bid. Online auctions eliminate geographical and presence limitations.
Types of auctions are the English where the winner is the highest bidder and the price is the
highest bid, the Dutch where price begins high and is lowered until a buyer accepts it and
penny auction in which the customer has to buy credit to make bids.
Live-shopping: limited assortment available for a limited time and with lowest price on the
internet.
Price comparison website: offer a vertical search engine which customer use to compare
products based on price, features, reviews and other criteria. It is an aggregation of many
different retailers but do not sell products directly but get a stake on the eventual sell.
2) Experiential and community-based online retailing: refer to companies involving
customers in the purchasing process through social interactions such as videos, users’
communities, live chats, discussions forums and other interactive measures. Community
based retailing sites are established around a community and are an integral element of the
online retailing concept since customers provide useful advices and ratings while
interacting with other customers.
3) Online Mass-customization combines mass production and bespoke tailoring. Products are
adapted for the individual customers’ needs since customers can alter product’s
specifications to assemble the final product by combining different elements such as shape,
colour and/or ingredients obtaining and individualized configurations. Retailers provided a
standardized set of changeable elements which are communicated to the contracted
manufacturer when the order is made.
4) Online Merchandise oriented shops: merchandise shops in order to establish attractive
online shops need communications and may decide to utilize online shop center which are
third party retailers.
A distinction can be made upon the approach through which consumers shop On-line:
Lean-back refer a more relaxed shopping situation, involving less task-focused activities and less
engagement on the shopping task. Usually consumers are seeking for high degrees of entertainment
Lean-forward implies high engagement and attention to perform shopping tasks. Shopping is task-
focused and usually more functional.
Digital device utilized to make online purchases are mobile internet devices (Smartphones, tablets,
netbooks, E-reader), stationary internet (higher purchase’ percentage such as personal computer,
laptop) and Internet-enabled TV (TV. Games’ consoles).
Customer Experience (Chap IV)
Customers experience is the result of the interaction between the retailer and the customer over the
duration of their relationship. Such interactions is composed by 3 main parts:
1) The customer journey: which regards the complete sum of experiences the customer face
during the whole purchasing process. The customer journey process involves the following
steps: search for information/selection, check for availability, purchase, delivery of product,
eventual repairs.
2) The touching points: regards any encounter of the customer with the business in terms of
exchange of information, service proving or handle of transactions
3) The environment: refers the physical or digital context where the customers perform a
certain task
Integrated-channel retailing
Retailers combined several retail formats to create a retail channel portfolios. The E-commerce
accounts only for the 9% of retailers’ sales, however the online affects through web-influenced
offline sales (E.g. features or price comparison) accounts for 45% of sales.

Multiple-channel retailing:
retailer runs multiple separate
retail channels. Each under a
different retail brand
Multichannel retailing: uses
several retail channels in parallel
to sell similar merchandise across
all retail channels
Cross-Channel retailing: allows
customers to switch retail
channels at any stage of the
shopping process
Omni-channel-retailing: allows
customer to shop via all retail channels in parallel, ideally with every touching-points of each
cannel.
Reasons behind the establishment of integrated-channel retailing include the expansion of market
presence, strategic advantage over single channel competitors and to increase customers’
satisfaction and loyalty. In addition, other reasons are to leverage skills and assets (WTActualF)
and to overcome the eventual limitation (location, provision of information and flexibility) of yet
established formats. Diverse combinations of cross-channel systems are possible and are based on
the major retail formats (store, catalogues, online and mobile shops). Store formats for food and
general merchandise are often the lead channels in cross-channel retail strategies. Moreover, the
emergence of new online formats ha reduced the importance of (paper) catalogue retailing.
Promotions can be used to favour switches form a channel to another, additional product
information available online can be accessed in-store through interactive multimedia (QR code). In
addition, different delivery options in cross-channel allow customer to access the merchandise
wherever they prefer.
Front-End integration and back-end integration
Front-end integration shall guarantee an effective interaction between retailer and customer
during all the phases of the buying process. It might relate to information research, the purchasing
phase, product handover and delivery or the post-purchasing. Integrated channels shall offer
customers consistent retail brand images regardless of the channel used. Different marketing mix
strategies regarding assortment, service levels and pricing shall be carefully managed as well.
Customer experience, prices and fulfilment shall be offered identical and equal over all channels.
Predominance of a customers’ segments should not affect negatively the customer experience of
other categories although may benefit lower prices over new customer segments.

Back-end integration refers to all the processes that support customer-related selling and
marketing activities such as procurement, supply chain and sales management. Overall strategic
flexibility might be reduced by the process of channel integration as efforts to coordinate channels
might reduce the efficiency of a single channel.
Vertical Integration (Chap V)
Modern supply chains are becoming more complex with different players adopting vertical
integration strategies. Vertical integration is a growth strategy that companies use to gain control
over stages of the supply chain. Different types of vertical integration:
Forward Integration (downstream) happens when a firm acquires ownership or control of its
previous customers like distributors or retailers. Backward integration (upstream) happens when
a firm gain ownership or control of a previous suppliers. Balanced integration happens when a
firm combines forward and backward integration. Issues to be considered before commit to
integrate are costs and scope. If costs of direct control are lower than cost of buying through other
player a company shall adopt a vertical integration. The scope implies the absence of any decrease
of efficiency within the new activities that would arise from integration. Level of integration of
vertical can be none (just manufacturing), partial (control of two or more supply chain’ steps or full
(control of every step in the supply chain). Reasons for verticalisation include long-term protection
of the distribution channels, increase of sales, increased efficiency, increased direct customer
relationship, better supply chain control. However, given the high price of investments to
implement vertical integration, companies that cannot afford such might choose alternatives to
vertical integration which include cooperation such as join ventures, franchising or other
agreements.
Vertical market systems are formal or informal coordinated distribution channels where members
working together achieve grater efficiency and eliminate conflict from individual behaviours and
independent distribution. Vertical market systems can be defined either as controlled distribution
(contractual cooperation) and secured distribution (corporate hierarchy)
In the Secured Distribution: Manufacturer performs every distribution function (downstream
integration). Secured distribution can be classified as:
1) Direct selling: salespeople interact face-tp-face with the customer to demonstrate or explain the
merchandise or service and to get eventual orders. No facilities are needed, thus lower overhead
costs
2) Electronic selling: communication and offering are via digital channels. (increasing relevance)
3) Equity stores: physical stores operated by manufactures. (A) Mono-brand concept are located
in traditional streets or malls , (B) flagships stores are high quality stores opened by top
manufactures in premium locations which usually carry one single brand, are company owned
and increase the brand image. (C) Factory outlets are located in isolated sites or inside outlets
and are established to increase revenue form non-current customers and to store overproduction
and goods’ returns. Pros are high degree of control and guaranteed distribution while cons are
high capital and operational costs.
The controlled distribution are vertical market systems base don coordination among supply
chain actors. Contrary to secured distribution which are directly controlled by manufactures
through downward integration, controlled distribution systems are reached through long-term
contracts. Main controlled distribution systems are:
1) Contractual dealer systems agreements which are partnership contracts in which manufacturer
offers a limited support package to dealers including marketing, advertising, training, IT
support. The dealers benefits from a shared corporate branding. To reward, although not able to
fix prices, the dealer focuses on marketing the manufacturer’s brands. Pros are low costs
solution however there is little control and high risk of losing partners.
2) Franchising involves a contractual arrangement between a franchisor (e.g., a manufacturer) and
a (retail) franchisee, “which allows the franchisee to conduct business under an established
name and according to a given pattern of business”.The franchisor contributes their extensive
business expertise and organization (e. g., a full support package including marketing, sales
promotion, training, IT, auto service, CRM, national advertising, business counselling, business
planning, common branding, financial support, etc.) while the franchisee contributes their
individual effort as an independent businessman in the local market. An initial fee is paid to
franchisor to enter in its network while royalties (% of revenue sales) are paid periodically by
franchisee. Prices are fixed by franchisor. Pros are limited capital costs, low ownership risks
guaranteed distribution but limited control.
3) A commercial agent or commercial representative “is constantly entrusted with the task of
arranging transactions on behalf of another business person (i. e. the manufacturer) or
concluding such transactions in their name o The arrangement of transactions in the name of a
third party distinguishes the commercial representatives from a merchant who concludes
transactions in his own name for his own account” o Commercial agent systems let
manufacturers control the retail prices of their goods and services. Vertical Price fixing is in this
case allowed. On the other hand, a commission agent is a commercial operator who undertakes
the sale of goods in his own name for the account of his principal. The commission agent bears
the risks resulting from the commission contract towards the customer. Pros are high degree of
control and guaranteed distribution while cons are the high capital cost.
The concession shop is an hybrid. Such shops are positioned between secured and controlled
distribution systems. It is a cooperative space in the trade in which concessionaire rents a selling
area from a retail company and manages it. The concessionaire sells its goods for its own account (i.
e., bears the merchandise risk), and normally operates with its own personnel. Marketing activities
and merchandise-management processes like shop design, assortment planning, price policy or
merchandise procurement and control are normally within the area of responsibility of the
concessionaire. The concession shop (lessee) pays the retail company (lessor) a concession fee and
a remuneration based on turnover.
Verticals
Born verticals are those retailers which perform production and distribution functions themselves
from inception. The value chain architecture of a vertically integrated manufacturer or retailer
corresponds to the model of a producer (upstream vertical integration) or a coordinator (contract
manufacturing) on the supply side. Competitive advantages achieved from verticalization include:
Unique selling proposition given by the uniform market image and exclusivity, high degree of
control over assortment, store layout, merchandise presentation, market communication, customer
relationship management and retail pricing (in the case of secured distribution, High-efficient
supply chain which reduced time-to-market providing speedy in making and delivery of goods
(E.g. Fast fashion in Zara/H&M)

Growth Strategies (Chap VI)

The desire to grow business and increase value is a universally shared objective from the inception
of any company. Several strategies can be implemented to achieve growth.
The Ansoff Matrix
Well known categorization of growth strategies; involves four separate strategies which depends on
what products and services are offered and to whom are due to. Matrix’s cell are:
1) Market penetration: involve existing products in existing markets and can be implemented by
attracting new customers and/or improving loyalty of existing one
2) Product Development: involve creation of a new product within existing markets and thus to
offer to existing customer inside existing stores nee products
3) Market development: involve existing products targeted at a new customer segment often in
new geographic areas.
4) Diversification involves several sub strategies: Horizontal, vertical and conglomerate
diversification:
- Horizontal diversification involves differentiating into a related business fields using the
same value chain level(E.g opening new stores d to new product categories)
- Vertical involves moving into business at the level of customers (forward diversification) or
to suppliers (backward diversification).Example of vertical div would be retailers operate
manufacturing facilities in which produces their own product. This concept is similar to vertical
integration.
- Conglomerate Diversification involves offering new products to new markets unrelated with
the company’s core business (e.g merchandising retailers involved in banking activities or
Virgin which started as record store and developed to several other markets)
 E.g. of Ansoff Zara Matrix

Two main strategic patterns to grow are : 1) increasing sales in existing stores and/or 2)
increasing sales by enlarging outlet’s network.+
Organic Growth
Organic (internal) growth consists of expanding business by establishing new stores. Main
advantages rely on the chance to apply the retailer’s concept from the start, choosing the location
and layout, store personnel hired by the retailer itself as well as risks’ limits given by the controlled
gradual expansion. Main constraints involve high capital investments, licenses and site’s searching
as well as lower degree to flexibility over time.
Cooperative Arrangements
Arrangements such as join venture are formed when two or more parties undertake economic
activity together, creating a new enterprise in order to achieve agreed goals. Parties contribute with
equity, shares as well as losses and revenues. The main advantage relies on risk reduction and
combined resources while coordination costs and eventual conflicts of interest are the main
constraints
Franchising (explained above) has the characteristic of the division of task between two
independent parties in order to achieve joint objective, combining benefits of a larger efficient retail
systems with the capabilities of an independent entrepreneur. There are different form of
franchising:
1) Direct unit: franchisor grants franchisee the right to engage a single franchised business at a
specific location
2) Master franchising: the franchisee is granted with a territory in which is allowed to establish
different units
3) Multi-unit: permits to successful franchisee to open additional units
4) Conversion: independent retail business are added by the franchisor itself.
Main advantages for the franchisee rely on the instant goodwill in the market, knowledge of the
business concept, extension of a successful business model. Main risk is known as freeriding
behaviours from the franchisee which may harm the franchisor’s reputation.
Main advantages for the franchisee rely on the rapid growth, knowledge of the local market and of
customers’ wants as well as profit by the franchisor’s brand reputation.
Mergers and Acquisition
Expansion through M&A involves consolidating or purchasing existing retail companies. In a
merger, companies are combined with at least one party losing legal independence while in an
acquisition one company acquires the majority interest of another company. Main advantages rely
on rapid expansion, combined resources and exploitation of the expertise and assets of the acquired
companies while main disadvantages rely on the high integration cost and cultural differences.
Acquiring partial ownership have same advantages and disadvantages of M&A but share
similarities with join ventures. In addition divestment (reduction of inefficient store number) my
provide means for growth.
Store Location (Chap VII)
Store location is one of the most important elements in retail marketing strategy, because it is a
long-term decision associated with long-term capital commitment • Moreover, a good location is
key to attracting customers to outlets and can sometimes even compensate for an otherwise
mediocre retail strategy mix • Once a site has been chosen, location decisions are almost
irreversible (little flexibility), due to fixed costs, and cannot be changed in the short-term without
incurring in losses o i.e. costs for site selection, retail design, permissions, etc. must be afforded
before building a store. Decision making on stores include:
1. opening new stores 2. extending the floor space of existing stores 3. relocating or moving a
store from one place to a better site within a particular town or area 4. rationalising decisions, e. g.,
closing individual stores 5. repositioning locations, e. g., altering a store’s image by changing the
name or appearance 6. refurbishing, e.g., improving or updating an existing outlet’s physical
environment and tailoring the product range and assortment to local customers (remerchandising).
Decision whether to rent or own a space constitute an important strategic decision. Moreover, each
location has advantages and drawbacks mainly related to size, assortment, trading area and travel
distance. Types of locations are solitary sites, unplanned and planned shopping areas.
1) Solitary sites are single freestanding outlets isolated from other retailers which are positioned
on roads or near, but not adjacent, to other retailers or shopping centers. Characterized by low
rental costs and land prices and by large parking facilities, and presence of few competitors
around. The travel distance and advertising are key issues for attracting customers. Main
Formats are Convenience shops, large formats in food and general merchandise (one-stop shop
convenience)
2) Unplanned shopping areas are retail locations with several outlets in close proximity to each
other that have evolved over time (no centralized management) . The aeas are usually
characterized by following characteristics: Central business districts or Secondary business
districts, Neighborhood business districts or Strip or string location (strip mall)
3) Planned shopping districts are retail locations that have been architecturally planned to
provide a unified theme for a number of outlets. Large parking facilities are provided. And it is
developed deliberately and usually have some large, key retail brand stores (anchor stores) and a
number of smaller retailers to add diversity and special interest. Main types of agglomerative
retail present in planned shopping area are Retail parks: purpose-built cluster of freestanding
retail outlets and Shopping centers which is one large building marketed as a unified shopping
destination, usually with a single name and logo. The range of stores is wider than in retail
parks.
Site Selection
First step to select the site location is the market selection and thus market and regional analysis
and select the most potential. Afterward is the area analysis which is the best area within the region
selected. Finally the site evaluation is carried out and a final decision is made.
The catchment area also known as trading area or market area is the geographic area that contains
the customers for a particular site or region for a company for specific goods or services and
determines the potential demand at a particular site. It is important to point out that the trade area
can be a nation or even a single neighbourhood block. However, the size of area depends on
retailer’s objectives.
Trading area can be represented as a big circle, whereas the
radius is associated with the distance from customers’ houses or
workplaces. It is sometimes broken into three parts: primary areas
(shall produce between 50 and 80%, the secondary areas ( 15 to
25 %) and the fringe areas accounting for the remaing quota.
The trading area analysis permits the discovery of consumer’
demographic and socioeconomic features as well as the chance to
determine focused promotional activities. In addition a careful
analysis may provide the assessment od the effects of overlap
trading areas and forecast and data of possible new entrants and of
existing competitors.
Factors influencing the site selection: The suitability of a specific site is based on the retailer’s
strategy (retail formats, merchandise, pricing strategy, etc.) and is influenced by a substantial
number of factors, such as: Customers potential/actual (demographics, income, education,
employment, age, home-ownerships levels, other trends), Accessibility: visibility, pedestrian flows,
barriers, location zone, transportation network, parking), Competition: existing retail activities an
retail formats, competitive potential and proximity of competitors, Costs: purchase, land, building,
rental, wages, delivery, capital interests, maintenance, insurance, security as well as Availability:
number and type of locations, restrictions and concessions, building vs. leasing opportunities.
Geographic information systems are software allowing digitalized mapping aimed at depict
trading areas’ population demographics, customers ‘purchase power and list of competitor
locations. The common methods used to decide the site location are:
1) Analog Method which define current trade area. It matches characteristics of current store with
potential new stores location to determine the best site.
2) Multivariate Statistics (i.e. regression) which selects store performance measure & variables
used to predict performance.
3) Gravity models (spatial interactions model) are based on an analogy with the physical law of
gravity which refers to the principle according to which the aggregate movements of shoppers are
positively related to the attractiveness of a store and negatively related to negative aspects. Such
model can be used to forecast store performance, considering size, image, distance, population and
distribution. Reilly’s law of retail gravitation, a traditional means of trading area delineation,
establishes a point of indifference between two cities or communities, so the trading area of each
can be determined. A customer living between two cities will consider both trading areas for
shopping based on distance of each area from home and the size of each area • Inventory and
selection may be more important than distance, so the consumer will travel little more to get to the
bigger city. Travel distance being equal, consumer will choose the city with more population
because more product assortment is available. The point of indifference is the distance at which the
consumer is indifferent about shopping at either location. Main limitations ate that the formula does
not provide estimates above or below the breaking point, cannot predict the trade areas of more than
two towns assume that retailer are equally effective, and that Travel time does not reflect distance
travelled as many people are more concerned with time travelled than with distance.
Huff’s law of shopper attraction delineates trading areas on the basis of product assortment (of the
items desired by the consumer) carried at various shopping locations, travel times from the
shopper’s home to alternative locations, and the sensitivity of the kind of shopping to travel time
.The output of Huff’s law is the probability of consumer traveling from origin to given shopping
center or store. The larger the center, the bigger the assortment and the distance has opposite effect
on patronage’s probability.
Merchandise Mix (Chap VIII)
The product offering is called merchandise mix and is defined both at a strategic level (selecting
right items) and at operational level (ensuring efficiency processes and timely).
The categories are the items in the assortment organised into groups. Merchandise planning
involves selecting the right categories and the items within them. Selecting the appropriate items for
a store or an online shop requires choosing the breadth (distance from side to side) and depth
(from top to bottom) of the assortment, quality levels and the brand portfolio. The stock-keeping
unit (SKU) identifies a particular item. It is the lowest level of detail identifying a product in a
retailer’s assortment. The number of SKUs in a particular category is called the depth which goes
from shallow (may be weak merchandising but fast-selling) to deep (good choices within
categories, thus high product involvement The principal criteria used in order to group the items
in the assortment are:
1) Length of the product lifecycle: This criterion is very useful because all products in the
assortment need to be replaced after a particular period (food, near food and other food in order
of fastest span of time) of time but the time span for achieving sales also varies. It also has a
substantial influence on the ability to forecast demand. The taxonomy food, near-food and non
food categories is a classification criterion of the assortment.
Additional characteristics that define the assortment are: Staple merchandise defines products
 which the retailer carries permanently and
which have relatively stable sales,
Fashion merchandise refers to products
that have cyclical sales because of
changing tastes and lifestyles. Seasonal
merchandise refers to products that only
sell well during particular period. Fad
merchandise generates very high sales
for a short period

.
2) Product’s quality level is another criterion.
3) Breadth and depth: The number of product lines or categories is defined as the breadth of the
assortments which is referred on a scale from narrow (specialized seller) to wide (one-stop
shopping).
Category migration as a trend
An increasing number of retailers use a combination of specialist and general approaches within
their product offers. They specialise in one or a few categories, but also add other categories in
which they only offer shallow assortments. Retailers temporarily or permanently diversify by
adding new products to their assortments that do not belong to their traditional merchandise. Main
reason is to attract new customers into the store and to generate short-term profits with high
quantities of a few promotion products. The permanent addition of new products has other motives,
since new categories that are related to existing ones offer more potential with less image ris. This
strategy is sometimes referred to as product scrambling, because it risks diluting the retailer’s
image.
Reduction in variety as a trend
Reduction of variety of categories is increasing due to the fact that shoppers are often looking for
specific items. A greater variety and larger assortment increases the probability they will find what
they want,; however, too much variety in an assortment has some severe disadvantages. The
principal are: the increasing number of SKUs usually increases retailing costs and large number of
alternatives within a category can lead to choice overload for consumers.
External brands Vs. Store Brands
Manufacturer brands are owned, produced, managed and marketed by manufacturers. Retailers
include manufacturer brands in their assortments for several reasons. The two most important are:
The pull effect: Strong manufacturer brands often enhance customer frequency in stores, because
strong brands have loyal customers and their store choice is influenced by the availability of their
favourite brands. Manufacturer brands are often heavily advertised in the media, so consumers have
clear images of them as well as the image transfer: A retailer’s store image can improve when it is
associated with manufacturer brands that are evaluated positively. On the other hand, Store brands
comprise all product brands owned, managed and marketed by retailers. Store brands provide an
opportunity for differentiation. Customer loyalty is easier to build via store brands than
manufacturer brands.
Positioning and labelling trends
Modern store brands Vs. Premium Store brands
Modern store brand exist across all prices and cover all the segments with different attributes. Are
indented to have equivalent quality to the manufacturer brand but targeted to a customer segments
that is price-conscious since are offered at less price. On the other hand Premium store brands are
positioned above manufactures brands, addressing small target groups.
Positioning and labelling are defined by the store brand portfolios, the brand name and whether the
offering include category-specific or cross-category brands. Positioning of product brands goes
from Value/budget – Standard- Standard-segmented-Value Added to Premium.
Category Management
It is the process of managing categories as strategic business units focused on delivering customers’
value which is aimed at enhancing the business results. Category Management goes through several
stages:
1) Category definition which determinates the SKUs that compose the category which is
based on customers’ wants
2) Category role which defines what is the purpose of the category
3) Category Assessment which regards the analysis of the category
4) Category Performance measures which regards the selection of performances’ indicators
5) Marketing strategy for the category: Destination categories (about 5%) help define the
positioning offering superior value, Routine categories (55to60%) place the store to be a
preferred category provided, offering consistent and competitive consumer value.
Convenience categories (20%) help reinforce the retailer as the full-service store (one stop
shopping) and occasional categories (20%)
6) Category tactics involve decision on the assortment (SKUs), pricing, space allocation and
promotional mix
7) Implementing the plan and regular review of the category’s performance
Other category management involve the management of Online shops which follow the same
steps . In conclusion: Retailers are increasingly adding new categories to their merchandise
(category migration) • Retailers are reducing the depth of their assortments in each category,
focusing on leading brands and eliminating underperforming manufacturer brands. • Retailers
are increasingly adding store brands to their assortments • These store brand portfolios cover all
segments, including the premium segment • In many cases, merchandise planning is integrated
into a category management process, which supports strategic retail positioning by assigning
defined roles to a category and systematically deriving subsequent marketing decisions from the
role.

Pricing (Chap IX)

Pricing is a process whereby a retailer sets the price at which it will sell its merchandise. It is an
integral part of retail marketing-mix, a source of revenues (= retail price x quantities of goods sold)
and communicates the image of the retail store.
Methods for setting prices:
1) Cost-oriented (cost-plus) pricing: Basic mark-up is added to the cost of merchandise. The retail
price is considered to be a function of the cost and the mark up: Retail Price = Cost + Mark-up
Mark up can be expressed as percentage of the retail price or of the merchandise cost.

2) Competition-oriented: A retailer identifies its main competitors and sets prices accordingly
either on par with the competitor’s price or above the competitor’s price or below the competitor’s
price. Retailers may set guaranteed prices, meaning that they constantly benchmark their prices
against those of competitors so that consumers cannot by the products cheaper elsewhere. Online
shopping has increased the use of competition-based pricing, although oligopolistic retailer benefits
of price leadership.
3) Demand-oriented pricing: Retailers base their prices on consumer demand, and calculate the
(individual) price elasticity, which is a measure of consumer sensitivity to price variation calculated
in terms of a ratio between % change in quantities and % change in price for a same product. If
elasticity is higher or equal 1 the demand is price elastic while if lower that 1 the demand price is

inelastic.
The ways to gather information to calculate elasticity are surveys about price-demand preference,
judgement of sales, combinations of past price-volume offering as well as large controlled samples.
On the other hand, the cross-price elasticity measures how demand for a second product changes
with the price of the first. Positive cross elasticity is linked with the substitution effect according to
which a good’s demand increase (Bus tickets if train tickets increase) as the price of another
substitute (train tickets) is increased. Negative cross elasticity is linked with the complementary
effects according to which a good demand’s increase if the price of another good is decrease.

Direct Product Profitability

It is a sophisticated method to find the profitability of each item by computing adjusted per unit
gross margin and assigning the Direct Product Costs (DPCs) which include expenses for
Warehousing, Transportation, Handling and Selling.
Sometimes Retailers employ leader pricing strategies, i.e. they sell selected items (the so-called
loss leaders) at a price below the marginal costs. In many countries this kind of behaviours are
prohibited due to minimum price laws (or allowed with limitations of quantities and temporal
duration) as manufacturers do not want the retailers to sell items for less than a specific price. Also
vertical price fixing (i.e. resale price maintenance) is prohibited because of antitrust regulation.
Price Positioning
A retailer’s price image is the result of a generalisation process, in which separate price value
impressions created by a retailers’ different products, departments, and stores are aggregated into a
total impression of the price level for that retailer in the mind of the consumer.
Price Structure
When it comes to retailers’ price structures, distinctions are often drawn between: the value (or
budget) price segment o the medium (or standard) price segment o the premium price segmen
In the premium price segment, retailers attract customers who are less concerned with price than
they are with service and merchandise quality. Such products rarely maximize sales, but they
usually achieve high profits per unit. Conversely, an aggressive pricing strategy in the budget price
segment aims to earn high revenues by setting low prices and selling many units. Profit per unit is
low, but total profit may still be high.
Price Differentiation
Price differentiation (or discrimination) means charging different customers different price for the
same product. Many differentiation criteria can be applied such Customer profiles (i.e. consumer,
business, students, teachers) and Geographic price (i.e. stores in isolated sites vs stores in main
streets). The extreme case for price differentiation is flexible pricing whereby retailers with
customer individually (i.e. in automobile industry). When there is no price differentiation, the
retailers follow a one-price policy.
Tactics of Pricing
HILO (High-Low) policy where retailers usually sell at relatively high prices, but use temporary
price reductions to attract customers.

EDLP (Everyday Low Price) policy where retailers usually set stable prices over long periods.
EDLP makes the shopping process easier for customers, and the price continuity creates trust in the
retailer, but deviation from the usual low price can harm price credibility. However, the real
advantages of EDLP for the retailer often lie in improving the efficiency in the supply chain, since
logistics costs (warehousing and transportation) are optimized thanks to stable sales patterns and
more reliable forecasts. Can be implemented only by companies achieving sustainable low-cost
structures.
Reduction of prices can be grouped as permanent (markdowns) which are linked with the nature of
the merchandise (sign of poor demand or inadequate pre-reduction pricing) and temporary are
time-limited and can be promotion packs (price bundles mixed can be bought separately while pure
only together), buy one get one free, multipacks and coupons.
Price optimization software can help retailers to better predict demand for individual products at a
certain price level, based on historical price and sales data, competitors’ prices, local demographics,
inventory, shelf location and other data.
Pricing decisions are highly complex and the Internet has increased the need for price
transparency both in store-based and on-line retailin . In online shopping prices are adapted
through two major methods: Dynamic pricing: price is changes in real-time based on temporal
factors (i.e. changes in competitors’ prices, d) or Customer segmentation: price changes are based
on customers’ characteristics (i.e. browsing history).
Promotions are defined as direct purchasing incentive, reward, or promise that is offered to the
target audience for the purpose of making a specific purchase. The instruments used in sales
promotions can be classified into three below-the-line categories: traditional promotion tools
(e.g. coupons, rebates, premium and samples) special events or event sponsorship (e.g. the
retailer provide support for a seasonal, cultural, sporting or musical activity) or new forms of
hybrid media (e.g. augmented reality, in-game advertising)
Retail Promotional Mix
Marketing communication is an important element of the retail marketing mix and involves all
instruments and activities used to communicate with the customer either to motivate them to visit
the stores and buy (transactional selling), and/or o to stimulate repeated visits and develop loyalty
(relational selling). There is a large portfolio of marketing communication elements, which
together constitutes the so-called retail promotional mix.
Advertising is crucial part of the promotional mix and falls into one of the following categories:
non-personal communication (standard messages not adapted to individual), indirect
communication (through tv or Internet) or one-way communication. Advertising is delivered
thorough traditional media (newspapers, mail, radio, tv, outdoor) or through new electronic
media (websites, email mobile, blogs). An Integrated Marketing Communication (IMC)
programme combines advertising, sales promotions and personal selling to create a consistent and
holistic image.
In Store Marketing (Chap X)
The store environment provides a very strong influence in the shopping behaviours. Professional in
store marketing can help retailers to implement an effective store design and visual
merchandising which is composed by easy internal orientation and an atmosphere evoking positive
emotions. Such marketing is particularly directed to customer with hedonic motives which spend
leisure time shopping (recreational shopping) while it is serves as task complementation for
customers that want to buy products and thus with utilitarian motives.
The store atmosphere is composed by the visual elements (colours can provides different emotions
red, size, layout), acoustic elements (music, noises), olfactory elements (the scent, perfumes), tactile
(material used for furniture) and the gustatory elements (food samples).
Store environment and Customer psychology were the subjects of a study carried by Donovan
and Rossiter in 1982. Pleasure provides positive emotions and increase unplanned purchase and
intent to rent and arousal which provides excitement were placed at the core of the study to
elaborate the effect of the stimuli of the store on the customer behaviour (avoidance or approach)
which showed that pleasure and arousal allows approaching to products.
The store Layout
It is of significant importance that can advance sales and profitability. Clear and well managed store
layout permits customer to build a mental map to locate products. The usage of indications, colorus
and sections and other element shall guide and assist customers. Different fixtures are used .
Merchandise can be grouped in sections, departments depending on the purpose and style of the
presentation: Item-oriented (types of items, Eg. fruit), theme oriented (specific theme, IKEA
kitchens), or brand oriented (Pellizari)
Grid store layout: merchandising on shelves on both sides, cash registers located at the exit, fast
and efficient for customers but not virtually stimulating. It is indicated for supermarkets and
drugstores.
Free-flom (free-flow) layout: irregular pattern allowing free movement, relaxed buying experience
supported by in-store customers support (clothing shops)
Race track loop: aisle loops around the store to guide customers, cash registers located in each
department, the consumers are forced to take different viewings angles (increase impulse to
purchase).
The space within the store is a scares resource and thus shall be carefully managed for the
allocation of merchandising. Factors taken under consideration are the space productivity
(sales/cube, sales/squared, sales/ linear), inventory turnovers, impact on sales and display
considerations
Loyalty (Chap XI)
Customer Relationship Management (CRM) includes all the management decisions and
processes which go into establishing, maintaining and enhancing long-term relationships with
selected customers. A retailer’s primary task is to identify profitable and unprofitable customers.
Principles of CRM are: Customer data: store, manage and update reliable and detailed customer
information, Individualization/segmentation: focusing customer segments (non-standardized
marketing approach), Profit orientation: focusing on existing customers rather that acquire new
ones, Customer interaction and integration: A value-creation process require customer
involvement.
The customer perceived value is related both to customer loyalty and satisfaction (post-purchase
response compared with pre purchase expectation and perceived performance) and is given by the
difference between the future customer’s evaluation of all the benefits and the costs as well as the
alternative offerings.
Loyalty
Customer loyalty is influenced by satisfaction and is the commitment to re-buy a product in the
future despite situational influences that have te potential to cause switching behaviours. It is an
important asset as the monetary value translates into frequent purchasing. High value customers are
the most loyal which spend less time looking for alternative offerings. High presence of loyal
customers reduce the marketing costs and enhance cross-selling and up-selling as well as word-of-
mouth and information value (customer’s feedback). The customer lifetime value is provided by
the present value of the future net cash flow attributed to the customer during its relationship.

Retailers use loyalty schemes for CRM, based essentially on loyalty cards, providing customers
with: Self-actualization, selected customers are considered “special” or Accumulation of points
based on repeated purchases, that can be exchanged for gifts, vouchers or discounts ( Relative
rewards remain constant or increase). Main types of loyalty programs are single-company, muti-
partner programs and customer clubs.
Buying (Chap XI part II)
The costs of goods sold is the most important cost category for retailers. Retailers’ buying strategies
are influenced by their merchandising philosophy and intended relationship with their suppliers
(manufacturers). “A merchandising philosophy sets principles for the breadth and depth of the
assortment (narrow or wide), the assortment quality, national brands or store brands, the pricing
policies, and The stability/variation of the assortment over time. External factors influencing the
buying process can be political (trade liberation, regional integration), socio-economic
(sustainability and supply security) and technological (internet).
Sourcing scenario
1) Branded products: Dominance of branded products (national or global brands), and low
complexity in the supply market. Many branded products (usually few national or
international providers ) are often indispensable for developing a retailer’s merchandising
competence. The changing relationships between the retailers and the manufacturers, from
adversarial (transactional view- short-term buying) to cooperative (long-term buying –
collaborative) is needed.
2) Store brand: Store brand are linked with the customer-oriented segmentation. Companies
aim to improve gross margins from store brands.
3) Commodities / indirect goods: have low sales but are a large number of articles. There are
a multitude of suppliers (outsourced procurement) and differentiation is almost irrelevant
4) Fresh Foods: imply logistical challenges such as ecological challenges (cultivation
methods) and sustainability requirements. Sourcing can be either local or global. The
product safety is vital and shall be in compliance with regulations and restrictions.

Logistic (Chap XII)

Logistic means having the right item in the right quality at the right tie and place for the right
customer, It is an operating function where cost shall me minimized while its importance is
increasing since affects service level. Warehousing and distribution are an integral part of the
strategy and provides means for differentiation that can be achieved through the control and
management of the supply chain. Costs and service level shall be managed in four major areas:
Storage facilities (stock rooms or distribution centres), Inventory (stock held for each SKU),
Transportation (shipment form the factory to storage facilities (primary distribution) and to retail
outlets (secondary distribution), and recycling. Moreover, managing logistic implies an important
role of the information exchange (communication at each stage to each supply chain’s player)
which is based on the use of enabling technologies and coordinating and collaborative means.
Storage Facilities:
1) From the manufactures to Central Warehouse first, then Regional warehouse and finally
local warehouse
2) Trans-shipment point operates as a break-bulk point and utilize third party logistic provider
that delivers goods to retail stores. Used for replenishment, merchandise can be shipped
from one store to another, high shipping costs to adopt TSP.
3) Distribution Centre: used for receipt, temporary storage and redistribution according to the
retailers orders. It operates both as breaking-bulk (degroupage) oaint and as consolidation
(groupage) point.. Products are shipped and then bundled for the delivery to each store
following the just-in-time approach.
4) Cross-docking platform: there is no partitioning, since products arrive on separate pallets
for each store.
Control over logistic has increased over both upstream and downstream supply chains. Vertically
integrated supply chain led to a new pricing structure for supplier and retailer relations. Control
allows efficiency.
Outsourcing and joint distribution
If an activity is transferred to an external firm the process due to costs and service level reason is
called outsourcing (which does not involve core-competencies) while the contrary is known as
insourcing. In addition, cooperative arrangements for joint distribution systems take place to
increase efficiency,
Supply Chain Management (Chap XII, part II)
Retail consolidation shifted the power of the supply chain from manufactures towards retailers. the
management of the supply chain is defined as the planning and execution of all the activities
involved in fulfilling customers’ wants and include sourcing, procurement, operations and logistic
management. It includes coordination with other parties and involve physical, information and
financial flows. Management shall facilitate the integration of supply and demand to improve the
performance. In addition, shall solve inefficiencies form uncoordinated planning cycles and provide
an effective information communication such as inter-organizational information and planning
systems. Due to incomplete information and uncertainties, customer demand is unstable, implying
adjustments in the supply chain production rather than isolated maximum optimization. Bullwhip
Effect: Fluctuations in customer demand generates swings in inventories as one moves further up in
the supply chain making orders more variable. The efficient consumer response is a strategy to
increase the level of services to consumers through close cooperation among all the players in
response to bullwhip effects, shifting from a push-oriented view to a pull-oriented supply chain.
The continuous replenishment is aimed at achieving a continuous flow of merchandising based on
demand that reduced the lead times in production and delivery. Products are delivered only for the
sold amount needed in the real time. Quick response is a concept of the continuous replenishment
and suits markets with high demand volatility. Main objective is to decrease overstocking and stock
storages in the fashion industry. Responsive supply, integrated demand-driven supply (low
inventory and flexibility) and operational excellence are the areas of collaboration of the supply
chain management regarding logistic means.
Inventory management requires continuous information transfer od sales and inventory between
parties. Vendor-managed inventory( VMI) Vendor is responsible (manufacturer) to forecast
demand and maintain adequate level of inventory. Buyer-managed, the buyer assumes control of
the inventory while in the joint managed inventory there is cooperation. In the collaborative
planning forecasting and replenishment not only logistic means but also in the marketing
(promotional area). The main goal is to integrate the supply with the demand and to increase sale
forecast accuracy through joint sales planning by manufacturer and retailer using data from both
parties. Based on such forecasts reduction, delivery, storage and advertising are coordinated to
achieve higher availability and lower inventory as well as higher responsiveness to react to sudden
changes. Information-sharing and information is the core of the supply chain management to
gain efficiency and responsiveness. Technologies such as EDIs (real-time information through
networks among players), Automated identification systems (codes recognition that identify
products locations and shipping in the chain), communication standards and master data .