Session 4: Understanding the Retail

Environment- II
Outline

1. Social and cultural forces

2. Technological forces

3. Micro-environment

4. Competition in retail markets

5. Conclusions
 I. Social and cultural forces

• Three elements under social & cultural forces:

1) Demographics

2) Culture

3) Consumerism
 1) Demographics

• Demographic forces concern changes in

populations in terms of size & characteristics

This might change consumer spending.

Areas of demographics that concern retailers

a. Age profiles & age distribution affect D for P.

Older people tend to have more money to spend

b. Working patterns affect spending patterns,

shopping behavior & employable workforce

c. Income & expenditure affect spending power

Rising incomes increase, more money to spend on
non-essential items
d) World population growth

is expanding. Growth of world

population attract retailers

e) Household structure.

Changes in household

structure have significant

implications for retailers Figure 4.1 World population growth

(Source: Jobber, 2010, p. 86)
 2) Culture
• Culture: a set of characteristics that identify socially
acceptable patterns of behavior & social relationships
within a given social group
• Culture sets the rules by which a society operates &
applies to all of the members of the given society
• Sub-cultures can emerge & can be influenced by age,
ethnicity & geography.
 3) Consumerism
• Consumerism is organized action against business

practices, deemed 'not in the interest of consumer'

• Action taken through Consumer movement, an

organized collection of interest groups & companies

to protect consumer rights

 using corporate social responsibility (CSR)

Retailers consider impact of CSR: if high ethical
behavior towards customers, employees, P, company
is regarded in a positive light.
• Customers care about CSR when shopping

• Unethical Behaviors low profits

• Retailers should avoid practices harming

interests of consumers, society &
environment
 Retailers involvement in CSR initiatives :
• Environmental protection and sustainability
• Community initiatives: Donation to charities &
good causes
• Educational initiatives: Vouchers from Tesco
purchases, e.g. sports equipment
• Fundraising initiatives. Awarded grants to
charities
• Sponsorship programmes
 II. Technology
• Technologies have influenced lives of individuals &
success of industries.
• 'As global competition increase, organization's
performance & strategy become dependent upon IT'
• Retail industry is known for its use of technology &
by that improving profitability ex; distribution,
logistics, staff management
 Two aspects of technology to explore:
Technology & process of retailing Remote shopping & online retailing.
 A. Technology & process of retailing

• Customer data is a great source of information

• key to satisfy customers' needs & to remain

competitive in the industry.

• P offered, customers & suppliers means that

retailers generate huge amounts of information

 (IT) developments important to capture &
manage data in retailing are
Electronic point-of-sale (EPOS) systems :cash registers &
laser scanners can read a universal P code (barcode found at
most retailers), attached to a computer can recognize P.

Electronic funds transfer at point of sale

(EFTPOS) systems
•To pay with credit or debit cards.
•To facilitate cashless payment.
•Connected to sales, retailer's central computer,
to computers of banks & credit card companies
Electronic data interchange (EDI) is the electronic
exchange of information between retailer's computer
& that of its supplier, ex: orders, delivery, invoices
Stockouts means stock not being available for
the customer at the time it is required.

Quick-response replenishment systems. When EPOS

systems are combined with EDI, retailers are in effect

adopting just-in-time replenishment or quick-

response (QR) replenishment methods (Fig 4.2).

• Ordering of merchandise is
based on real-time sales data.
• Shorter time between an order &
its arrival .
• Suppliers improved if retailers
adopt automatic reordering.
• Advantage of QR is reducing
stockouts & inventory, hence
Information flow Fig 4.2 A
improving customers S & simplified quick-response
replenishment system
B. Remote shopping & online retailing
• Internet became essential part of future sustainability
• Customers shop online & retailers have own websites
Advantages to buying online:
– Purchasing decisions can be made at any time
– No queues
– Don’t carry your shopping home
Disadvantages to buying online:
– Not seeing G prior to purchase
– Returning G that do not meet your needs,
– Potential security risks
 The remote shopping market
Online retailing.
 Fastest growing business sectors.
 Dominate home shopping market, previously
dominated by catalogue retailing.
 Includes pure play retailers who only sell online,
high street retailers with online sales operations &
mail order sales.
 Other sales channels include mail order, agency,
direct selling, door-to-door &TV shopping.
Catalogue retailing.
 Popular
 Retailers sell to customers in isolated locations
TV shopping.
 Interactive television (iTV) is in early Development
stage. Viewers have a variety of viewing options
 Familiarity of television technology made it widely
accepted as a remote shopping channel than internet
 III. Micro-environment
Micro-environment: Actors in retailer's immediate
environment that can affect business performance.

1. Customers: Center - Retailers develop added value

through understanding needs of customer.

2. Competitors. Have a major influence on success.

3. Distributors. Retailers, classed as distributors - pass
G from a producer to end user. Can reduce profitability
of suppliers by putting pressure on profit margins.

4. Suppliers. Actors can affect profits of retailers.

Increases in supply costs can push up prices &
make alternative P appear more attractive.
• Retailers monitor behavior of actors in micro-
environment to identify opportunities & threats.
 Competition in retail markets
Reasons retailing is becoming competitive:
• Mature retail markets Only way that retailers can
grow is to take market share away from each other.
• A new retail channel (Internet). Raise customer S
expectations & enables competitors to enter retail
markets.
• Globalization Retailers react to & defend market
share from domestic & international competitors.
 Measures of retail competition
• Measure of competitiveness of a market is degree
of concentration in the market.
• Measuring concentration: % of total market
controlled by largest 4 or 5 five retailers in a sector.
• In developed countries: market concentration
/dominance by a small number of large players
• Local retailing dominated by few large retailers –
thus small independent retailers force to close.
• Alternative measure: number of retail outlets of
particular type of retailer per thousand of population
• If high ratio, high competitive intensity.
 Market is overstored-high competition

• Low ratio, market is understored, retailers expand &

other are attracted into market.
 Types of competition

Key: P = producer, W = wholesaler, R = retailer, C = consume

 Intratype competition
• Direct competition between similar types of retailers

• With similar forms of operation, types of stores &trading

styles.
• More similar operations, more intense competition

• Retail managers need to work out how to differentiate the

business from others.
Intertype competition
• Competition between retailers selling same type of P. Ex,
two ≠ bookstores
 Vertical competition

• Competition for ≠ parts of distribution channel

• Other words, between wholesalers & producers that

sell directly to the consumer.
• The internet has made this much easier

• Ex, Dell offer customised computers direct to end

consumer and in doing so cut out several
intermediaries (agents, wholesalers and retailers).
• Forward integration is expansion of a business so

that it can distribute products directly to consumer.

• Backward integration is expansion of a business

towards the manufacturer.

• In other words, buying up supply chain to control

from manufacturer to end consumer.

 Corporate systems competition
• Most complicated form of competition
• Corporate systems are those where retailer or
manufacturer controls everything.
• In other words, P are manufactured, distributed &
sold by the same company.
• What makes this type of competition complicated to
understand is how the systems are formed.
• When possibility of forward integration &
backward integration.
 Strategic groups
• Group of stores
(competing in similar
way) with similar
target markets &
similar marketing
plans
• Aim is to help us
understand how
competing retailers
might behave
• Intensity of the
competition depends
on how close groups
are to one another. Fig 4.4 Strategic groups in UK grocery market