Contrary to the fears that e-commerce portals will bring a downfall of the physical retail format, the latter has bounced back with the might of the e-commerce channel. A booming consumer market in countries like India and China, entry of foreign retail players, domestic giants diversifying into retail and mushrooming local stores – all indicate towards the high growth potential of the retail sector. But at the micro level, it is essential for budding entrepreneurs and business enterprises not to get swayed away by the favorable macro conditions and do their groundwork properly before entering into retail business. This article will highlight six important areas which every retail entrepreneur should revisit.
Business Model Feasibility
The business model is basically how a company plans to create and deliver value, generate revenue and earn profits. For example, a retail departmental store aims to earn revenue by selling groceries and household supplies (value), procured through wholesalers (partners), to the local customers (target segment, CRM) while retaining a margin on the goods so that profit can be earned after deducting COGS and operating costs from the revenue generated. For a business model to work, it is very important to assess if it can be executed as intended or not. For example, if there are competitors already present in a given locality, the idea of a new departmental store in that location may never take off unless it has a business model better than that of its competitors. In case of retail departmental stores, a better business model may include exclusive wholesale partners, trained staff, advanced servicescape, varied payment options etc. Undertaking a feasibility study of the business model will help an entrepreneur not only in its evaluation but also in its improvement towards making it more competitive and more profitable.
Undertaking a feasibility study of the business model will help an entrepreneur not only in its evaluation but also in its improvement towards making it more competitive and more profitable.
Retail products and services can be classified into certain broad categories like books and stationery, apparel, electrical and electronic goods and services, financial services (like insurance, stock broking), sports equipment, groceries and home supplies, medical stores, footwear, furniture etc. Before choosing the category of products/services for a retail venture, there are certainly important considerations involved.
- Value of the product – How are the targeted customers going to benefit by using the product? The products/services offered to the customers must fulfill their specific needs or solve their specific problems.
- Size of the market demand for the product – The market share a retail enterprise expects to capture must substantiate its revenue targets.
- The frequency of consumption/need – How frequently a product/service is consumed directly affects how frequently that product will be purchased.
- Competition and channels – Customers have different shopping destinations/preferences for different product categories. For example, customers in a given location may have a preference for one or two medical stores over the others for their needs of medical supplies or the customers nowadays have a preference for online shopping channels for the purchase of electronic products of complementary nature like power banks, Bluetooth speakers etc. Thus, the scope of competition in retail is not just limited to business entities in the local market but also extends to different channels of distribution and delivery which need to be considered in choosing the product categories.
Pricing and Margins
Pricing is a very important element of the marketing mix. Pricing strategies are decided after taking into consideration various factors like costing, brand USPs, business environment and the marketing objectives and strategies of the business enterprise. For example, when Reliance Jio was launched, its services were offered free of cost to its subscribers across the country for more than 6 months. It helped Reliance Jio penetrate the booming telecom market in India and the company captured a market share of 6.4% in a very short of span of time (1). Some of the important pricing strategies are listed here.
- Premium Pricing – Companies can charge higher/premium prices when their products/services have strong brand USPs and exclusivity and there’re no immediate competitive threats or the entry to the market is restricted.
- Penetration Pricing – This pricing strategy is used by companies to enter new markets or capture larger market share by setting the prices of their products lower than that of the competitors and thereby attempts to lure customers.
- Economy Pricing – This is a low-cost-no-fancy marketing approach where the primary focus of the companies is to provide the core product/service to the customers. The primary objective here is not to make the product cheaper but to make it accessible to the economically sensitive segment.
Other popular pricing strategies include price skimming, bundle pricing, promotional pricing, psychological pricing, geographical pricing, value pricing, product line pricing, optional product pricing and captive product pricing.
To read more on pricing, click here – 6 Ways To Price Your Product
SOPs and Operational Efficiency
In order to ensure that goods are available on time (inventory process) and are effectively put on display (merchandising process), customer service goes unhindered (staff management and training) and other essential business processes are effectively carried out, it is very necessary for a retail enterprise to ensure that the operational activities (which makes up a business process) are laid out in a well-defined format. The answer lies in developing Standard Operating Procedures (SOPs). Having a written, systematic and step-by-step procedural roadmap of the operational activities can help a retail enterprise in several ways –
- Employees can better understand what procedures they are required to follow in executing their functional duties and what output they are expected to deliver.
- Maintain consistency and uniformity in operations and operational outputs
- Monitor and control the performance of the retail enterprise at the operational level and thereby improve the operational efficiency
To read more about SOPs in retail, click here – 05 Reasons Why You Must Develop SOPs For Retail Stores
Barring monopolistic situations, retail is a fiercely competitive space. From needle-makers to airliners, no business entity is spared from the intense competition at the retail level. This is especially true when the products/services/values being offered by different companies in the same market are homogenous. This is where USP (Unique Selling Proposition) comes into the picture. We can take the example of the telecom industry in India. All the service providers provide similar services except maybe for some amount of geographical variations in the network reception and internet connectivity and this exception itself strongly guides the customers in choosing one service provider over another. The rest of the credit could be attributed to perceptive positioning and advertising. But when Jio was launched and offered the same services as that of its competitors with a strong USP that its services will be provided free of cost to its subscribers, a brand like Reliance was able to quickly secure a considerable share of the market. However, it may not always be possible for a company to create any real difference with which it could establish a distinct identity or position itself uniquely in a market. That’s when companies try to make use of perceptive positioning to draw the customers closer to a brand. Whether real or perceptive, brand USPs are crucial for a business enterprise venturing into the retail space to position itself as unique or distinct from its competitors.
This is especially true when the products/services/values being offered by different companies in the same market are homogenous. This is where USP (Unique Selling Proposition) comes into the picture
The layout of a showroom or a store refers to its basic architectural map comprising of floors, entrances, exits, parking, payment counters, aisles, lobby, display, demo counters, trial rooms, washrooms etc. Showroom layout is designed keeping in mind factors like display of merchandise, movement of people and inventory, design details, the category of products, services, safety and security etc. But a showroom is much more than the architect’s map. Customers’ first impressions about a business are built here and it deserves the best shot. Certain highlighters worth considering in showroom design and layout are listed here (2).
- It’s good to have store windows.
- Make sure there’s something eye-catching when customers enter the showroom.
- Keep the basic directional signs simple and movement easier.
- Don’t bring the aisles to abrupt ends.
- There’s no necessity to keep the aisles straight; they can be curved too.
- Don’t let the display stacks touch the ceiling.
Retail is not an easy nut to crack especially when an entrepreneur aspires to rise above the average retail player in the targeted market which remains the goal of every retail enterprise. An ambitious business model might fall flat if it is not thoroughly examined and brainstormed with critical and alternative vision and viewpoints. Choosing a product category where the competition is already intense might limit market share. Pricing products too high might dampen revenue projections or be pricing them too low might result in slow growth. Thus, it becomes imperative for retail entrepreneurs to reassess their business ideas and empower it with the right strategies.
Chief Strategy Officer