Retailing and Selling Lecture
What is Retailing and Selling?
Retailing may be defined as the selling of goods to the general public, rather than sales to businesses. The process usually involves sales of relatively small amounts of finished goods, with purchasers mainly motivated by their own consumption needs and not for resale.
Retailing is a major economic sector, according to the Office for National Statistics, retail sales in the UK amounted to £339 billion in 2015, accounting for approximately one third of all consumer spending. The industry is estimated to employ 2.8 million people, across a total of 290,315 retailing firms.
1. Retailing Theories
Numerous theories have bene developed to explain the patterns and trends that manifest in the retailing and selling. These can be divided into two main categories; cyclic and non-cyclic theories.
1.1 Cyclic Theories
Cyclic theories hypothesise the retail environment and competitive practices of retailers will follow a slightly, repeating pattern, with clear identifiable stages.
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1.1.1 Wheel of Retailing Theory
The wheel of retailing theory is one of the most common cyclic retailing theory. This was first proposed by McNair (1958) is one of the oldest retailing theories, and is frequently cited. The idea is that retailers will enter the market and progress through a cycle of strategies. Initially, McNair believed that retailers would enter the market using a low-cost strategy, and accepting low profit margins, as a method of acquiring customers. Costs are kept to a minimum during this phase, with the retailer offering only limited service and product range. This was referred to as the entry phase.
As the retailer acquires customers and profits, they move onto the trading up phase of the cycle. At this stage the retailer has gained customers and is able to invest in the business in order to improve profits. Strategies that this stage may include obtaining better facilities, for example moving to higher locations, increasing the service level, expanding the product range, and investing more in displays and advertising. Notably, when one retailer moves into this phase, they may leave a gap in the retail sector for new discounters to enter.
The third stage is the vulnerability phase, where the retailer has become a mature business and may now have high overhead costs. At this stage the organisation may be facing a declining return on investment, may need to renew their strategies in order to retain existing customer, who may be tempted to competing organisations where there are lower prices, high level of differentiation. Therefore, the mature retailer may move back to the entry phase, with a need to attract new customers, often achieved through increased discounting, and cutting costs to alleviate the heavy overheads.
This theory does explain many retailing trends in many countries. For example, Marks and Spencer in the UK started out as a market stall before the High Street, and then facing challenges and losses with high overhead in the 1990s. The weakness of this model is its focus on costs, and inability to explain the continuing presence of profitable premium market specialist firms.
1.1.2 Retail Accordion Theory
Retail accordion theory was developed to explain the way retailers choose the number and type of product categories they would retail, with the hypothesis that firms would go through a cycle of from general goods, towards more specific products, and then back to general goods again.
In the initial stages of setting up, and the early stages of retail, the retail stores would carry a wide range of products to satisfy different consumer category needs. As the retail environment grows there is an increased number of specialists attracting consumer attention. However, this trend of specialisation may be shifted again to generalisation as consumers may be attracted to convenience of different goods on one store, meaning specialist stores need to become more generalised to compete.
This pattern is present in the evolution of the UK retail sector; small general stores were the norm in many villages, where they were the only store, s the village grew, more shops arrived, with increased levels of specialisation. However, as the retail environment has seen the development of out if town supermarkets becoming general stores, not only selling groceries, but many other product categories, such as household goods, fashion, and toys, while there are specialized variants of the major supermarkets such as the smaller neighbourhood stores. However, it should be noted there are weaknesses with this model, including the continuing presence of firms which appear to resist expansion of merchandise lines, and its focus only on the goods/merchandise aspect of retail.
1.1.3 Retail Lifecycle Theory
This concept was developed in repose to weaknesses in the wheel of retail model; the focus on costs and overcome the weakness of the accordion theory which focuses on merchandise/goods. This theory reflects the general product lifecycle theory, hypothesising that retail stores will traverse a lifecycle, starting with development introduction, and then growth which may be divided into early and later growth, with the potential for an accelerated growth category. Following this, the firm reaches maturity, which may be followed by decline, or the lifecycle may be restarted with a renewal. These may be applied not only to retail stores, but also retail formats and selling channels. Retailers may be attracted by new formats and trends which offer potential, but they may face intense competition as many firms may be attracted to new opportunities. Importantly, new opportunities may result from disruptive innovations. When initially introduced in the 189th century department stores were a disruptive innovation, just as catalogues were in the nineteenth century and ecommerce has been in the twentieth century.
Examining the current retail environment on the UK in 2016, the early growth stage may be typified with the new single brand stores, such as Apple and Samsung. Single price stores, such as £1 stores, and warehouse clubs, may be classified as accelerate growth stores. Retail stores in the mature category make up a large proportion of retailers, these include supermarkets, fast food chains, and department stores. The current retailers in decline include independent grocery stores and catalogue retailers.
1.2 Non Cyclic Theories
Non-cyclic patterns present the retail environment at one in which there are different forces, that constant adaptation without the presence of repeating pattern.
1.2.1 Conflict Theory
Conflict theory has its foundation in Dialectic theory, which is a recognised conflict theory based on Marx’s Theory of Evolution. The basic idea is that for progress to be made in any environment there must be conflict, with new ideas taking the place of the older ideas and practices, which may then be emulated creating a hybrid or new format, which itself will eventually be replaced.
In a retail environment, this means that one firm, or format, will be challenged by new or competing firms and formats. As the nee form or format become more effective, the older firms or formats will emulate the new ideas in a form of synthesis. For example, the supermarkets have emulated the online shipping environment by offering online grocery shopping. Recently, online firms have sought to compete with the supermarkets, as seen with Amazon offering a ‘save and subscribe’ service, to deliver regular items on a predetermined schedule, including some grocery items, and the recent launch of the grocery store offering same day delivery in trial areas.
It is hypothesised the best features of the preceding models are likely to be retained and combined with new competing ideas to create new retail models.
This model may explain how and why some trends appear to develop and are then adopted and spread creating hybrid models. However, there are weaknesses with the model; it does not explain why many traditional retail stores do not change and evolve, and the argument that the blending of ideas is not always easily visible, and as such means this model may be seen as ambiguous.
1.2.2 Environmental Evolution Theory
The main idea underpinning environmental evolution theory is that retail firms will evolve and change in response to changes in the microenvironment. This theory states that the firms which are best able to adapt and take advantage of changes in the environment are those most likely to survive and thrive. For example, planning with the use of tools such as a PEST analysis of a Porters Five Forces Analysis may provide information to be used.
The environmental evolution theory can be used to explain the rise of discount supermarket such as Aldi and Lidl who have become more popular following the recession, and have leverage their low price advantages to gain more customers and expand.
However, there are weaknesses with this model. While many firms do respond to external stimuli, many retailers take a proactive approach, seeking to gain first mover advantages.
Think of supermarkets such as Tesco and Sainsbury, who have developed new strategies with various types of store formats, including larger superstores, and local neighbourhood stores, which theories may explain their development?
What external factors have influenced that development, and how might they need to change in the future to retain or gain market share?
2. Retailing Formats
The development of retail has resulted in many different types of formats used to display and sell goods to consumers. These can be divided into two main categories; store based formats and non-store based formats.
2.1 Store Based Formats
Store based formats are characterised by the retail using a physical premises which the customer may visit and choose goods. Usually, the goods may then be taken away by the consumer. There are different formats, some of which may provide opportunity for overlaps.
2.1.1 Chain Stores
A chain store is a shop that is one of a number of shops owned by the same firm, selling under the same name. Examples of chain stores include but are not limited to Tesco, Homebase, B&M, W.H. Smiths, and PC World. These stores may also be classified by their format in other ways, for example, Tesco is also a supermarket while B&M is a discount store.
2.1.2 Department Store
A department store consists of a shop with different department selling different categories of goods. This is a well-established format, the easiest stores included Whiteley’s in London and le Bon Marche in Paris. The departments may include. But are not limited to, fashion, homewares, sporting goods, home improvements, food, and cosmetics. While the store may operate many of the departments, larger stores, such as Debenhams, some departments may be operated under a concession agreement, where the supplier of the goods pays a fee for space in the store.
A supermarket is a large format grocery store, selling mainly food and consumable household items. Supermarkets will have items displayed by category, and may have sections for fresh foods, such as meat and fish. The stores may be of varying sizes, with larger stores and hypermarkets carrying large product ranges and a greater number of product categories. The grocery market is dominated by chain store supermarkets.
2.1.4 Convenience Stores
Convenience stores are usually located within residential areas, serving the local community by selling essential items. Until recently, these were manly independently owned stores, often operating under a franchise such as Spar or One Stop. As supermarkets have sought to expand, they have develop the small ‘neighbourhood’ store concepts to provide a method of expansion.
2.1.5 Franchise Stores
A franchise store is a store which is owned and operated by a person who does not own the brand name, but pays a fee to use that name. Franchisees pay an up-front fee and then ongoing fees for using the brand name and associated concepts, while agreeing to operate in line with the franchisors requirements. From the perspective of the customer, the stores will all appear to be part of the same chain. Examples of firms using the franchise model include Benneton, One Stop, EE, and Pandora.
2.1.6 Discount Stores
Discount stores compete primarily on low prices. The stores will frequently stock a wide range of different product categories, sold at a discount compared to traditional retail stores. In most cases the firms will seek to support the low cost strategy with basic shop fittings and a sparse interior. Example of discount stores includes the Aldi, Lidl, and T K Max.
2.1.7 Self-Service Stores
The traditional retail stores consisted of a store with shop assistants who would serve the customer, which included fetching the goods. This contrasts to the self-service model where the consumer walks around a store and picks out their own purchases before paying for them. The self-service concept is shops is relatively new given the centuries long history of retail, popularised by US grocery chains, The first self-service supermarket was the Co-Op in Manor Park London, which opened in the UK in 1948. Other supermarkets followed suit, the first Sainsbury self-service supermarket opened in Croydon in 1951.
The self-service concept is now the dominant model of retailing offering many benefits over the full service model. The overhead costs of self-service stores are lower when compared to full service stores, the ratio of staff to customers is much lower compared to full service shops, with purchasers providing their own layout to pick the goods. In addition, the self-service concept provides retailers with the opportunity to provide opportunities for impulse purchases to increase the consumers spend. However, the self-service concept is seen as unsuitable for high value goods, such as jewellery, as there is a greater potential for loss from shoplifting of damage from customer handling. In addition, the self-service model eliminates, or at least significantly decreases the potential for suggestive selling by the shop assistants.
2.1.8 Category Killers
The term category killer can refer to either a type of store, or a product. In the context of shops, the term category killer refers to the way in which a single store, or chain of stores which is able to destroy the competition, especially smaller independent stores, with the ability to gain and then maintain a sustainable competitive advantage. An example is Toys R Us, which has significantly reduced the number of independent and small chain toy shops. While this is a term often used in a store based context, online retailers may also be category killers, impacting bricks and mortar stores, as seen with Amazon and its impact on book stores.
2.2 Non-store Formats
While the traditional studies of retail often focus on shops, there are some significant non store formats. Mail order and catalogue sales have been established for many years, ecommerce though internet sales are increasingly important.
2.2.1 Mail Order
Mail order, which includes most catalogue sales is a broad retail category, incorporating all sales made that are sent out by mail. Order may be placed in writing, by phone, or through a web site. All mail order firms should comply with the Consumer Contracts regulations which replaced the Distance Selling regulations in 2014.
With mail order the customers places an order with the supplier remotely, with the goods subsequently delivered directly to their nominated address. In the past the nominated address was usually the home address, but increased work hours and firms seeking to support sales for customers who are not at home to receive parcels. For example, Amazon have set up lockers in multiple areas which allow customers to order goods by mail order which can then be picked up 24 hours a day using a unique access code.
Catalogues are one form of mail order sales. A sales catalogue is a list providing details of merchandise which may be purchased. Firms operating in this sector are usually referred to as cataloguers. The catalogues published will usually be designed for postal distribution, giving images and details of goods which can be sent out.
The first modern mail order catalogue in the UK was set up by Pryce Pryce-Jones, in 1861, to sell welsh flannel. The endeavour was supported by the development of the penny post, making the use of sales by post viable. However, in the US the first mail order catalogue was set up in 1845, with Tiffany’s Blue Book.
In recent years, retail sales from catalogues have been placed under pressure by internet sales. In 2003, according to Mintel, catalogue sales made up the 53% of all home shopping, this declined to 32% in 2004, when Internet shopping took over as the largest home shopping market.
Today the catalogue industry has a number of subcategories in addition to the straightforward purchase model. Many firms, such as Empire, offer weekly or monthly payment options to support sales. Firms may also use catalogues as part of a multichannel distribution, for example, Daxon and La Redoute have expanded into online sales, Argos use catalogues given out in stores to support store sales preventing the need to display all stock, as well as to support or compliment online sales.
2.2.3 Internet Sales
Internet sales may be seen as an extension of the catalogue industry, with details of goods provided online without the need to publish a physical catalogue. The information about goods are provided online, which may be argued as more environmentally friendly reducing waste, as well as potentially more cost efficient. Access to a target market is aided by the high level of internet penetration in the UK; Internet Live Statistics estimated that in 2016, 92.6% of the population have access to the internet.
The internet is perceived by many as a cost efficient method of sales due to the apparent low overheads. However, where firms process their own payments, rather than using a third party such as Sage or PayPal, there is a requirement for significant investment and resources to ensure secure payment transactions. Even where firms do not manage their own payment system, they are still required to ensure customer details are kept secure and abide by the Data Protection Act requirements. However, the investments may be seen as worthwhile by many companies due to the market size. It has been estimated that in the UK, online retail sales amounted to £114 billion in 2015, and are continuing to grow. The busiest period was Christmas, when sales totalled £24 billion.
The advantage of the online sales medium rather than traditional catalogue is the ability for real time information and transactions. The inventory database may be linked to the sales processes, meaning that firms may avoid selling goods which are out of stock. Additionally, many firms, such as Argos and Amazon, allow users to publish reviews of the products they have purchased, which may be useful to those considering a purchase. The ability to link to online marketing may also be seen as an advantage, with firms such as Google and Facebook offering advertisers the ability to very narrowly target specific consumer profiles, and bid for specific key words on searches, with the ability to adapt and change campaigns as they progress, with rapid feedback gathered by monitoring clicks.
Amazon is often seen as the first large and highly successful internet sales firm, but recent news articles indicate the company is considering moving into a clicks and mortar strategy setting up physical stores. Why may Amazon choose to do this and how would the firm benefit?
What category of retail store do you think Amazon would set up?
3. Store Layout and Design
The design and layout of a store will depend in numerous factors, including the type of products/services sold, the target market and the retailer’s beliefs regarding how purchases may be stimulated, and the available space and resources. Effective use of space has the potential to increase sales and provide a source of competitive advantage, impacting on the shopping experience of customers. Where customers find the experience pleasurable, they are more likely to return. In addition, effective layout may stimulate additional purchases to increase sales as well as provide customer satisfaction.
3.1 Store Layout
According to conventional retail theory, there are three main physical store layouts; grid, freeform, and racetrack. Although these layout models are examined individually, there is the potential for shops to adopt a hybrid approach, where some elements may be drawn from the different models, combined in a single store.
The grid layout for a store is based on a rectangular design, where displays of goods will usually run in parallel to each other. Displaying bits in this manner facilitates flexibility, as it helps to maximise shelf space, and create a logical approach towards the display of goods, which are likely to be arranged in categories. The design of a grid, with aisles between regular, logically placed shelving, also facilitates easy movement of customers, as most customers will traverse the aisles in the same order, starting at one end and moving along.
The rectangular arrangement is commonly found in supermarkets, as it facilitates a display method where different categories of food may be placed together, and customers may use the visual cues, which may be enhanced by signs, locate the aisles containing the desired purchase. Concurrently, the design also facilitates exposure to additional competing and/or complimentary products, and can support impulse purchases will.
A free-form layout has a more asymmetric design, where displays will vary in terms of shape and size, as well as basing and even angles. The design may still be used to guide customers in a particular direction around the store, but will not provide the same logical approach as the grid method. Instead, there may be individual designs and islands of displays. This layout can be used to encourage customers to stay in the store for longer, which may increase the level of spending.
The free-form design is most frequently found in large department stores, where there are many different types of products sold.
The racetrack layout is also referred to as a boutique layout. In a racetrack floor, the floorplan is divided into individual areas each of which are different to those close by, but remain independent. The area is likely to be built around a single theme, with the aim of the design seeking to encourage customers to visit as many of the different areas as possible.
The design may also seek to incorporate entertainment elements dispersed among the shopping opportunities.
The racetrack layout is the least common. One example of the racetrack form is the Swedish furniture firm IKEA, who provide displays showing a number of different rooms, and group products by category, whilst not conforming to either a grid or a free-form model.
If you were opening a new computer shop what layout design would you prefer? Would this change if it were a new local grocery store rather than a computer shop?
3.2 External Design Features
The layout refers only to the physical placement of the display. The external design elements concern the way the store is presented may be attractive to different consumers when looking from the outside.
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3.2.1 Window Displays
As window displays take up space which may be used for selling, it is important they create values. The main aim is to appeal to the target market, enticing them into the shops with the aim of stimulating a purchase. The displays will achieve this by providing information about the shops and its products.
The most traditional approach is the use of windows to display stock which they believe the target market may be interested in. However, different merchandising strategies may be used to attract attention. Thematic displays are frequently used; clothing stores may use a season as a theme, and Selfridges are known for their Christmas window displays. Colours may also be used to attract attention, or create associations. Additionally, window dressers usually ensuring there is content at different levels on the display to create a scene. The regular changing of displays, especially thematic displays, help to retain customer interest/attention.
Poster displays are an option used by some firms. Posters indicating content can attract attention by use of text and images. Businesses which sell mainly services are more likely to use this approach. For example travel agents and banks or building socialites will use posters. In shops where the usual approach is to present a full product based window display, the tacit may garner more attention and be used to create interest. For example, many high street clothing chains may cover windows with posters before the launch of a sale. This is a tease tactic.
Many stores may have an absence of a display, having empty widows, which may allow customers to see into the store. This is a common strategy for supermarkets. The open view through the windows allows customers to see what is occurring in the store. The strategy may be argued as cost effective, as it eliminates the need to manage widow displays. The windows also allow for the addition of posters to promote different items or events. Local supermarkets are likely to use this strategy.
The entrance to a shop may act as an enticement or a barrier to potential customers. Many mass market retailers use wide openings, often without doors, to make is easy for shoppers to walk in. Not only can this accommodate a large concurrent movement of people. Large open entrances also provide better access to pushchairs and wheelchairs. The open space also aid with attracting customers by eliminating a psychological barrier and blurring the boundary between the external environment and the internal shop environment; a reduced or blurred barrier increases the likelihood a consumer will walk into the store.
The placement of the entrance may also be positioned with consideration of external features, such as external organisation of pavements, and pavement furniture to maximise the potential of inflow. Research has indicated passers-by are most likely to enter a store if the door is aligned with the direction they are walking/travelling.
Stores may also use a process known as priming to influence the mood and potential purchase of customers by placing specific goods at, or near the entrance of the store. For example, the placement of fresh produce. The aim of placing specific goods near the entrance is to influence not only the purchases, but also the mood of the shopper. For example, placing goods related to holidays during the summer season may remind customers of their holidays, encouraging more holiday related purchases. While priming may be commonly used, there is no proof that this is an effective tacit to increase sales.
Atmospherics refer to the way in which the customer feels as a result of the design elements and the emotional response that is created. Within retail theory, two specific elements have the greatest impact on atmospherics; colour and music, although smell can also be leveraged.
Colour is commonly used to stimulate emotions or create conscious or subconscious associations. For example, bright red may be used to indicate danger or risk, high energy levels, and with relevant symbols or indicators, it is a colour also associated with Christmas, blue and green are usually perceived as safer or more conservative colours, while metallic and rich colours such as burgundy or gold may be associated with luxury. Lighting may also be used to empathise colours, with the use of coloured filters, or for the creation or elimination of shadows.
Music can be used to stimulate not only emotions, but also specific actions. Music is used in many context to support emotional stimulation, it is used in films to arouse specific responses. Consumers are likely to spend more when they are happy, with music able to influence moods.
Music can also impact directly on actions. Music with a faster beat may increase the pace of customer movement through the store, whereas a slower beat may encourage more browsing and slow down their journey through a shop. For example, a supermarket may choose to play music with a slower beat, to increase browsing time, and may use less well known tracks so customers will focus more in the shopping task.
4. Retailing Marketing Mix
The retailing marketing is a variation on the traditional marketing mix, with four components; product mix, price mix, placement mix, and promotional mix.
4.1 Product Mix
The product mix refers to the product lines the retailer chooses to stock. The product mix may also be referred to as the product assortment. This is not only the product categories a retailer chooses to sell, but the breadth and depth of the product ranges referring to the number of product lines and the varieties offered. For example, traditional supermarkets, such as Tesco and Sainsbury will sell a wide breadth of products, possibly offering many different brands, and a greater depth of products, with different variety options when compared discount grocery spares such as LIdl and Aldi, where there is less shelf space and a greater focus on value products.
The product range will change over time, this may include seasonal changes, and changes to renew and refresh product lines, and to reflect upstream and downstream marketplace changes. For example, shortly after the Brexit vote in the UK, Tesco announced they would be eliminating some Unilever products from their range, as Unilever wanted to increase wholesale prices due to the UK currency depreciation. Product range changes may also be undertaken to encourage consumer to trade up, or increase their spending, or to attract customers from competing retailers.
4.2 Price Mix
The price mix refers to the price ranges of the goods sold by the retailer. Pricing will be a clear indicator of the retailers positioning, and should appeal to the target their target market. Importantly, the pricing strategy of a firm should demonstrate consistency, to avoid consumer confusion, and create a clear market position.
The retailers’ decision on the pricing mix will consider issues such as the prices of the competition, the desired profit margin which will also reflect the retailers underlying costs, the poisoning of the firm, the willingness of the target market to pay, and the potential of offering a discount. Firms may use discriminatory pricing, where stores in different locations has differing process, a standard approach where all stores have the same process, or a mixture of the two, depending on the product.
4.3 Placement Mix
The placement deals with the way in which goods are placed into shops and within, or on a web page. While single stores. The aim of this element is to ensure that the right products are in the right place at the right time, in the right quantities. The placement mix includes with the placement of the large supermarket stores; for example large out free standing stores in out of town locations, which are easy to access and can provide plentiful parking, whereas small neighbourhood stores are located near or within residential areas. Likewise, the placement of a retail channel online is also a placement choice.
4.4 Promotional Mix
The promotional mix incorporates the promotion of the retail firm and the products they sell. Many retailers may undertake general branding to support the firm, for example Tesco, Asda, and, Toys R Us, although some of the marketing may include the use of product based special offers to tempt people into the stores. One tactic used is the presence of loss leaders; the idea is to use one product on offer, often at a loss, to attract customers into a store, where they will then buy additional items which will allow the recoup the losses, and generate profit from the additional items sold.
Many retail firms will use loyalty schemes to encourage and reward repeat purchases, for example, Sainsbury have the Nectar program and Tesco Clubcard points may be collected in a variety of retailers, both in store and online. By offering rewards retailers are seeking to develop habitual shopping, favouring their own store/brand.
The promotions will also involve the way goods are displayed, as goods on special displays and placed at the ends of aisles will often demonstrate better sales rates compared to those along aisles. To gain these sought after spots, many manufactures will pay slotting fees, a practice particularly pertinent with supermarkets.
5. Customer Experience
The customer experience (CX) is the experience of the customers that results from all of their interactions with the firm. The process starts when the customer first becomes aware of the firm/brand, through all later touchpoints, including after sales service. The experience is made up of many facets, which will include rational thought, as well as emotional influences, and physical or virtual experiences.
The elements of the products sold by the store, the layout and design, such as atmospherics, are all designed to give the customer a pleasurable experience. Where customers find an experience pleasurable they are more likely to spend more time in a store, and increase the amount spent, and will be more likely to return.
6. Sales Theories/Techniques
Selling is often perceived as an art or a science, which can be partly explained by examining the way sales are made. These models may explain the process from the perspective of the buyer or the seller.
The AIDAS framework is a seller orientated theory. This widely used model states consumers will go through five phases when purchasing a product before they become satisfied. The stages are Attention, Interest, Desire, Action, and Satisfaction. The first stage is for the seller to gain the attention of the potential purchaser. An example of this may be the sales person in a shop gaining the customers attention in a positive manner with casual conversation. The second stage is to create and /or maintain interest in the product or service, for example, allowing the customer to handle the product. The third stage is building/stimulating the desire, with the aim of getting the customer ready to make a purchase, effective desire creation may prevent or reduce potential objection in the next stage of inducing action. The action desired at the penultimate stage is the purchase, this may be through a direct inducement by the sales person, of though an indirect approach. The final stage is satisfaction in the sale process, including good sales service which will reassure the consumer they have made a good decision to make the purchase.
6.2 Right Set of Circumstances Theory
Also known as situation response theory, this is also a seller orientated theory. This model draws on psychological theory. The theory states a sale is most likely to occur when circumstances are present which are likely to favour the purchase of the product. The circumstances may be external. For example people are more likely to buy a snow shovel in a cold winter when they expect snow. The circumstances may also be internal, including the attitude and the opinion of the consumer. In this theory, the sales person should control the situation to maximise the potential for a sale.
6.3 The Buying Formula Theory
This is a customer centric theory, focusing on the needs of the potential purchaser. The theory states buyers will go through a logical process before making a purchase, this will start with the recognition of a need, or a problem which needs a solution, leading to the identification of a solution, the purchase, and then the satisfaction. The role of the sales person in this process may be to aid the buyer in identifying the product or service that will solve the problem or satisfy the need, or to facilitate the sale.
This model has become a fundamental sales model, with a number of variations to explain different types of sales, with the five stage purchase process model made up of the following stages.
- Problem or need recognition
- Information search to identify potential solutions
- Evaluation of the potential solutions
- The purchase decision
- Post purchase behaviour
The length and involvement of the buyer at each stage will vary depending on the type of purchase.
6.4 Behaviour Equation Theory
Behaviour equation theory is a variation on the ‘right set of circumstances’, and explains the way the purchase processes are made within the context of the buyer behaviour, aligned with the buying formula theory. This model proposes four main influences on the purchase process; drive, cues, responses and reinforcement. Drive is defined as the internal stimuli which impact on buyer responses, derived from psychological needs, as well as social influences and learned drive. Cues are a weaker form of stimulus which influence when a purchaser will respond, triggering cues will predicate the decision-making processes. The response was defined as the actions of the purchaser, what they do, and reinforcement is any influence the event which supports the existing responses. This is brought together in an equation, where R is the response, D is the existing drive level, K is the incentive potential associated with the product, or the brand, and way it will satisfy needs, and V is the intensity of the queue present, with the being the buyer behaviour.
R x D x K x V = B
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The retail environment is highly competitive, with multiple, sometimes conflicting theories explaining how or why retailers succeed or fail. The life-cycle of a retail store/farm starts with the foundation of the organisation and is then impacted by the way they choose to grow, which may include expanding and/or extending product lines, increased levels of specialisation, or diversification through different store types. The potential success will also be influenced by the interactions with the potential customers, including the store layout and experience which is created by other influencing factors such as the display of the products, appearance of the store, and atmospherics.
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Case Study - Marks & Spencer
A Marks & Spencer it is a partnership between Michael Marks, and Thomas Spencer. The two founders bought different skills to the collaboration, Michael Marks was a Jewish immigrant who worked for a firm in Leeds. In 1884, after meeting Jowitt Dewhirst, who lent him £5, Marks set up a penny bazaar in Leeds. Thomas Spencer was a cashier for Dewhirst, and was invited to be a partner by Marks when he set up a permanent stall in the covered market in Leeds. In 1901 the partnership opened to adjacent stalls in Birkenhead, a location or retained until 1923. After establishing the Birkenhead presence, the pair expanded opening other market stalls in many other locations; expanding geographically with the aim of increasing revenues by attracting more customers in new markets.
In 1904 the company opened the first permanent shop in Leeds, indicating a slight shift in strategy. However, the company retained the approach most associated with the first stage of the life-cycle portrayed in the wheel of retailing theory; accepting low profits in order to gain customers. The drive to increase profits was seen in the 1920’s, when the partnership adopted a new strategy, buying direct from the upstream suppliers. This had not been a common practice at the time, and was a revolutionary idea. Not only did this cut out the middleman, a process which would help to enhance profits, it also allowed the organisation to influence the upstream supply chain to suit their own needs.
As the organisation grew, increased diversification occurred, with a suitable introduced in 1931. This may be considered using the accordion theory, expanding the product range and choice that is offered. Indeed, this expansion of different products and services was to continue, with the opening of new departments in the store, such as housewares, as well as expanding existing product ranges. For example, in 1974 Marks & Spencer’s introduced in June and Chinese food into their stores, and in 1985 the company launched its own charge card.
As the company evolved, so is retailing strategy. In the early days of market stalls, there was no self-service, and customers pointed out the products they wished to purchase. The same approach was seen in the early shops. However, the organisation did utilise shop windows and displays in order to show customers the goods they could purchase. In the shops which developed subsequently a free-flow design was used, with displays changed regularly to entice customers. In the two departments there was a greater level of grid design, utilised following the evolution of self-service grocery shopping.
While the company has had many successes, they have also faced challenges, which may also be considered within the life-cycle theories. Organisation developed initiation, including a focus on British goods, and high level of customer service. For many years they had a strong and loyal customer base. However, with increased levels of competition, and a strategy which shunned the idea of advertising, the company faced significant problems in the 1990s. The lack of advertising meant that the organisation’s image started to become dated, and sales were declining as consumers were choosing to shop elsewhere. Effectively, the organisations retail marketing was failing. The key element in this was the lack of external promotion to support the brand image of the firm. However, there were also issues associated with the product range, with the previous success of the organisation creating a strong internal focus failed to recognise the market. The company had entered a decline phase of the life-cycle, as they have failed to renew and adapt. The failure of the company was not only seen in the domestic market, but in many of the international markets where Marks & Spencer’s had expanded.
During the late 1990s and early 2000s the organisation adjusted its strategy. The changes included significant increases in advertising in mass media, as well as a review and overhaul of the product range. In addition, the stores themselves were re-examined with the layout and atmospherics improved to create a better shopping experience, with new store design. To increase revenues the organisation undertook major restructuring, including the closure of 22 unprofitable stores. The resulting strategy pursued a greater level of diversification, with the opening of different types of stores. For example, the smaller neighbourhood stores have been opened, and in a strategic alliance with BP, Marks & Spencer’s food was sold in some of the larger petrol stations. This strategy has been enhanced in subsequent years, for example subsequent store design has seen an increased level of sophistication, with a strategy in 2011 announcing that the company would pursue different types of store design based on the local demographics of the area. The store also has increasingly successful online presence, supporting a clicks and mortar strategy.
Today the company has turned itself around after facing the difficulties during the decline with a successful retail marketing mix, although the company is becoming more reliant on food sales as clothing sales slowly decline. Overall, including the smaller just food stores, the company now has 852 stores in United Kingdom, as well as 5 stores in Spain, 11 in Poland, six in Hungary and Finland, 14 in France, 17 in Ireland, 27 in Greece, 37 in Russia, and 48 in Turkey. With an operating profit of £762.5 million in 2015, and a net profit of 481.7 million, and employing more than 80,000 workers, the organisation may be seen as a successful retailer.
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