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What are the three levels of strategy?
corporate, business, and managerial
Corporate strategy
Dictates WHICH business a company will be in. Think of it as building a portfolio of businesses.
Business-level strategy
Dictates HOW a business will compete and win. Determines the basis of competition that a business will pursue.
What is Gap Inc.?
The corporate level of strategy. Business-level decisions include the product line extensions of Gap apparel to babies and kids.
Competitive Advantage
comes from the value that firms create for their customers that exceeds the cost of producing that value.
True or False:
superior financial performance relative to competitors must be achieved for a company to have a competitive advantage.
true
1 multiple choice option
True or False:
every company does not have to have a competitive advantage despite what their leadership says.
true
1 multiple choice option
Cost leadership
- it is not referring explicitly to the retail price point, but the cost to produce.
- these are cost drivers associated with every business. Focused on producing lower prices than competitors.
Example: walmart
Differentiation
- value from the perspective of the customer/consumer.
- a product or service is chosen over competitor offerings because it is unique, better, or superior in some way. These are value drivers.
- factors can be either tangible or intangible.
Example: Sephora
What are examples of Focused Cost Leadership?
Costco or Aldi
What are examples of Focused Differentiation
Whole Foods or Harrods.
What are examples of Cost Leadership?
Dollar General or Walmart
What are examples of Differentiation?
Sephora or Bass Pro Shop
Being a Buyer at Cost Leader:
- A LOT of the same levers as a buyer at a differentiated retailer.
- the BIG difference is in supply chain management and replenishment. Rely on volume to achieve superior financial performance, so inventory metrics and KPIs are critical.
Being a Buyer at a Differentiated Retailer:
- A LOT of the same levers as a buyer at a cost leadership retailer.
- must keep in mind which value drivers your leadership team has centered the business-level strategy on.
- increased pressure to be on front end of trends.
What are Generic Strategies?
- applicable across industries, geographic regions, and consumer segments.
- tension between cost and value IN THE EYES OF THE CONSUMER.
- research has found that those with high OR with low market share tend to be more profitable.
PESTLE/STEEP Analysis
Sociocultural, Technological, Economic, Ecological, and Political/Legal
- factors are independent
- drivers of change have differential impacts on industries, markets, and firms.
- focus on future impact... anticipation, and prediction if possible.
True or False:
STEEP is the broadest macro perspective in external analysis. Also serves as an early warning system of sorts.
true
1 multiple choice option
Industry Insights
Very diverse mix of stores and sites formate types:
Grocery stores, mass merchants, eCommerce, Wholesale/Warehouse Clubs, etc.
What does the retailer NAICS code start with? either...
44 or 45
3 multiple choice options
Porter's Five Forces
Threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes, and rivalry among existing competitors.
Secondary Data
Type of research that has already been compiled, gathered, organized, and published by others. It includes reports and studies by government agencies, trade associations, or other businesses in your industry. A lot of it is available right on the web.
Primary Data Collection
Surveys, focus groups, interviews, observations, experiments, or comp visits. When conducting this kind of research, you're typically gathering two basic kinds of information: exploratory and specific.
The Many Relationships of the Buyer: External
Suppliers/vendors, brokers, manufacturers, wholesalers, or "rack jobbers." These can be buyer-initiated, vendor-initiated, or (the most likely) inherited.
The Many Relationships of the Buyer: Internal
private brand, product development, operations, transportation/logistics, etc. All about communication and mutual gain.
Heuristics, Biases, and Blind Spots
Illusion of Control, The Planning Fallacy, Mental Accounting, and Automaticity
Emotional Intelligence (EQ)
A person's ability to perceive, identify, understand, and successfully manage emotions in self and others.
EQ and Social Exchange
- Interpersonal relationships are a series of resource exchanges.
- Complementary in that one's rights are another's obligations and vice versa.
- Reciprocal in that each party has rights and duties.
Category
Groups of products belonging to a similar family, either as substitutes for each other or as complementary to each other.
"Fineline" refers to
A group of items within a department that show similar sales patterns. Each product is in a _______, and only one.
Shopping list for taco night: tortillas, taco seasoning, salsa, shells, beans, diced tomatoes.
This is an example of a:
Category that is a combination of complements to one another.
In years past, olive oils and vinegars have been located with salad dressings so that people could make their own dressings. This is an example of:
A substitute to the core item of the category
Category Management:
The ongoing collaboration between retailer and supplier(s) to design offerings and value chains to support consumer demand most profitably.
What is Assortment Strategy?
The number and type of products that stores display for purchase by consumers. This is a strategic tool that retailers use to manage and increase sales AND profit ideally.
What are the two components of assortment strategies?
The width of the product variety and the depth of the products offered.
What is an incremental item?
This means that when it is added to the assortment, it brings in new sales and/or new customers. It is not cannibalizing the existing sales of the category.
What is transferable demand?
This speaks to the likelihood that if one item is deleted, the customer will shift to another item in the assortment. Brand loyalty and depth of assortment come into play.
Lines and Ladders
Line: Horizontal
Ex. Flavors, Features/Claims, etc.
Benefits: Display, consistency, shelf adjacencies
Ladder: Vertical
Ex. Sizes, Packaging, etc.
Benefits: Encourage customer trade-up, price per UOM savings, etc.
Channel Selection
In-store, online, 1P/3P, etc.
Traditional single-channel, Online single-channel, Multi-channel, and Omnichannel
Line Review
the methodical process a buyer and their buying team go through to decide which items to carry within their allocated linear shelf space; in layman's terms, potential suppliers are submitting their "application" to work together.
Modular
The visual representation of how items selected during the line review will be arranged within the linear section.
Price Elasticity
The responsiveness of the quantity demanded of a good to a change in its price.
Elastic - very responsive
Inelastic - not very responsive
Expandability: Consumption
Use, occasion, impulsivity, marketing and sales support
Expandability: Purchasing
Stock-up, perishability, expensive vs. inexpensive, physical size
Opening Price Point (OPP)
the lowest price of a particular item in a certain product category. The goal is to attract customers and establish the perception of value through higher price points for other products in the same category.
Psychological Pricing examples
- Customer Price Perception: 99-cent ending, even vs. odd ending prices
- Anchor Pricing
- EDLP vs. Promotion/High-Low
Cost-Plus Pricing
Also known as mark-up pricing, it is the easiest way to determine the price of a product. You make the product, add a fixed percentage on top of the costs, and sell it for the total.
Cost-Plus Pricing Pros
It doesn't take much to figure out. You're already tracking product costs and labor costs. All you have to do is add a percentage on top of it to set the selling price. It can provide consistent returns should all your costs remain the same.
Cost-Plus Pricing Cons
Doesn't take into account market conditions such as competitor pricing or perceived customer value.
Competitive Pricing: beating out the competition
Refers to using competitors' pricing data as a benchmark and consciously pricing your products below theirs.
Price Skimming: higher, short-term profits
Refers to when a business (usually e-commerce) charges the highest initial price that customers will pay, then lowers it over time. As demand from the first customer is satisfied and more competitors enter the market, the business lowers the price to attract a new, more price-conscious customer base.
- common among tech giants like Apple
Keystone Pricing: a simple markup formula
Product pricing strategy retailers use as an easy rule of thumb. Essentially, it's when a retailer determines a retail price by simply doubling the whole cost they paid for a product to set a healthy profit margin.
- very common among small, independent retailers.
MSRP: Manufacturer's Suggested Retail Price
The price a manufacturer recommends retailers use when selling a product. For example Barnes and Noble, as they have the prices printed onto the books
Dynamic Pricing: adjusting price in response to variables
When a company continuously adjusts its prices based on different factors, such as competitor prices, supply, and consumer demand. Amazon is the most well-known for using this strategy, as well as Uber and Airbnb
Multiple Pricing: the pros and cons of bundle pricing
We see it in grocery stores, but it's common for apparel as well, especially for socks, underwear, and t-shirts. Also known as product bundle pricing.
Loss-Leading Pricing: increasing the average transaction value
We've all walked into a store lured by the promise of a discount on a hot-ticket product, but instead of walking away with only that product in hand, we end up purchasing several others as well.
- think of target.
Visual Merchandising
The retail practice of developing floor plans and 3-dimensional displays to maximize sales.
Key Tenets of Visual Merchandising
1. your brand
2. sensory marketing
3. displays
Purposes of Displays
drive awareness, pull people into the aisle, set seasonal or holiday tone/theme, launch new items, etc.
Planogram
A diagram or model that indicates the replacement of fixtures throughout the store and the placement of retail products on shelves in order to maximize sales.
Planogram - Modular
Depending on the category, you'll likely have 1 or 2 full modular resets throughout the year.
Eye-Level Dominance
One of the primary considerations in shelf placement. Products positioned at eye level tend to receive the most attention from shoppers.
Product Grouping
This approach makes it convenient for customers to find complementary items and encourages them to purchase more.
Visual Hierarchy
Retails and product manufacturers use packaging, colors, and designs to create visual cues that guide a shopper's attention.
Promotions and Seasonality
The placement of promotional or seasonal items is crucial for retailers. Seasonal products like holiday-themed candies or back-to-school supplies need to be strategically placed to capitalize on the timing of the season.
Product Sizing and Shelving
Shelf placement isn't just about the vertical height; it also involves considering the depth and width of shelving units. Shelf depth can affect the visibility of products, especially for smaller or bulkier items.
Consumer Behavior and Data Analytics
Use these to fine-tune their shelf placement strategies. Tracking shopper movements, heatmaps, and purchase data provide valuable insights into how products are performing on the shelves.
History of Private Brands
originated in the 19th century. Various terms for same/very similar concepts: house brand, store brand, X label, etc.
Brooks Brothers and Macy's were two of the first retailers to introduce private brands
Private Brands are not...
- if it is sold by multiple retail outlets.
- we are not talking about the brand or company responsible for the product being privately held.
- a white label is something slightly different.
Why do companies pursue private brands?
- financial benefits
- exclusivity, which drives loyalty and prevents the "showrooming" effect.
- smoother inventory flow
- use price-gapping to underscore value proposition to customers.
- reduces information asymmetry with national brand suppliers.
Assess if a firm should vertically integrate
1. how difficult is it to write contracts?
2. how critical is the asset to the firm's competitive advantage?
Three Key Criteria for: How difficult is it to write contract?
1. specificity
2. uncertainty
3. frequency
Potential drawbacks of vertically integrating:
- extended learning curve
- reduced quality
- increased costs
- reduced flexibility
Red Ocean
The known market space, where industry boundaries are defined, and companies try to outperform their rivals to grab a greater share of the existing market.
Blue Ocean Strategy
Simultaneous pursuit of low cost and differentiation to open up new market space and create demand.
The Four Actions Framework
eliminate, reduce, raise, create
Porter's Competitive Analysis:
- reveals competitors' weaknesses
- reveals likely competitors' responses
- anticipates competitors future moves
Competitive advantage
comes from the value that firms create for
their customers that exceeds the cost of
producing that value
