Principles of Retailing: Retail Strategy and Planning - Target Market, Selection and Positioning

What This Is

Target Market Selection and Positioning is the process of identifying and serving a specific group of customers with tailored products, services, and experiences. This matters for retailers as it directly impacts sales, customer loyalty, and ultimately, profitability. For instance, Zara's focus on young, fashion-conscious women has enabled the brand to dominate the fast-fashion market.

Key Frameworks & Metrics

• Wheel of Retailing: Describes how retailers evolve from low-price to upscale over time, often starting as discounters, then moving to mid-range, and finally, to high-end.
• GMROI (Gross Margin Return on Inventory Investment): Gross margin divided by average inventory cost – measures inventory profitability. A GMROI of 2:1 means for every dollar invested in inventory, the retailer generates two dollars in gross margin.
• Customer Lifetime Value (CLV): The total value a customer is expected to bring to a business over their lifetime. CLV helps retailers prioritize customer retention and loyalty programs.
• Inventory Turnover: The number of times inventory is sold and replaced within a given period. A high inventory turnover indicates efficient inventory management.
• Basket Size: The average amount spent by a customer in a single transaction. Increasing basket size can boost sales and revenue.
• Conversion Rate: The percentage of website visitors or in-store customers who make a purchase. Improving conversion rates can significantly impact sales.
• Omnichannel Maturity Model: A framework for evaluating a retailer's ability to provide a seamless shopping experience across online and offline channels.
• CAC (Customer Acquisition Cost): The cost of acquiring a new customer. CAC helps retailers evaluate the effectiveness of their marketing and sales efforts.
• Customer Segmentation: The process of dividing customers into groups based on demographics, behavior, or preferences. Effective segmentation enables targeted marketing and product development.

Step-by-Step Process

1. Identify Target Market: Analyze customer demographics, behavior, and preferences to determine the target market.
2. Conduct Market Research: Gather data on customer needs, preferences, and pain points through surveys, focus groups, or online analytics.
3. Develop Unique Value Proposition (UVP): Create a clear and compelling message that differentiates the retailer from competitors and resonates with the target market.
4. Design Product and Service Offerings: Develop products and services that meet the needs and preferences of the target market.
5. Implement Omnichannel Strategy: Ensure a seamless shopping experience across online and offline channels, including inventory visibility, order tracking, and returns.
6. Monitor and Evaluate Performance: Track key metrics such as CLV, GMROI, inventory turnover, and conversion rate to refine the target market selection and positioning strategy.

Common Mistakes

• Mistake: Ignoring customer preferences and needs in favor of a one-size-fits-all approach.
• Correction: Conduct thorough market research to understand customer behavior and preferences.
• Mistake: Treating all channels separately, rather than integrating them for a seamless customer experience.
• Correction: Implement an omnichannel strategy to provide a consistent experience across online and offline channels.
• Mistake: Over-reliance on discounts and promotions to drive sales.
• Correction: Focus on developing a strong UVP and providing value to customers through quality products and services.

Retail Strategy Tips

• When expanding omnichannel, ensure unified inventory visibility to prevent stock-outs online.
• When launching a private label, consider factors such as product quality, pricing, and packaging to ensure it resonates with the target market.
• When analyzing store performance, focus on metrics such as conversion rate, basket size, and inventory turnover to identify areas for improvement.

Quick Practice Scenario

A department store has high footfall but low conversion. Which metric would you analyze first and why?

Answer: Conversion Rate. Analyzing conversion rate will help identify whether the issue lies in the store's ability to engage customers or in the product offerings and pricing.

Last-Minute Cram Sheet

• Target Market: A specific group of customers with shared needs and preferences.
• UVP: A clear and compelling message that differentiates the retailer from competitors.
• Omnichannel: A seamless shopping experience across online and offline channels.
• CLV: The total value a customer is expected to bring to a business over their lifetime.
• GMROI: Gross margin divided by average inventory cost – measures inventory profitability.
• Inventory Turnover: The number of times inventory is sold and replaced within a given period.
• Basket Size: The average amount spent by a customer in a single transaction.
• Conversion Rate: The percentage of website visitors or in-store customers who make a purchase.
• CAC: The cost of acquiring a new customer.
• Customer Segmentation: The process of dividing customers into groups based on demographics, behavior, or preferences.
• Omnichannel is not just being present on all channels – it's about a seamless integrated experience across channels.
• CLV is not just a one-time calculation – it's an ongoing process that requires regular updates and refinements.
• GMROI is not just a measure of inventory profitability – it's a key driver of overall business performance.