Retail – Classification
Retail
Retail is defined
as “Any business that directs its marketing efforts towards satisfying the
final consumer based upon, the organisation of selling goods and services as a
means of distribution.”
The word retail has
been derived from the French word ‘re-tailler’ which means ‘to cut, trim or
divide’. Thus, retailing means, to sell goods in small quantities.
Retailing not only covers the sale of goods which are tangible but also
includes the sale of services to individual customers.
Retailing is a convenient, convincing and comfortable
method of selling goods and services. Retailing, though as old as business,
trade and commerce has now taken new forms and shapes. This is because of new
management techniques, marketing techniques and also due to ever changing and
dynamic consumer psychology.
The examples of
service retailers can be dry cleaners, beauty salons, health centres, spas,
tailor’s shop, etc. In the absence of retailers, there would be absolute
confusion and it would be very difficult for the manufacturer to make the
products available to a large number of customers. Thus, retailers facilitate
smooth running of goods and services to the ultimate customers.
Retail
– Concept
There are many
approaches to understanding and defining retailing; most emphasize retailing as
the business activity of selling goods or services to the final consumer.
“Any business that
directs its marketing efforts towards satisfying the final consumer based upon,
the organisation of selling goods and services as a means of distribution.”
The concepts
assumed within this definition are quite important. The final consumer within
the distribution chain is a key concept here as retailers are at the end of the
chain and are involved in a direct interface with the customer. However, the
emphasis on final consumer is intentionally different from that on customer – a
consumer is the final user of a purchase whereas a customer may have bought for
his or her own use, as a present or as part of an own business activity.
Purchases for business or industrial use are normally not retail transactions.
Additionally, retailing includes more than the sale of tangible products, as it
involves services such as financial services, hair cutting or dry cleaning.
Retailers are often
referred to as “middlemen” or “intermediaries”.
This suggests they occupy a middle position, receiving and passing on products
from producers and wholesalers to customers. This is accomplished by the
addition of service and the provision of the store in a convenient location to provide
a successful channel of distribution.
The key objective
for any successful channel is to ensure availability of the right product, in
the right quantity, at the right time via the right channel. All marketing
channel decisions need to be related to ensuring the customer is a focal point
for the selection and display of stock so as to make the sales operation as
effective as possible.
A retailer carries
out a specific service and this should not be confused with the wholesaler.
Retailing involves
a direct interface with the customer and the coordination of business
activities from end to end - right from the concept or design stage of a
product or offering, to its delivery and post-delivery service to the customer.
The industry has contributed to the economic growth of many countries and is
undoubtedly one of the fastest changing and dynamic industries in the world
today.
(1) Retailing and
the Marketing Mix:
Retailing forms an
integral part of the marketing mix and includes elements like product, place,
price, people, presentation and promotion. Place relates to the distribution
and availability of products in various locations. Customers are first
introduced to the product at the retail store. Organisations sell their
products and services through these retail outlets and get feedback on the
performance of their products and customers’ expectations about them.
Retail stores serve
as communication hubs for customers. Commonly known as the Point of Sale (POS)
or the Point of Purchase (POP), retail stores transmit information to the
customers through advertisements, and displays. Hence, the role of retailing in
the marketing mix is very significant.
(2) Channel Power:
Channel power
refers to the extent to which retailers influence marketers’ decisions like
pricing, promotion and product strategy. This emanates from the point of
customer contact (the retailers), which is the one-point source of information
feedback from customers to the marketer/manufacturer. Because of its
communication capabilities, the channel is in a position to influence
customers’ decisions.
Retail
– Classification
To understand the retailing function, we must
first understand the types of retail stores. When we buy vegetables from a
vendor, grocery from a small store, or apparel from a branded store, our
experience in all these cases is different even though all these are retail
outlets.
It is at the retail level that companies must
figure out how they can best serve their customers while earning a profit, or
stand out in a competitive environment where consumers have too many choices;
while retaining a core of loyal customers. Retailers—whether small shops or big
supermarkets—are in a position to understand and meet customer needs.
Retail can be classified on five attributes:
1. Sector,
2. Ownership,
3. Level of service,
4. Product assortment, and
5. Price.
These are described as follows:
1. Sector:
India’s retail industry can be classified into
organized and unorganized sectors.
The different types of sector are given below:
(a)
Organized retail refers to trading done by licensed retailers,
or those who are registered for sales tax, income tax, service tax, and also
give employee benefits. This includes the corporate-backed hypermarkets and
retail chains, and the privately owned large retail businesses.
(b)
Unorganized retail, on the other hand, refers to the traditional
retail, such as individually owned shops, local kirana shops, general stores,
paan/beedi shops, kiosks, convenience stores, hawkers and sellers using hand
carts, and street vendors. They are not usually registered for payment of tax
and have no social security benefits.
2. Ownership:
Retail outlets thus vary from small roadside
shacks to stores to franchise operations and supermarkets. Many such outlets
are started by people to make a living for themselves on making a small
investment and, indeed, the retail sector remains the largest employer in many
countries, including India. An individual decides on what type of retail outlet
he/she wants to have depending on financial resources, lifestyle, family
background, personality, and skills.
To start a retail business, a person may think
of either going at it independently or with family members to start a store of
any size. One may choose to join a direct marketing company, or take up a
franchise to operate the store under a recognized trade name.
Companies establishing their marketing
channels must learn to deal with individual entrepreneurs to large chains. The
needs and motivations of each type of retailer will be different.
The different types of ownership are given
below:
(a) Individual Entrepreneurs or Family-Owned
Stores:
These stores serve a group of loyal customers,
usually living close by. In the US such stores are called ‘mom-and-pop stores’,
implying that a retired couple runs the store. However, in the Indian context,
this would be wrong, since stores are family owned and the more appropriate
description may well be a ‘pop-and-sons store’. The independent retail owner
makes all the decisions, from which type of goods to stock to the level of
services to be provided. Many such stores in India are handed down from
generations and have remained in the same family, sometimes for almost a
century.
(b) Company Owned Stores:
Owned and operated by large companies, these
retail outlets have central buying departments that place large orders with the
manufacturers. Retail chains fall under this category.
(c) Franchise:
Rather than go at it alone, an entrepreneur
may decide to open a store with a famous company by obtaining its license. In
this case, the store is operated using the franchisor’s trade name and business
model. The franchisee gets the right to use the name, product, concept, and
business plan of the franchisor who also decides about store layout and design.
The franchisee pays a royalty and commission
on sales to the franchisor. In the case of a strong brand name, like
McDonald’s, the franchisee gets an assured business and goodwill which
otherwise would take years to build. In this way, the franchisee reduces most of
the risks associated with starting a retail business. Franchisees get
marketing, training, and operational support needed to run a successful
business.
(d) Dealership:
A next form of retail is the model of a
licensed dealership. In this, the licensee gets the right, which is sometimes
exclusive, to sell a company’s products. But the arrangement is more flexible
than a franchise, since the dealer can sell a variety of goods in his store.
There is no royalty or fees to be paid to the licensor, and the system works as
a mix of franchise and independent retailer.
The advantage is that the retailer gets an
assured supply of goods from a company, the company provides some branding or
product name recognition, and, thus, a regular stream of customers can be expected.
Existing retailers may find the dealership model lucrative, as it adds to their
business. The dealer maintains his independence. But companies may pressurize
dealers to achieve a certain level of sales. Dealers do not receive help from
companies in setting up their business.
(e) Network Marketing:
This is a retail model where a person sells
the companies’ products to friends, family members, and others for a
commission. The agent also recruits other people to sell products, on which he
or she earns commission. It is a business for individuals to do on part- or
full-time basis. The main advantage of network marketing is that individuals
can start the business with relatively less investment.
Network marketing provides freedom for people
to sell in their spare time. However, one may find oneself stuck with unsold
stock, and unscrupulous multi-level companies simply shut down after recruiting
a lot of representatives. Network marketing relies more on personal selling
rather than store selling.
3. Level of Service:
Level of service varies from full service to
self-service. When we go to a shop and ask for goods, the shopkeeper gets them
for us, packs them, and hands over the packet. This is called full service. In
a supermarket, however, we must pick goods ourselves and carry them to the cash
counter. This is an example of self-service. Some other stores operate
somewhere in between these two, providing partial service, as in apparel
stores, where a sales person will assist in selecting products and the customer
carries his/her shopping to the cash counter.
4. Product Assortment:
Stores may have a single line of products as
in a specialty store, or stock many items as in shops and supermarkets.
Convenience stores will stock only some items that are required by their
customers on a daily basis.
5. Price:
Retail stores are also classified on the basis
of full price or discounted price. Customers visit these stores depending on
their needs. An upmarket fashion store, for instance, will not offer discounts,
but a store selling mass-produced goods may offer goods at discounts. Some such
stores offer discounts all the year round.
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