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The core of strategy is deciding the direction for the business and how to get there. Organizations deciding on the direction their business should take need to develop a retail marketing strategy that defines the target market. Ways to do so are:
Market Segmentation: Identify the different segments of customers that the business plans to serve, and the needs of such customers. Segmenting the heterogeneous total market into small groups of customers who share a similar set of wants can be based on geographic, demographic, psychographic and behavioral variables. Demographic segmentation based on age, gender, family size, family life cycle, income, occupation, education, religion, race, generation and nationality ranks as the most common type of segmentation.
Targeting: The natural step that follows segmentation is targeting a particular segment to fulfill their needs. In today's multi-cultural and diversified markets, preferences and taste vary among different segments, and organizations need to understand and accommodate this fact to become successful. Concentrated marketing or niche marketing, serving only a particular segment is an effective strategy for companies with limited resources, for it allows the company to corner a large share of a few segments rather than a small share of a large non-segmented market.
Positioning: Marketers create an image or identity of the product or brand in the minds of their target market. Such positioning, or "relative competitive comparison" defines, for instance whether the product appeals to youth or elderly, to customers who value quality over quantity or vice versa, or any other dimension. Positioning and targeting are inter-related, and the positioning of a product depends on the nature of the targeted segment.
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The Marketing Mix
Once the target market has been defined, the next step is to undertake market research to develop a successful marketing mix strategy, which determines how to fulfill strategic objectives. "Marketing Mix" is the term that describes the combination of tactics businesses use to market their products effectively to the selected target customer group, and the method by which the company positions the product.
The four key elements of the marketing mix are Product, Price, Promotion and Place. Product is the sum total of what the organization offers, and includes the services, store layout, merchandise, and the company and product brand name. Price refers to what the customer has to pay to obtain the value provided. Promotion is the means of communicating the offer to the target groups, to inform and persuade them to make purchases. Place refers to the location. The success of any retail venture depends on having the right location where customers can access the products with convenience.
Later marketing experts such as Robert Lauterborn and Philip Kotler, looking from the customer perspective, replace the 4Ps with the 4Cs of convenience, cost to user, communication, and customer needs. The change of terminology notwithstanding, place remains the same as convenience, price remains the same as cost, promotion remains the same as communication, and product remains the same as customer needs and wants for all practical purposes.
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Porter's Five Forces
Michael Porter, marketing guru of Harvard University, lists out five forces on which the competitiveness of a firm rests. An understanding of these five forces helps in effective implementation of retail marketing strategies. The five forces are:
- Competitive Rivalry: The extent of competition, or other organizations, selling the same products to the same target segment. The more the competitive rivalry, the more the firm would have to spend on marketing its products through advertisements and other means, offer innovative products, and compete in price.
- Power of Buyers: A buyer's market comes when alternative or substitute products remain easily available in the market at same price levels. In such conditions the market becomes highly price sensitive, and small changes in prices can create big swings in demand.
- Threat of Substitutes: The threat of substitute products usually keeps prices low, and make suppliers try to improve product quality while keeping prices constant. Alternatively, lack of substitutes might create a monopoly like condition.
- Threat of New Entrants: Industries with high entry barriers remain too expensive for new firms to enter. Potential new entrants look at how loyal customers are to existing products, how quickly they can achieve economy of scales, the extent to which they can access suppliers, and favorable or unfavorable government legislation.
- Power of Suppliers: The power of suppliers again depends on the competition, and in a sense is a repeat of the five forces at the wholesale level. The business buys raw materials from suppliers, and the price of such raw materials depends on the availability of multiple suppliers, and other factors.
Understanding the nature of each of these forces gives organizations the necessary insights to enable them to formulate the appropriate strategies and marketing mix to succeed in their market. Choosing the right mix and applying them well leads to long term success.
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Kotler, Philip & Armstrong, Gary. (2010) "Principles of Marketing." Pearson. ISBN 0137006691, 9780137006694.
Image Credit: freedigitalphotos.net/Sheela Mohan