Dunne, Lusch, & Carver

Chapter 2

Retail Strategic Planning

& Operations Management

What is Strategic Planning?

What is Strategic Planning?

• Involves adapting the resources of the firm to the opportunities and threats of an ever-changing retail environment.

Strategic Planning (cont.)

• Four components, or steps, involved in strategic planning:

1. Mission statement

2. Statement of goals and objectives

3. SWOT analysis

4. Strategy

What is a Mission Statement?

What is a Mission Statement?

• It’s a basic description of the fundamental nature, rationale, and direction of the firm.

• Three elements necessary for a sound mission statement:1. How the retailer uses or intends to use its resources

2. How it expects to relate to the ever-changing environment

3. The kinds of values it intends to provide in order to meet the needs and wants of the consumer.

• Should be crafted at “the most meaningful level of generalization possible”… why?

Goals and Objectives

• Serve two general purposes:

1. Provide direction and guidance to the firm in the formulation of its strategies.• A [intermediate] “destination” for the firm

2. Establish a standard against which to measure and evaluate future firm performance.• And in so doing…

• They minimize the ability for ex post justification by a retail manager*

Four Dimensionsof Retailer Goals and Objectives

Market Performance Objectives

• Establish the amount of dominance the retailer seeks in the marketplace.

• Two most common measures are:1. Sales volume

2. Market share• Refers to the retailer’s total sales divided by total market

sales• Either at the level of the entire chain, geographic region, or product market.

• While positively related to profit, this is not always the case*• At some point it may become curvilinear (i.e., upside-down “U” shaped) due to sacrificed

margins that are not offset by increases in sales volume in order to gain additional market share *

Financial Performance Objectives

• Analyze a retailer’s ability to provide a profit level adequate to continue future business.

• Two general categories:

1. Profitability objectives• Deal directly with the monetary return the retailer desires

from its business

2. Productivity objectives• Deal directly with how much output the retailer desires for

each unit of resource input

Profitability Objectives

• Focus primarily on the monetary return that is desired from one’s business (i.e., profit).

• But what is meant by profit?

Profitability Objectives

• Focus primarily on the monetary return that is desired from one’s business (i.e., profit).

• But what is meant by profit?• Commonly means net profit after taxes, but can be

expressed as a percentage of sales, or even return on investment (ROI)

• But what is considered an investment? • Specifically, does it matter who provided the investment (i.e.,

creditors vs. owners)?• If it doesn’t matter then ROA is an adequate measure;

otherwise, RONW is better suited.

The Five Most FrequentlyEncountered Profit Objectives (i.e., the SPM)

Productivity Objectives

• Focus on output gained per unit of resource input.

• Three common measures:1. Space productivity

• Sales divided by total sq. feet of total retail selling space.

2. Labor productivity• Sales divided by number of full-time-equivalent employees.

3. Merchandise productivity• Sales divided by average dollar investment in inventory (at

cost).

*Note: the terms sales, total sales, and net sales are used interchangeably throughout the entire course*

What is a Strategy?

What is a Strategy?

• A carefully designed plan for achieving one’s goals and objectives (i.e., its “game plan”).

• Retailers must have at least three general strategies in order to have a shot at success:1. Get consumers into your store (traffic strategy).

2. Convert these consumers into customers by having them purchase something (conversion or closure strategy).

3. Do so at the lowest cost possible consistent with the level of service your customers expect (cost management strategy).

Differentiation Strategies

• Possible areas for differentiation include:1. Price

2. Product

3. Selling process

4. After-purchase support

5. Location

6. Service level

• What tradeoffs might be required to implement each?• E.G. - greater service levels lead to greater ICCs

Developing a Differentiation Strategy

• Retailers begin with a SWOT analysis.• Internally:

• What are the retailer’s relative strengths and weaknesses?

• Externally:• What potential threats and opportunities exist within the

market?

• Successful retailers will…• Leverage strengths that minimize future threats, and• Correct weaknesses that coincide with market

opportunities

SWOT Analysis

• Strengths:

1. What major competitive advantage(s) do we have?

2. What are we good at?

3. What do customers perceive as our strong points?

SWOT Analysis

• Weaknesses

1. What major competitive advantage(s) do competitors have over us?

2. What are competitors better at than we are?

3. What are our major internal weaknesses?

SWOT Analysis

• Opportunities

1. What favorable environmental trends may benefit our firm?

2. What is the competition doing in our market?

3. What areas of business that are closely related to ours are undeveloped?

SWOT Analysis

• Threats

1. What unfortunate environmental trends may hurt our future performance?

2. What technology is on the horizon that may soon have an impact on our firm?

Strategy Checklist

• A fully developed marketing strategy should include:

1. Target market(s)• Group of customers that the retailer is seeking to serve.

2. Location(s)• Geographic space or cyberspace where business is conducted.

3. Retail mix• The merchandise, price, advertising and promotion, location,

customer service and selling, and store layout and design.

4. Value proposition• A statement of the tangible and/or intangible results one receives

from shopping at and using the retailer’s products or services.

The Strategic Planning and Operations Management Model

What is Operations Management?

What is Operations Management?

• The day-to-day management of retailer activities directed at maximizing retailer efficiency.

• Most common activities evaluated include:1. Buying & handling of merchandise

2. Pricing

3. Advertising & promotion

4. Customer services & selling

5. Facilities

6. People

What You Should Have Learned…Chapter’s Learning Objectives

1. Why strategic planning is so important and the components of strategic planning (i.e., the mission statement; goals and objectives; SWOT analysis; and strategy).

2. The retail strategic planning and operations management model.