Retail is constantly developing due to the changing

Retail is
constantly developing due to the changing needs of consumers (Reynolds &
Cuthberston, 2004). Kotler and Armstrong (2010) define retail as the sales of
goods to consumers for personal use. Due to an increasing competitive
environment, organisations need to plan strategically. A useful way for
managers to evaluate their retail strategy is the marketing mix (McCarthy, 1964)
which looks at the combination of product, price, promotion and place. Whilst
the marketing mix is useful, Balasescu (2014) identified seven fundamental
elements that are specific to retail activities that also combine people,
process and physical environment.

 

This essay
will focus on how the retail marketing mix structures strategic decision making,
in organisations such as Marks and Spencer (M&S) located in town centres
and Michael Kors outlet, and how they do this within the complexity of the
changing retail economy.

 

Theorists
have discussed the importance of physical environment for business success
(Stanley and Sewall, 1976 & Kotler and Armstrong, 2010). Applebaum and
Cohen (1961) state location is the least adaptable element of retail strategy
because unlike price and advertising that can be altered relatively quickly,
location is limited by consumers. Hotelling (1929) suggests retailers should
locate in proximity of customers to maximise profits. However contemporary
thinking suggests retailers should benefit from securing the greatest
customer-flow from further destinations (Balasescu, 2014).

 

An example of
a retailer that does this is M&S. Despite the high street under pressure,
showing sales have dropped at the quickest rate since the recession (CBI,
2017). M&S has used this decline to draw customers in to potentially
failing markets, an example of this is Bolton’s town centre. Bolton was
declining as it failed to compete with local city, Manchester, meaning surrounding
retailers closed their stores (Bolton News, 2007). However, M still
continued to receive visitors as they kept their presence on the high street (Scoble,
2016). M were able to sustain competitive advantage (Douglas and Morgan,
2005) as they still understood their target market, which primarily focuses on Baby
Boomers and Generation X (Jorgensen, 2003). Payne and Frow (2005) acknowledge
being able to understand customer’s needs is vital in shaping strategy as it is
the centre of the 7 P’s.

 

Porter five
forces model (2008) acknowledges to influence profitability, positioning where competitors
are weakest will enhance the company’s long-term profits. M&S have pursued customer
loyalty and bargaining power on the high street meaning other businesses pay to
be near an M&S store. For example, Booths had originally planned to shut
down their store in Chorley but after the announced move of M&S they chose
to stay hoping it would increase profits (McCully, 2017). This power over
competitors means they can negotiate more favourable terms on leases when finding
locations (British Retail Consortium, 2006). However, deflation on the high
street means many retailers are demanding lower rent.

 

Awareness of
the five forces model helps M&S stake out a competitive position on the
high street by understanding their position in the industry (Porter, 2008). Sachedeva
(1996) shows the pursuit of the physical environment is challenging, arguing it
should trigger emotional links to the products in store and online so the
consumer is always receiving the same message. Brynjolfsson, Hu and Rahman
(2013) acknowledged ‘brick-and-mortar’ retail stores were distinctive in
consumer’s choice of retail as it allowed experience of products before
purchasing. They have now said due to the evolving UK retail marketplace a
consistent “omni-channel retailing” experience is needed through the different
touchpoints.

 

As
competitors such as Next strengthen their online presence through next day
delivery and their online catalogue, there is concern over M becoming an
outdated brand and not keeping up with the growing online economy (Butler, 2017).
Burke (2002) argues companies need to realise the importance that consumers put
on online delivery services as part of the shopping process and it is the
responsibility of retailers to have in-store and online environments to ensure
consumers are satisfied.

 

Booths and
Amazon have announced their partnership to offer the supermarket’s product
online with free delivery services (Chapman, 2017), M&S could struggle to
compete with this. Pickton and Wright (1998) suggest the SWOT (Strengths,
Weaknesses, Opportunities, Threats) framework is useful in assessing potential
new ventures for managers but argue it can lead to strategic errors and should
not be used as an analytic tool. The online delivery service is an Opportunity
for M&S to widen their omni-channel selling experience. Kearney’s (2017) service
delivery model, see appendix A, determines the activities that are best aligned
to the retailer’s target market. Kearney (2017) disputes one major obstacle to
online delivery is that 73% of consumers do not see the added value of online
food shopping. Additionally, M&S customers’ average food basket is minimal so
it may not be viable to commence a home delivery service (Wood, 2017). Nonetheless,
M latest business results show a reduction in the store’s food sales
(Marks and Spencer, 2017) meaning they may choose to enter the online market as
a differentiation strategy. Kearney (2017) claims companies that continue to
stay on the high street can potentially lose long term market share.

 

Another
M&S focus is ‘promotion’: promotion’s role in the marketing mix is publicising
a product by informing the target market of its benefits (Lamb, Hair and
McDaniel, 2011). Cheaper substitute offerings from companies such as Aldi and
Lidl have started to enter the market and become a Threat for M. Porter
(2008) says to neutralise price wars, the retailer should invest in products that
differ from competitor’s offerings. M&S does this focussing on exclusive
products than lower prices. Brynjolfsson et al. (2013) declare creating
exclusive products will add value and consumers will be willing to pay more.

 

M&S promote
these products through a loyalty card. Magi (2003) states loyalty cards are useful
in drawing consumers back onto the high street by encouraging them to make an experience
from their shopping. M&S offer promotions on hospitality such as ‘free cake
when spending £20′ encouraging consumers to spend more (Babin, Darden & Griffin,
1994). Rigby (2011) argues traditional retailers need to make the shopping experience
captivating for their customers to ensure survival of the high street. Birtwistle,
Siddiqui and Fiorito (2003) proclaim the high street also has the opportunity
to create interactivity during shopping. M&S try and create the link
between digital technologies, M&S’ loyalty card, is connected to consumers
online shopping account and can be accessed via their mobile phone, Vecchi says
this encourages positive responses which creates a satisfactory shopping
experience and overcomes the issues of limited product portfolios in store. Rigby
(2011) insists successful omni-channel strategy will ensure the retailer’s
survival.

 

M&S interpretation
of the 7P’s shows the retailer in an unsteady position. Despite having
strategies as to where M is heading, the turbulent change in the high street
may mean unstable times in the future. Lamb et al (2011) state strategic
planning should be part of an ongoing process, therefore M should
continue to focus on place. Whilst their store estate is still looking at
expanding, the growth of online means they need to continue analysing its
performance. M still need to focus on who their customers are, as their
target audience are used to M’ presence on the high street.

 

Another
organisation looking to capture consumers from further distances in line with
Balasescu’s (2014) theory is Cheshire Oaks Outlet which is part of the McArthurGlen
group. In comparison to the high street there is many opportunities with having
an out of town location. Carr (1977) originally put forward the argument that
out of town locations were cheaper for rent and larger sites were available
allowing for flexibility of layout. Bermingham (2000) adds there is more
opportunity for the expansion of leisure experiences.

 

Michael Kors has
an outlet store in this location despite also having a full priced store in
Liverpool. This is because the brand is primarily focusing on price. Price is
described as the value that is put on a product (Wright, 1999). Recent
theorists such as Lamb et al (2011) state price is a vital part of the marketing
mix as despite it being the most flexible element, it determines an
organisation’s turnover. Gordon (2012) argues pricing strategy is difficult and
needs to be line with corporate objectives, but also supply and demand for the
product.

 

Kotler’s nine
quality-pricing strategy matrix (1988), see appendix B, helps organisations
position their products relative to competitors. Michael Kors uses the premium
strategy to sell its luxury goods. Hanlon (2015) has communicated this strategy
maximises profits and can be achieved through a powerful brand amongst few
competitors. Michael Kors annual report (2013) shows a goal for the company is to
increase prices to help grow profits.

 

The annual report
also evaluated the SWOT framework, included within the weaknesses it showed the
organisation is currently struggling with brand dilution (Michael Kors, 2013).
Plopan (2014) says despite the brand being known for its opulence, you can find
Michael Kors products in discount stores. Truong, McColl and Kitchen (2009) state
this can change consumer attitudes of the luxury brand as they become dubious about
the price of the products. Porter (2008) addresses this issue in the five
forces model by showing the bargaining power of suppliers can become greater if
there is a higher chance of the ability to substitute products, which can be
shown with the entry of counterfeit Michael Kors products (Wilcox, Kim and Sen,
2009). However, Nia and Zaichkowsky (2000) declare consumers believe
counterfeits are inferior and feel ownership of the original product is more
reputable.

 

Michael Kors
entered in to the outlet market to try and control the reduction in pricing of
their products and to promote their original luxury brand. Kotler, Burton,
Deans, Brown and Armstrong (2010) state off-price retailers allow control for
an organisation in which to sell leftover goods, adding retailers can still profit
from product lines even after they are discontinued. Dennis (2010) declares another
benefit is the product is merchandised in the retailer’s environment. For
example, the Michael Kors store in Cheshire oaks is organised like the
Liverpool store meaning consumers still feel they are getting a luxury shopping
experience.

 

Kaikati
(1985) stated outlets overcome issues with economic conditions as consumers are
still looking for branded name goods, despite less disposable income so lower
prices embrace a wider market. Dennis (2010) argues off-price retailers are no
longer available to a wider market. He suggested the market is maturing due to the
competition of e-commerce with Cheshire Oaks not having an online platform as
it goes against their objective of drawing consumers in to a leisure experience
through the services they offer.

 

Plopan (2014)
states Michael Kors is focused on developing new products with product
differentiation and innovation being the key drivers. Lamb et al (2011) describes
‘product’ as the heart of the retail marketing mix as it is the starting point
for any organisation. Michael Kors currently has a large market share in the luxury
apparel industry, with Ralph Lauren remaining their main competitor (Badkar and
Dye, 2017). Porter (2008) claims to minimise rivalry to look at buyer power of
consumers and the differences between competitors. Plopan (2014) states Ralph
Lauren primarily have an older and more traditional audience than Michael Kors
therefore product innovation may mean that Michael Kors decide to introduce
another line more focused to the older generation to promote competition. Peter
and Olson (2010) indicates if an organisation has a strong market position, they
may go after further segments of the market and compete directly with
established competitors.

 

Howe and
Strauss (2009) argue the millennial generation are demanding of retailers as
they are more educated. As buying habits differ between generations it may mean
it is a risk for Michael Kors to change their current marketing mix and product
strategy as their current marketing activities are aimed towards a younger
audience.

 

Despite, the Cheshire
Oaks’ Ralph Lauren taking more profit than the Michael Kors store
(McArthurGlen, 2017) this could be due to the location not appealing to their
target market. McGee (2017) states the millennial generation are focused on
convenience when buying products and put importance on the mobile device in
their shopping experience. Michael Kors currently uses social media to create
momentum over their products (Plopan, 2014), however management of the outlet
should continue to focus on the physical environment as part of the 7 P’s and
how they can implement mobile technology in this environment to entice more
millennial consumers. For example, Starbucks attracted younger people to enter their
stores through the use of mobile wallets so customers could pay with their
phones whilst receiving additional benefits (McGee, 2017). This is something Michael
Kors could implement in collaboration with McArthurGlen, such as free drinks at
one of the outlet’s dining locations, helping the organisation to achieve their
strategy of increasing revenue.

 

The retail
marketing mix is useful for organisations to help focus on clear objectives and
make better strategic decisions. However, managers need to continually evaluate
the effectiveness of these strategies, through the combination of SWOT and
Porter’s five forces frameworks, because of the complexity of the retail
economy. Managers also need to analyse the shopping channels in which to sell
their products, whilst acknowledging consumer’s need for e-commerce, to
maintain a competitive position.