Retail Value Chain

As the retailer grows for the position of one shop to a chain of retail stores and from a local to a regional ad national presence, strategy and planning become important In order to win in retail, a retailer needs to have a clear focus and strategy. Michael Porter has identified various elements that go into the composition of a typical value chain. These include inbound logistics, operations, outbound logistics, marketing and sales, service, procurement technology development and human resource management.

A firm may create a cost advantage by reducing the cost of the individual value chain activities, or by reconfiguring the value chain. Once the value chain has been defined by assigning cost to value chain activities, one can perform a cost analysis. A firm develops a cost advantage by controlling these drivers better than its competitors. Reconfiguring the value can also provide a cost advantage. Reconfiguration means structural changes such as: a new production process, new distribution channels or a different sales approach.

Occasionally, there have been references to retail strategy models like the pentagon and the triangle. The retailer can either become pentagon layer or a triangle player. If the retailer chooses to become a pentagon player, he focuses on:

1) Product
2) Place
3) Value
4) People and
5) Communications

On the other hand, if he chooses to become a triangle player, he focuses on:

1) Systems
2) Logistics and
3) Suppliers

These approaches to developing strategies are perhaps appropriate in a mature marketplace. In India, however, the market is still developing and the retailer cannot assume the existence of a resilient infrastructure and the presence of service providers who have the required maturity and capability to support their operations.

At present, retail in India is oriented towards a mass market. As a consequence the retailer must consider all aspects of strategy development such as product, price, place, communication and he supply chain. Further due to the absence of a robust infrastructure and inadequate capabilities and maturity of the service providers in India, the retailer must necessarily invest in creating the appropriate support structure for its operations. A simple value chain for a retailer in India is illustrated in figure below:

Support functions>>

Suppliers> Third Party Logistics> Retail Operations> Customers > Customers


The Value Chain for an Indian Retailer:

While India is a land of increasing retail opportunities, it is a challenging and difficult market. The consumer is price conscious and consumer preferences vary from region to region and even within cities. This is a reality of Indian that needs to be kept in mind while developing retail strategy.

Competing and winning in a value driven world requires the retailer to develop a comprehensive program, which combines strategy with branding, integrated operations and people around whom the organization is built. Retailers need to become innovation drivers and include business models, products, marketing and process under the spectrum of innovation.

Ethics in retailing: The ethical practices of businesses have become an increasingly important issue toady. Like in any other business, the bottom line of a retail venture is profitability. Retailers need to adhere to the law of the eland and the regulations created to monitor business and trade. The ethical position of a retailer is driven by its corporate values and business objectives. These, however, are inextricably linked with the social responsibility of the retailer as a corporate entity and the rights of its customers.

As a consequence, there are a number of areas where the responsible retailer must develop a set of values and follow it up with appropriate behavior. These can best be looked at from the perspectives various constituencies the retailer services and the goods and services it provides to its customers.


The retailer needs to recognize the rights of the customer to safety, availability of complete information, the freedom to exercise their choice, delivery of services to pre-determined service levels an have their grievances heard and released.

While legislation does exist in India, to protect the consumer some retailers may not always follow it completely in letter or in spirit. The consumer on the other hand, may not really be aware of his rights or due to apathy and the slow processes in the country, he may not really pursue the matter.

The rise of the electronic media as a channel of retailing also throws up the issue of invasion of customer’s privacy. In the absence of privacy protection laws, marketers may regularly abuse or invade the privacy of customers.