Chapter 2 Retail Strategic Planning & Operations Management
What is Strategic Planning? • Involves adapting the resources of the firm to the opportunities and threats of an ever-changing retail environment.
Strategic Planning (cont.) • Four components, or steps, involved in strategic planning: • Mission statement • Statement of goals and objectives • SWOT analysis • Strategy
What is a Mission Statement? • It’s a basic description of the fundamental nature, rationale, and direction of the firm. • Three elements necessary for a sound mission statement: • How the retailer uses or intends to use its resources • How it expects to relate to the ever-changing environment • The kinds of values it intends to provide in order to meet the needs and wants of the consumer. • Should be crafted at “the most meaningful level of generalization possible”… why?
Goals and Objectives • Serve two general purposes: • Provide direction and guidance to the firm in the formulation of its strategies. • A [intermediate] “destination” for the firm • Establish a standard against which to measure and evaluate future firm performance. • And in so doing… • They minimize the ability for ex post justification by a retail manager*
Market Performance Objectives • Establish the amount of dominance the retailer seeks in the marketplace. • Two most common measures are: • Sales volume • Market share • Refers to the retailer’s total sales divided by total market sales • Either at the level of the entire chain, geographic region, or product market. • While positively related to profit, this is not always the case.* • At some point it may become curvilinear (i.e., upside-down “U” shaped) due to sacrificed margins that are not offset by increases in sales volume in order to gain additional market share *
Financial Performance Objectives • Analyze a retailer’s ability to provide a profit level adequate to continue future business. • Two general categories: • Profitability objectives • Deal directly with the monetary return the retailer desires from its business • Productivity objectives • Deal directly with how much output the retailer desires for each unit of resource input
Profitability Objectives • Focus primarily on the monetary return that is desired from one’s business (i.e., profit). • But what is meant by profit?
Profitability Objectives • Focus primarily on the monetary return that is desired from one’s business (i.e., profit). • But what is meant by profit? • Commonly means net profit after taxes, but can be expressed as a percentage of sales, or even return on investment (ROI) • But what is considered an investment? • Specifically, does it matter who provided the investment (i.e., creditors vs. owners)? • If it doesn’t matter then ROA is an adequate measure; otherwise, RONW is better suited.
Productivity Objectives • Focus on output gained per unit of resource input. • Three common measures: • Space productivity • Sales divided by total sq. feet of total retail selling space. • Labor productivity • Sales divided by number of full-time-equivalent employees. • Merchandise productivity • Sales divided by average dollar investment in inventory (at cost). *Note: the terms sales, total sales, and net sales are used interchangeably throughout the entire course*
What is a Strategy? • A carefully designed plan for achieving one’s goals and objectives (i.e., its “game plan”). • Retailers must have at least three general strategies in order to have a shot at success: • Get consumers into your store (traffic strategy). • Convert these consumers into customers by having them purchase something (conversion or closure strategy). • Do so at the lowest cost possible consistent with the level of service your customers expect (cost management strategy).
Differentiation Strategies • Possible areas for differentiation include: • Price • Product • Selling process • After-purchase support • Location • Service level • What tradeoffs might be required to implement each? • E.G. - greater service levels lead to greater ICCs
Developing a Differentiation Strategy • Retailers begin with a SWOT analysis. • Internally: • What are the retailer’s relative strengths and weaknesses? • Externally: • What potential threats and opportunities exist within the market? • Successful retailers will… • Leverage strengths that minimize future threats, and • Correct weaknesses that coincide with market opportunities
SWOT Analysis • Strengths: • What major competitive advantage(s) do we have? • What are we good at? • What do customers perceive as our strong points?
SWOT Analysis • Weaknesses • What major competitive advantage(s) do competitors have over us? • What are competitors better at than we are? • What are our major internal weaknesses?
SWOT Analysis • Opportunities • What favorable environmental trends may benefit our firm? • What is the competition doing in our market? • What areas of business that are closely related to ours are undeveloped?
SWOT Analysis • Threats • What unfortunate environmental trends may hurt our future performance? • What technology is on the horizon that may soon have an impact on our firm?
Strategy Checklist • A fully developed marketing strategy should include: • Target market(s) • Group of customers that the retailer is seeking to serve. • Location(s) • Geographic space or cyberspace where business is conducted. • Retail mix • The merchandise, price, advertising and promotion, location, customer service and selling, and store layout and design. • Value proposition • A statement of the tangible and/or intangible results one receives from shopping at and using the retailer’s products or services.
What is Operations Management? • The day-to-day management of retailer activities directed at maximizing retailer efficiency. • Most common activities evaluated include: • Buying & handling of merchandise • Pricing • Advertising & promotion • Customer services & selling • Facilities • People
What You Should Have Learned…Chapter’s Learning Objectives • Why strategic planning is so important and the components of strategic planning (i.e., the mission statement; goals and objectives; SWOT analysis; and strategy). • The retail strategic planning and operations management model.