An Introduction to

Retail Management
&
Marketing
 Book 1
What is
Retailing ?
 Session 3: Understanding the Retail
Environment- I
Outline

1. Political and legal forces

2. Economic forces

3. Ecological/physical forces

4. Conclusions
 Introduction: Retail environment?

• Retailers face challenges from within & outside

business
• It is not just how to operate a store, needs & wants
of customers, why & how they shop
But, also business environment in which retailing
takes place.
The marketing environment consists of actors

& forces that affect a company's capability to

operate effectively in providing products &

services to its customers...

 Fig 3.1: elements which make up the retail
environment.

Macro-environment : forces that affect not only company

but also other actors in the microenvironment
• Business environment is constantly evolving
• Ecological & physical forces have been added to
PEEST model
o Customer is encouraging businesses to find ways to
reduce carbon emissions
• Macro-environment forces are reflected in PEEST:
1. Political (and legal forces)
2. Economic forces
3. Ecological/physical forces
4. Social/cultural forces
5. Technological forces
 I. Political and legal forces
• Political /legal forces influence retail management
decisions by determining rules & responsibilities.
• Ex: EU urged member states to ban smoking in
public places due to health risks to passive
smokers. Retailers must ensure this regulation.
• Politicians can affect businesses through power to
change laws. Many business leaders try to develop
relationships with politicians hoping they influence
political decision-making process.
 Regional/national legislation
• Companies are influenced by legislations at regional
level (i.e. EU) & at national level.
• Importance of competition legislation: businesses
benefit from operating in intensely competitive
trading environments
• Competition policy encourage competition by
removing restrictive practices & anti-competitive
activities
 The legal rules seek to:
1) Prevent collusion – conspiracy - through price fixing,
& any collaborative activities that enable companies to
join together & act as a monopoly
2) Prevent companies abusing a position of market
dominance
3) Control growth of companies through acquisitions &
mergers, aiming to stop them gaining excessive
market power
4) Restrict state aid - which could give company unfair
competitive advantage
 National legislation

• Each state has the right to make its own laws governing

business practices.

• These laws mainly concern:

–Consumer protection

–Product liability

–Food safety

–Prices
 1) Consumer protection
• Consumer protection legislation provide consumers
with rights enforced through courts if necessary.
• Buyers have the right to expect that G they buy are: 
– Of satisfactory quality
– Fit for all intended purposes
– As described
 Retailers must offer a refund to customers where faulty
G are supplied if notified in a 'reasonable time
 Instead, customers accept a replacement or repair of G,
or a credit note
 Retailers, liable for losses incurred from using faulty G
Consumers have additional rights:
• When buying by mail or method where they do not
meet with trader directly. Ex: Internet, TV, phone etc…
Buyer will be protected by Consumer Protection (Distance
Selling Regulations)
• Here, buyer is entitled to expect retailer to provide:
– Clear information about P offered for sale
– Right to cancel order within 7 working days for any reason
– A full refund if they do not get G/S on time
• For selling S, Supply of G & S specific regulations
detail rights of purchasers & duties of sellers.
– Requiring S performed under contract to be performed with
reasonable skill & care.
• Customers can sue S provider if a breach of contract
 2) Product liability
• Consumer Protection regulations require that G
supplied must conform to safety requirement.
• P fail to satisfy safety requirement if not safe given
all circumstances, including intended use, storage,
usage instructions & safety standards.
– Retailers are required to publish notices warning
consumers of unsafe G previously supplied by them &
provides powers for suspension of sale & attack unsafe G
– Liability falls on producers, importers & suppliers, but
retailers should maintain G records to avoid problems
 3) Food safety
• Perishable nature of food is a potential hazard to
human health resulting from sub-standard food
• Food legislation: preparation, storage & labelling of
merchandise
• Four key of legislation for food businesses:
– Food Safety
– General Food Hygiene
– Temperature Control
– Food Premises (Location)
 4) Displaying prices & the law
• Prices regulations control require display of selling
price of most G
• Prices must be displayed by at least one of the
following:
– A price ticket on each item 
– A nearby shelf-edge label 

– A nearby price list

 Economic forces
1. Economic growth & unemployment: world's economy goes
through periods of growth followed by decline influencing
consumer spending.
2. Interest rates & exchange rates: monetary tools governments
use to manage economies.
 Interest rates price borrowers have to pay to lenders for the use of their
money over a specified period of time.
 An exchange rate is price of a currency in terms of another (£1 = euro 1.20).
Fluctuations in exchange rates: Prices change from a country to another.
3. Central & Eastern Europe – 8 European countries joined EU
thus, deregulated market-less barriers among members. Free
market where companies can grow
4. Growth of 'BRIC' economies - well-developed nations have
mature economies. Retailers are focusing on growing economies
as part of their international growth strategies.
 Definitions
Transaction costs: Intermediaries
are costs we incur when are retailers which act as
getting involved in the 'middlemen' bringing P
exchange process. produced in bulk by
manufacturers to market
so that consumers can
buy smaller quantities.
 Retail demand
• Retailers create wealth through exchange.
• Retailers aim to make a profit by buying G in bulk &
selling them in smaller quantities to individuals.
• Without retailers, consumers spend time & money
(transaction costs) in finding sellers & waste time &
money especially if exchange did not take place
• Retailers act as:
– intermediaries in supply chain
– Perform a vital function in modern society.
– Enable exchange between producers & consumers.
– Understand D, set prices & compete with other retailers.
 Theory of Demand
• Ideas & observations modeling consumers behavior.

• Simplifies real world so we can distinguish between

important & not important factors affecting
consumption decisions.
• Powerful theory that has stood the test of time
through its ability to model & forecast impact of a
changing environment on D & prices
 ‘Why do people buy goods I offer for
sale?'
• Pricing: What price or range of prices should
the P be offered at?
• Advertising & promotion: Which features of P
encourage consumers to buy them?
• Purchasing: Do input costs allow for profits
to be made by retailer?
 Influences on Demand
•Price: Actual price is a major determinant of effective
D.
•Lower price greater quantity demanded assuming other
factors remain the same.
•Perceptions of price vary affect demand
•Price is a relative thing for consumer
•An acceptable price is determined by incomes & by
 Prices of related goods:
Complements & substitutes
• Price of a P rises, D for P & its complement
decrease because price of main one have used up
more of a person's income &so less is available for
complement
• A substitute for biscuits could be cake. If price of
cake fell, biscuit lovers may switch to cheaper cake
 Consumer incomes

•  Limited amount of money

Constraint on buying behavior

Important determinant of our decisions.

• Incomes are also affected by interest rates, wage

rises & level of employment
• For low-income earners, purchase of biscuits is seen
as a luxury
 Anticipated price changes

• If consumers thought that a rise in price might

happen, they might stockpile biscuits to avoid the
impact of higher prices.
• Conversely, if a fall in price were anticipated
consumers would wait until the last minute to buy.
– Ex, booking a holiday at last time

• Problem: Trying to predict future

 Tastes & preferences

• Some people do not like biscuits

• Others have a 'sweet tooth'.

• Some buy biscuits as presents for others,

especially at celebrations or seasonal events
• Those influences determine our desire to buy
biscuits.
 Demographics

• More people there are, More purchase

• Studying demographic data help a retailer to

understand profile of local population based on age,

gender & ethnicity.

 Exceptions:
• When purchasing a gift that should be valuable & the
amount of money spent will represents level of respect
 Higher price, greater quantity sold (if looking for a gift)
 When buying for a charity, you will buy largest
quantity for a sum of money- 'buy 1get one free' offers)
• Transaction costs: consumer must pay travel costs &
give up time to make the purchase.
– If supermarket: additional cost of travel is barely noticed

– If special visit-long distance- you may pay little more at

local convenience store than pay to travel to supermarket
 Ecological/physical forces
• Organizations need to be aware of consequences of
how to conduct business in relation to environment  
• Retailers are stuck on a two-horned dilemma:
– Need to generate profits through encouraging
consumption of manufactured goods
– Need to trade in a manner that might combat climate
change. Thus, discourage consumption. 
Five environmental issues which are of concern
to retail businesses: 
1. Climate change. Global warming & climate change
affect on industries.

CSR :Organization is responsible for society

2. Pollution control. Manufacture & disposal of P has
a harmful effect on environment. Retail industry is
reducing plastic bags.
3. Energy conservation. Limited resources drive
towards conservation. Less fuel reliance
4. Environmentally friendly ingredients: using
biodegradable & natural ingredients.
5. Recycling & non-wasteful packaging:
Responsibility for packaging & disposing of
it in an environmentally friendly manner.
Recycling is not only cutting out waste, but it
is commercial, i.e. less space to store,
transport & display
(30) 33
 An Introduction to
Retail Management
&
Marketing
(30) 34
 Book 1
What is
Retailing ?
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 Introduction to Book 1

Can you think what might affect both of these retailers in a

similar way?

Both are affected by forces in the retail environment-

economic, competitors, customers, & other forces that
make
(30) up the retail environment. 36
 Session 2: What is Retailing
Outline
1. Defining retailing
2. Understanding customer value

3. Creating and delivering customer value

4. Development of retailing
5. Conclusions
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 1. Defining retailing
• Retailers : Specialist providers offer items for sale
that are ready for us to use & for our consumption
• Providers are called retailers
• It is the relationship between quantity of goods(G)
sold & type of customer served which help to define
the meaning of retailing
• Convenience store : local store selling a limited
variety of products (P) (food & household
necessities), open for longer hours than other
retailers
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• Retailing has its origins in French verb retailler, 'to cut
up‘, one of the fundamental retailing activities
 To buy in larger quantities & sell on in smaller ones.
• Retailer is not only type of business to 'break bulk'.
• A wholesaler also buys in larger quantities & sells on to
their customers in smaller quantities.
• Customers rather than activities distinguish a retailer
from other distributive traders:
• Retailer sells to final consumers
• Wholesaler sells on to a retailer
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• Retailers should know which P to sell to meet our
needs & how to make available P we want
 Important part of the retailing definition
• Modern retailer does more than 'buy in larger
quantities and sell on in smaller ones‘
 They study needs to present us with what we want,
when we want & at a price we are prepared to pay.
o Yet, Retailers have not always been so responsive

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 2. Understanding customer value
• Traditionally, retailing was considered a passive activity
• Goods passing from manufacturer to wholesaler then to
the retailer & finally to individual customers.
• Retailers display available P & attempt to sell them
regardless of customer wants.
By understanding customer, they stock right P, sell it at
right price & at last increase profits rather than having
to push P they had in stock at reduced prices.
• The era of 'stack them high & sell them cheap' is over
 Increased importance of understanding & satisfying
customer needs
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According to Jobber, companies are using a marketing

approach creating:

Customer value in order to attract & retain customers

Aim: deliver superior value to target customers.

So, it is the marketing concept: meeting customer

needs better than competition

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Customer value: Benefits - Sacrifices
- Different things to different people
Ex: benefit is low cost, choose Tesco's
benefit is low calories, choose Birdseye at 99 cal

Product Average Calorie content per

  price 100 grams
 
Birdseye Healthy Options £1.49 99
Chicken Curry    
 
Tesco Chicken Curry £1.00 120
     
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Today, retailing means:

 Understanding customer wants & how to add

value

 Creating & delivering customer value by

developing suitable P ranges & Services 

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3. Creating & delivering customer value

Retailers can create value through Products they

sell, Services they offer,

& Stores from which they sell

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a. Products
Different implications of selling different P
a) P vary in value & price: different financial inv &
security. Ex, birthday cards vs. diamond
b) P vary in volume: Implications on logistics &
storage. Ex, wardrobe display space vs. 100 of CDs
c) P vary in perishability: implications for stock
holding & stock management. Ex: Bread shelf life
vs. fine wines
d) P vary in tangibility: Ex: Furniture vs. insurance
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• Retailers also need to consider logistics &
distribution
• Physical goods such as cans of beans, produced in
bulk at one location & are sold in reduced quantities
at another.
 Activities coordination is important to the success
of a retail organization selling physical goods.

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b. Services
• P & S are closely linked
• Retailers sell tangible G & add S to enhance offers to
customers
• Services are intangible, ex; holiday, hotel reservation
These are called Service products.
 S are ‘P’ that do not necessarily result in ownership
 S may be linked to a physical good
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Differentiating goods from services
– Tangible & Intangible :
• Tangible: mobile phones& shoes
• Intangible: haircut & a bank account
– Variability:
• Individuals delivering S are unlikely to perform in
exactly the same way
– Inseparability:
• If you cannot separate the process of production &
consumption then the offer is a S.
– Perishability:
• If a retailer sells pure G, they can be stored until
(30) required for sale. S cannot be stored into the future49.
 Figure 2.1 The goods-services scale

At one end of the scale are pure G: those P that don’t

normally have any form of S attached ex: Clothing
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 Services matching customer expectations

• G & S deliver customer value in ≠ ways

• Potential problems for selling service :

Quality of the performance

Matching S product to customer

expectations

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 Parasuraman et al. (1985 and 1990)
found that matching customer
expectations of a S with their actual
experiences of a S is key to delivering
customer value & ultimately
satisfaction.
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 There should be No gaps between
expectations & actual experiences
! knowledge gap: ≠ between what retailer thinks
customer expects & customer's actual expectations.
! Standards gap: ≠ between service quality expected
& operational standards retailer achieves
! Delivery gap: ≠ between what retailer promises to
deliver & what it actually delivers
! Communication gap: ≠ between what company
states it will achieve & level of S customer receives.

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c. Stores
• Retailing activities focus on place products are sold.
• Shop or via home shopping methods ex; via net/catalogue.
• Outlets should meet operational requirements, suit needs of
customer & create value
• Visual merchandising &store layouts are also important
• Place retailer sells from affects choice of P, manner in which P
are displayed & extent of customer service
• Each retailer selects what is important to their customers &
designs
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 4. Development of retailing

Three theories explain patterns of retail

development:

1) The accordion theory

2) The Wheel of retailing

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3) The retail life-cycle 55
1) The Accordion Theory (Generalist-specialist tendency)

How retail industry tends to alternate between periods of

growth in specialist retailers that offer narrow product

assortments, & periods of growth in generalist retailers

that sell a greater variety of products.

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•Accordion theory is limited in its ability to predict

future retail trends in general or explain what is

happening in retail sector in particular.

•Yet, theory shows that change takes place & that

diversification & specialization work in certain trading

situations.
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2) The wheel of retailing
• Same as Accordion Theory, it is cyclical.
• “Decline in popularity of an established retail
format is caused by entry into the retail market by
an innovative method of retailing”
– New types of retailers enter market as low-status, low-
margin, low-priced operators.
– Gradually they acquire elaborate establishment with both
increased inv & higher operating costs.
– Finally, they mature as higher-cost, higher-priced
merchants, vulnerable to newer types, who in turn, go
through same pattern
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 Lessons from the wheel of retailing
a) High prices provide an 'umbrella' under which discounters
can flourish
b) Management must be eternally vigilant(attentive) on costs,
as failure to do so can destroy competitive advantage

c) New & unexpected forms of competition will inevitably

arise & prove difficult to respond to
d) Success in retailing is ephemeral(short) & contains the
seeds
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of eventual failure 59
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3) The retail life-cycle
• To overcome wheel of retailing problems, retail
life-cycle introduction
• The retail life-cycle suggests:
– An introduction phase for a new type of retail operation
– A growth stage where sales are growing rapidly but
profits are still low
– A maturity stage where competitors grow stronger
– Decline stage.
 This theory shows how retail life-cycles are
shortening & this is important for retail planners. 
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•These cyclical theories suffer from weaknesses

of being inflexible & focus on patterns rather

than processes

•Factors affecting retail development are

political, legal, economic, social, technological

& environmental trends.

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