After determining the strengths and weaknesses of the organizations vis-à-vis the environment, the retailer needs to consider various alternatives available to him for tapping a particular market.
A matrix which looked at growth opportunities by focusing on the firm’s present and potential products in the existing and new markets. This matrix, which is popularly known as Ansoff’s Matrix, helps us understand the options available to a retailer.
These alternatives available to the retailer are:
1) Market penetration
2) Market development
3) Retail format development
They are illustrated below:
1) Increase the basket size
2) Increase the customers
3) Increase the purchase frequency
Retail Format Development
1) New format with existing customers
Market Development/ Expansion
1) New market segments with existing format
2) New customer base
1) New retail formats directed at new market segments.
This is strategy adopted by the firm when it seeks to achieve growth with the existing products in the market segments that it operates in. Thus, a retailer who targets an existing market in the existing retail formats is said to follow a strategy of market penetration. This strategy may focus either on:
1) Increasing he number of customers or
2) Increasing the quantity purchased by the customers, i.e. the basket size, or on increasing the frequency of purchase.
Increasing the number of customers can be achieved by adding new stores and by modifying the product mix to bring in new customers. Another approach is to encourage salespeople to cross sell. Cross selling involves sales people from one department, attempting to sell complementary merchandise from other departments to their customers. For example, a sales person that has just sold a pair of trousers to a customer may take the customer to the shirt and tie area and try to sell to the customer a shirt and tie that complements the trousers. Increasing the frequency with which customers purchase a particular product may not really be easy. A lot of companies resort to freebies to attract customers. E.g. Pizza Parlors offering a discount on the purchase of a second pizza within a specific period of time.
The market penetration strategy is the least risky since it leverages many of the firm’s existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow.
Market expansion / development:
A retailer is said to follow a strategy of market development if he reaches new market segments or completely changes the customer base. Thus, this strategy involves:
1) Tapping new geographical markets or,
2) Introducing products to the existing range that appeal to a wider audience
Expansion by adding new retail stores to the existing network is an example of geographical expansion. Introducing a pharmacy in a supermarket (for example, the Medicine Shoppe at Haiko supermarket, in Mumbai) is an example of a retailer introducing new products, which appeal to a different audience. Another example of the same is McDonald’s who introduced ice creams at Rs 7 This not only created add on sales but also brought in customers who had the perception that McDonald’s was an expensive fast food restaurant.
Retail format development:
Developing a retail format is introducing a new retail format to customers. Good examples are fast food retailers like McDonald’s and Subway who offer limited menus in smaller locations, many a time, inside large department stores. Another example is of book store chain Crosswords, opening smaller format stores by the name of Crossword corners at Shopper’s Stop.
This strategy may be appropriate if the retailer’s strengths are related to specific customers rather than to specific products itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of market development, new format development carries more risk than simply attempting to increase market share.
The retailer grows by diversifying into new businesses by developing new products for new markets. A good example of diversification in India is that of tobacco giant ITC, who has entered the business of apparel retail through its Wills Lifestyle Stores, now plans to enter the greeting card business.