Mid-term Exam Answers 1z4x1b

1. Discuss the components of SWOT analysis used by a retailer. (10m) SWOT analysis is a strategic planning method used by a retailer to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a retail business venture. It involves specifying the objective of the business venture and identifying the internal and external factors that are favorable and unfavorable to achieve that objective.    

Strengths: attributes of the retailer that are helpful to achieving the objective(s). Weaknesses: attributes of the retailer that are harmful to achieving the objective(s). Opportunities: external conditions that are helpful to achieving the objective(s). Threats: external conditions which could do damage to the objective(s).

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the retailer's objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include all of the 4P's; as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix. Some of the key areas to consider by a retailer when identifying and evaluating Strengths, Weaknesses, Opportunities and Threats are listed in the example SWOT analysis below:

2. What are FIVE (5) major environmental forces that should be constantly assessed by retailers? (10m) The first major environmental force that should be constantly assessed by retailers is consumer behavior. Specifically, retailers need to understand the determinants of shopping behavior so that it can identify likely changes in that behavior and develop appropriate strategies. Retailers to be successful should pay attention, use a little imagination, and solve the need before the customers’ requests. Second major environmental force is competitor behavior. How competing retailers behave will have a major impact on the most appropriate strategy. Retailers must develop a competitive strategy that is not easily imitated, which happens all too often with price cuts. Third major environmental force is socioeconomic environment. Retailers must understand how economic and demographic trends will influence revenues and costs in the future and adapt the strategy according to these changes. Forth major environmental force is technological environment. The technical frontiers of the retail system encom new and better ways of performing standard retail functions. Retailers must always be aware of opportunities for lowering operating costs. Fifth major environmental force is legal and ethical environment. Retailers should be familiar with local, state, and federal regulations of the retail system. They must also understand evolving legal patterns in order to be able to design future retail strategies that are legally defensible. At the same time, retailers must operate at the highest level of ethical behavior. A.

Identify and describe some bases for segmenting retail markets. How would a retailer use them? (10m) Market segmentation is the method retailers use to segment, or break down, heterogeneous consumer populations into smaller, more homogeneous groups based on certain characteristics. Retailers often find it useful to group consumers according to population variables, such as population growth, age distribution, ethnic makeup, and geographic trends. Implications for retailers based on population growth are many, such as any increase in domestic population growth will mean an increased demand for goods and services. For instance, PetSmart continues to expand its retail operations as the number of pet parents and the number of multiple-pet families increase. Retailers also group consumers according to social trends: the increasing level of educational attainment, the state of marriage and divorce, the makeup of the American household, and the changing nature of work. Implications for retailers based on the increasing level of educational attainment is that educational attainment is the single most reliable indicator of a person’s income potential, attitudes, and spending habits. Educated consumers are more alert to price, quality, and d claims. They become increasingly sophisticated, discriminating, and independent in their search for consumer products. They will also demand a staff capable of intelligently dealing with their needs and wants. Given their higher level of education, they are more prone to shop electronically. For example, travel agencies in recent years have been left out of the loop as cybershoppers now “surf the net” to purchase airline tickets, hotel rooms, rental cars, and cruisers.

Lastly, retailers group consumers based on economic trends: income growth, personal savings, women in the labor force and widespread use of credit. Implications for retailers based on personal savings are retailers will enjoy continued sales growth not just due to significant increase in household income but also from the spending rather than saving mindset of the consumer. For example, family with higher income will tend to buy more expensive or branded goods than those will lower income. B.

Has the growth in consumer credit levels been good or bad for retailing? (10m)

The growth in consumer credit levels has been good and bad for retailing. Good for retailing when customers will spend more when they use a credit card than when they must pay in cash spurred by active promotional campaigns and low interest rates. This will eventually increase sales and profits for the retailers. However, the growth in consumer credit levels will be bad for retailing when the growth in credit has been outstripping the growth in personal income It is evident that households will face a liquidity crisis as income growth slows or becomes negative. Such massive debt loads must be paid off, thereby leaving little income for future retail purchase causing in poor sales and profits for retailers. 1. What are the prerequisites for success in a retailing career? (5m) pg28-32 The prerequisites for success in a retailing career are hard work, analytical skills, creativity, decisiveness, and flexibility. 2. List and discuss TWO (2) factors that are expected to change the face of retailing during the next decade. (5m) The first factor is e-tailing which enables consumers to shop when they like and from where they like. In addition, it provides access to vast amounts of information, ranging from a product’s attributes to who has the lowest price. No real-world store can match that. Besides that, the information dissemination capabilities of the Internet have made consumers better informed. This has increased their power when transacting and negotiating with retailers. The second factor is demographic shifts such as the fluctuating birthrate, the growing importance of the 70 million Generation X consumers, the move of Generation X into middle age, the beginning movement of the baby boomer generation into retirement, and the increasing number of immigrants. Successful retailers must become more service oriented, offering better value in price and quality, as well as more convenient store hours; more promotion oriented to include more effective and useful in-store signage; and better attuned to their customers’ needs. 3. Retailers that enter foreign markets and understand the local cultures and customers will be higher profit performers than those who do not understand the local cultures and customers. Explain. (10m)

A. Discuss TWO (2) different market structures that influence retailing. (4m) The first market structure that influence retailing is pure competition. Pure competition occurs when a market has homogeneous products, many buyers and sellers, all having perfect knowledge of the market and ease of entry for both buyers and sellers. Each retailer faces a horizontal demand curve and must sell its products at the going “market” or equilibrium price. Example of pure competition is two vendors selling bottles of water priced RM1 each outside a sporting event. The second market structure is pure monopoly which occurs when there is only one seller for a product or service thus setting its selling price accordingly. However, as the retailer seeks to sell more units, it must lower the selling price. Even so, situations of near monopoly do exist the gas station that is many miles from its nearest competitor. B. List and explain THREE (3) factors (other than price) do customers place a value on? How can a retailer use these factors to create a differential advantage? (6m) There are many nonprice variables that customers place a value on. Firstly, the retailer can offer private-level merchandise that has unique features or offers better value than do competitors. Privatelabel brands could help retailers differentiate their offerings, reach customers seeking lower prices, and boost margins due to the lower costs of private-label merchandise. Secondly, the retailer could position itself as different from the competition by altering its merchandise mix to offer higher-quality goods, greater personal service, special-orders handling, or a better selection of large sizes. Such features may increase the maximum price consumers are willing to pay or the distance consumers are willing to travel to shop for these goods, thereby enlarging the retailer’s trade area. Thirdly, the retailer could master stock keeping with its basic merchandise assortment. Example is “buy 1 free 1” promotion if the store is ever out of stock. C. Discuss various stages of the retail life cycle for many of current retail institutions. (10m)