Transcript Retail environment?

An Introduction to
Retail Management
&
Marketing
Book 1
What is
Retailing ?
Session 3: Understanding the Retail
Environment- I
Outline
1. Political and legal forces
2. Economic forces
3. Ecological/physical forces
4. Conclusions
Introduction: Retail environment?
• Retailers face challenges from within & outside
business
• It is not just how to operate a store, needs & wants
of customers, why & how they shop
But, also business environment in which retailing
takes place.
The marketing environment consists of actors
& forces that affect a company's capability to
operate effectively in providing products &
services to its customers...
Fig 3.1: elements which make up the retail
environment.
Macro-environment : forces that affect not only company
but also other actors in the microenvironment
• Business environment is constantly evolving
• Ecological & physical forces have been added to
PEEST model
o Customer is encouraging businesses to find ways to
reduce carbon emissions
• Macro-environment forces are reflected in PEEST:
1. Political (and legal forces)
2. Economic forces
3. Ecological/physical forces
4. Social/cultural forces
5. Technological forces
I. Political and legal forces
• Political /legal forces influence retail management
decisions by determining rules & responsibilities.
• Ex: EU urged member states to ban smoking in
public places due to health risks to passive
smokers. Retailers must ensure this regulation.
• Politicians can affect businesses through power to
change laws. Many business leaders try to develop
relationships with politicians hoping they influence
political decision-making process.
Regional/national legislation
• Companies are influenced by legislations at regional
level (i.e. EU) & at national level.
• Importance of competition legislation: businesses
benefit from operating in intensely competitive
trading environments
• Competition policy encourage competition by
removing restrictive practices & anti-competitive
activities
The legal rules seek to:
1)
2)
3)
4)
Prevent collusion – conspiracy - through price fixing,
& any collaborative activities that enable companies to
join together & act as a monopoly
Prevent companies abusing a position of market
dominance
Control growth of companies through acquisitions &
mergers, aiming to stop them gaining excessive
market power
Restrict state aid - which could give company unfair
competitive advantage
National legislation
• Each state has the right to make its own laws governing
business practices.
• These laws mainly concern:
– Consumer protection
– Product liability
– Food safety
– Prices
1) Consumer protection
• Consumer protection legislation provide consumers
with rights enforced through courts if necessary.
• Buyers have the right to expect that G they buy are:
– Of satisfactory quality
– Fit for all intended purposes
– As described
 Retailers must offer a refund to customers where faulty
G are supplied if notified in a 'reasonable time
 Instead, customers accept a replacement or repair of G,
or a credit note
 Retailers, liable for losses incurred from using faulty G
Consumers have additional rights:
• When buying by mail or method where they do not
meet with trader directly. Ex: Internet, TV, phone etc…
Buyer will be protected by Consumer Protection (Distance
Selling Regulations)
• Here, buyer is entitled to expect retailer to provide:
– Clear information about P offered for sale
– Right to cancel order within 7 working days for any reason
– A full refund if they do not get G/S on time
• For selling S, Supply of G & S specific regulations
detail rights of purchasers & duties of sellers.
– Requiring S performed under contract to be performed with
reasonable skill & care.
• Customers can sue S provider if a breach of contract
2) Product liability
• Consumer Protection regulations require that G
supplied must conform to safety requirement.
• P fail to satisfy safety requirement if not safe given
all circumstances, including intended use, storage,
usage instructions & safety standards.
– Retailers are required to publish notices warning
consumers of unsafe G previously supplied by them &
provides powers for suspension of sale & attack unsafe G
– Liability falls on producers, importers & suppliers, but
retailers should maintain G records to avoid problems
3) Food safety
• Perishable nature of food is a potential hazard to
human health resulting from sub-standard food
• Food legislation: preparation, storage & labelling of
merchandise
• Four key of legislation for food businesses:
– Food Safety
– General Food Hygiene
– Temperature Control
– Food Premises (Location)
The Food Safety Act
‼ Offence to offer unhealthy food injurious
‼ Prohibits sale of food that is unfit for consumption
‼ Offence to sell unexpected quality & content
‼ Prohibits false/misleading presentation of food through
advertising or labeling
‼ Claims control; ex: pre-packed food, ingredients must
be listed by weight & display name/address of labeller
• Other food-related issues covered by legislation:
– Labelling that enables consumers to make
informed choices regarding products
• Enforcement of regulations on food safety is the
responsibility of local authority officers & ministries
Displaying prices & the law
• Prices regulations control require display of selling
price of most G
• Prices must be displayed by at least one of the
following:
– A price ticket on each item
– A nearby shelf-edge label
– A nearby price list
Price Marking regulations
 Unit prices must be displayed:
If G are sold loose
If prepacked G of same type with varying quantity
If retail outlet has an internal retail sales floor area of more
than 280 square meters, P quantity must be marked
If P is made up in a legally prescribed quantity
P must include VAT except for business customers
 Delivery & other charges payable must be included in
price or separately with equal importance
• During sales, price reductions may be shown by way of
a notice if to all G, if not, identifies to which G.
• If reduction does not apply to all methods of payment
ex, credit cards/cash the difference must be displayed
Misleading prices
•
•
•
•
Regulation of consumer credit
It provides legal framework to regulate consumer credit & covers
most aspects of forms of consumer lending.
Ensures that borrowers have accurate information to choose best
credit agreement
Retailers will require a credit licence if they:
– sell on credit
– Hire out G for more than 3 months
– lend money
– Issue credit cards or trading cheques
– Arrange credit for others
Retailers don’t need a licence to accept credit cards
Economic forces
1. Economic growth & unemployment: world's economy goes
through periods of growth followed by decline influencing
consumer spending.
2. Interest rates & exchange rates: monetary tools
governments use to manage economies.


Interest rates price borrowers have to pay to lenders for the use of their
money over a specified period of time.
An exchange rate is price of a currency in terms of another (£1 = euro
1.20). Fluctuations in exchange rates: Prices change from a country to
another.
3. Central & Eastern Europe – 8 European countries joined
EU thus, deregulated market-less barriers among members.
Free market where companies can grow
4. Growth of 'BRIC' economies - well-developed nations
have mature economies. Retailers are focusing on growing
economies as part of their international growth strategies.
Transaction costs:
Intermediaries
are retailers which act as
are costs we incur when
'middlemen' bringing P
produced in bulk by
getting involved in the
manufacturers to market
so that consumers can
exchange process.
buy smaller quantities.
Retail demand
• Retailers create wealth through exchange.
• Retailers aim to make a profit by buying G in bulk
& selling them in smaller quantities to individuals.
• Without retailers, consumers spend time & money
(transaction costs) in finding sellers & waste time &
money especially if exchange did not take place
• Retailers act as:
– intermediaries in supply chain
– Perform a vital function in modern society.
– Enable exchange between producers & consumers.
– Understand D, set prices & compete with other retailers.
Theory of Demand
• Ideas & observations modeling consumers behavior.
• Simplifies real world so we can distinguish between
imp & not imp factors affecting consumption
decisions.
• Powerful theory that has stood test of time through
its ability to model & forecast impact of a changing
environment on D & prices
‘Why do people buy goods I offer for sale?'
• Pricing: What price or range of prices should
the P be offered at?
• Advertising & promotion: Which features of P
encourage consumers to buy them?
• Purchasing: Do input costs allow for profits
to be made by retailer?
Influences on Demand
• Price: Actual price is a major determinant of
effective D.
• Lower price greater quantity demanded assuming
other factors remain the same.
• Perceptions of price vary affect demand
• Price is a relative thing for consumer
• An acceptable price is determined by incomes & by
other prices in the market
Prices of related goods:
Complements & substitutes
• Price of a P rises, D for P & its complement
decrease because price of main one have used up
more of a person's income &so less is available for
complement
• A substitute for biscuits could be cake. If price of
cake fell, biscuit lovers may switch to cheaper cake
Consumer incomes
• Limited amount of money
Constraint on buying behavior
Important determinant of our decisions.
• Incomes are also affected by interest rates, wage
rises & level of employment
• For low-income earners, purchase of biscuits is seen
as a luxury
Anticipated price changes
• If consumers thought that a rise in price might
happen, they might stockpile biscuits to avoid the
impact of higher prices.
• Conversely, if a fall in price were anticipated
consumers would wait until the last minute to buy.
– Ex, booking a holiday at last time
• Problem: Trying to predict future
Tastes & preferences
• Some people do not like biscuits
• Others have a 'sweet tooth'.
• Some buy biscuits as presents for others,
especially at celebrations or seasonal events
• Those influences determine our desire to buy
biscuits.
Demographics
• More people there are, More purchase
• Studying demographic data help a retailer to
understand profile of local population based on age,
gender & ethnicity.
Exceptions:
• When purchasing a gift that should be valuable & the
amount of money spent will represents level of respect
 Higher price, greater quantity sold (if looking for a gift)
 When buying for a charity, you will buy largest quantity
for a sum of money- 'buy 1get one free' offers)
• Transaction costs: consumer must pay travel costs &
give up time to make the purchase.
– If supermarket: additional cost of travel is barely noticed
– If special visit-long distance- you may pay little more at
local convenience store than pay to travel to supermarket
Factors affecting pricing of biscuits
Area of management decision
Issues affecting the decision
Pricing
Retailer will want to sell a range of biscuits across a range of
prices but for every packet, a specific price must be found.
Price must entice buyers, not be a barrier to them.
Ex; 'price points' are used such as 99p or £1.99,
'Buy one get one free'
Advertising/promotion
Retailers beside price, try to influence &control factors such as
shelf position, advertising, in-store promotions (taster sessions).
Purchasing
Interested in profits, cost of a product is important in deciding
price levels. Retailers may choose not to stock items where profit
margins are too slim or may compensate for lower profit margins
on some items by setting higher margins on luxury items
Factors affecting pricing of biscuits
• Experience, competitors, & awareness of consumer
tastes & trends are also needed to aid the decisionmaking process.
• Store location influence purchases & impulse buys
• Store size & range of G on offer, will encourage
consumers to make one shopping trip rather than a
series of visits to separate stores.
• D curve helps understand amount of item consumers
buy at a particular market price.
Price & price sensitivity
• D theory is illustrated by a
diagram of D curve'
• This shows relationship
between price &quantity
demanded along D curve,
– Higher price, less will be
demanded and vice-versa.
– If other factors(incomes,
tastes, related prices, etc.)
remain constant.
• ‘Shift' in D curve - A factor
affecting D (other than price)
has changed.
• Ex, increase level of incomes,
model predicts that, at all
prices, larger quantities of
biscuits will be purchased.
• Price× Quantity = TR
 Provided costs remain ct, a
shift upwards of D curve result
in higher quantities being
purchased & higher revenues
& profits earned.
• Changes in factors affecting D
& estimate how many packets
of types of biscuits to stock.
Figure 3.3 Price sensitivity: a
shift in D curve
Demand elasticity
• Inverse relation between 2 variables (ex. price
&quantity)-one variable decreases other variable in
relationship increases.
• Retailer needs to decide whether changing price will
indeed increase revenue (&profit) based on a review of
the ever-changing factors affecting D.
• Sensitivity of D to changes in price is important
• Whilst D curve predicts an inverse relation between
price & quantity
Table 3.4 Relationship between price & demand - price elasticity
Fall in demand New demand
quantity
quantity
New
revenue
Comment
Revenue increases, as demand
quantity is insensitive to the price
rise.
Revenue stays roughly the same.
0%
1,000
£1,100
10%
900
£990
20%
800
£880
40%
600
£660
Revenue falls as demand quantity
is sensitive to the price rise.
Revenue falls as demand quantity
is very sensitive to the price rise.
Packet biscuits P rises from £1 to £1.10 – if 1,000 packets sold (£1) TR:
£1,000 - Check reaction to price increase in table 3.4.
Elasticity of D is an indicator of how D for a P changes in
response to changing prices.
• Forecasting size of the fall in quantity will help to
decide whether to permit price rise (revenue rises or
is unaffected) or to absorb it (where revenue falls).
• For elastic D(a sensitivity to price rises), retailer try
to affect other factors related to D to offset negative
impact on revenues. ex; packaging, additional ad
• Price sensitivity can be measured by collecting data
on changes in quantity following changes in price.
• If information unavailable, retailers might look at
the characteristics of P to judge its price sensitivity.
Factors affecting price Sensitivity
Tastes/preferences
(advertising/branding)
Where P has strong brand image, buyers is less sensitive to
price
Addictiveness
Purpose of purchase
Alcohol, tobacco, chocolate, coffee - all are potentially
addictive and so can be very insensitive to changes in price.
Where travel services are purchased, claimed as business
expenses traveller will be less sensitive to price changes
If P is bought as a gift then buyers will be less price sensitive.
Substitutes
When substitutes exist, buyers will be more price sensitive.
Complements
Where close complements (computer hardware and software)
change price, price sensitivity is lessened for complement.
Items with very small prices (e.g. newspapers) will have less
sensitivity to price changes than large ticket items, ex; houses
Consumers are less sensitive to short-run price changes. If
price of petrol doubles people will still use similar quantities
until such time that they can buy a more efficient car
Who is paying?
Absolute price level
Time frame (long or
short run)
Example on price sensitivity
Chocolate digestives
• Even without data on price & quantity we can
suggest that price elasticity of demand is fairly
inelastic (insensitive to price changes) since:
– Overall price level is low
– Chocolate and biscuits (sugar) can be addictive
– Substitutes exist but buyers often have 'favourite'
biscuits
Ecological/physical forces
• Organizations need to be aware of consequences of
how to conduct business in relation to environment
• Retailers are stuck on a two-horned dilemma:
– Need to generate profits through encouraging
consumption of manufactured goods
– Need to trade in a manner that might combat climate
change. Thus, discourage consumption.
Five environmental issues which are of concern
to retail businesses:
1. Climate change. Global warming & climate change
affect on industries.
CSR :Organization is responsible for society
2. Pollution control. Manufacture & disposal of P has
a harmful effect on environment. Retail industry is
reducing plastic bags.
3. Energy conservation. Limited resources drive
towards conservation. Less fuel reliance
4. Environmentally friendly ingredients: using
biodegradable & natural ingredients.
5. Recycling & non-wasteful packaging:
Responsibility for packaging & disposing of
it in an environmentally friendly manner.
Recycling is not only cutting out waste, but it
is commercial, i.e. less space to store,
transport & display