Retail Product Management

Rosemary Varley

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317703020
• Edition: 3
• Topic: Business
• Subtopic: Business General
• Index: Business

Retailers must be primed to face increasingly difficult trading conditions thanks to the rise of the internet, increasingly better informed consumers, technological advances and an often competitive environment. This established textbook, now in its third edition, helps to provide students with the necessary skills to understand and tackle these challenges.

Retail Product Management explains the importance of retailing as a customer-focused activity and helps to provide students of courses such as "Retail Marketing", "Retail Management" and "The Retail Environment" with an excellent introduction to this important topic. With an emphasis on the operational side, this text incorporates features including expanded case vignettes, questions for further discussion, and application tasks. It also includes a new chapter on ethical and sustainable retail product management.

Retaining the popular style and elements of the first two editions, Rosemary Varley's Retail Product Management will continue to find favour with students and lecturers involved with retailing.

Part I
Understanding retail product management

Chapter 1
Introduction to retail product management

Scope and concepts

Learning Objectives

The purpose of this chapter is to:

• ■ Develop a definition for, and an understanding of, the term ‘retail product management’.
• ■ Explore the scope of retail product management, through the various functions or business activities associated with it, within a retail organization.
• ■ Appreciate the fundamental role product management plays within the overall business strategy of a retailer, considering the wide variations of business types within the retail industry sector.
• ■ Introduce the concepts of general and speciality approaches to retail management, and gain an understanding of how these approaches relate to the product range or assortment.
• ■ Understand how product range orientation is used in government classification of retail businesses, and the limitations of such a classification scheme.

Introduction

This chapter introduces the concept of product management from a retailer’s viewpoint. It provides an overview of what retail product management entails, and how this relates to other management operations within a retail business organization. Retail product management is incorporated at various levels within a retail organization. The strategic level is where long-term product management objectives are set out and the contribution of the product range to the overall retail positioning strategy is established. The operational level is where those strategic objectives become translated into processes and operations that are carried out by product management teams and at the end of the product management process the product meets its consumer in the retail outlet, whether this is the online virtual retail environment or in physical stores.

Products

Products are central to retail organizations, whether they are in the form of tangible goods or services. A famous retail adage says, ‘it’s all about the product’ and at one time manufacturers were chiefly concerned with the design and production of products, while retailers had the task of gathering together a relevant and inspiring selection of goods and making them available to consumers at convenient locations and times. These boundaries are becoming blurred, as we shall see throughout the book; some business organizations engage in retailing, even though the majority of their activity is concerned with some other enterprise, such as production, or entertainment, and some retailers have their own factories. The internet is making retailing much easier for producers to reach the final consumer directly and it is also eminently possible for individuals to become retailers. However, the principle remains that if a business is to be classed as a retailer, their core activity, which accounts for over half of their total revenue, has to come from selling finished products or providing personal services to the final consumer. Most retailers do not engage in any other primary business activity, and so the collection of products that retailers offer to their customers is the traditional determinant of the nature of their business and the major influence on all other aspects of their business strategy.

A Product Defined

A marketer’s definition of a product is:

a physical good, service, idea, person or place that is capable of offering tangible and intangible attributes that individuals or organisations regard as so necessary, worthwhile or satisfying that they are prepared to exchange money, patronage or some other unit of value in order to acquire it.

(Brassington and Pettitt, 2003: 268)

Most of the topics included in this text will be concerned with physical goods, even though the retailer must also concern themselves with less tangible elements of their retail offer. Alongside products, retailers may offer services that help a customer during the purchase decision (e.g. a changing room in a clothing retailer). The actual location, layout and design of a retailer might be considered a service, especially if those elements make the shopping process easier (e.g. by providing parking facilities, ease of access and home shopping alternatives). Where a retailer’s combined product and service offer lies on the product-to-service continuum depends on the nature of the product range and the type of retail outlet; however, the relationship between the tangible product and the less tangible retail service elements is a recurring theme throughout this book.

Some tangible goods are extremely durable, offer a great deal of choice in terms of specific features and benefits, and the purchase of them becomes complex, with a high level of involvement on the part of the consumer. Purchases such as household furnishings, cars or large electrical appliances would fit this category. Other tangible goods are consumable and convenience-orientated products such as food and toiletries. These products are generally less complex, frequently purchased and, being of lower value, involve less risk. Other products are information based at the purchasing stage and are consumed as they are used, such as a travel ticket or a holiday. Some service products are experienced as they are purchased and consumed, like a restaurant meal or a haircut. Service products generally have a very high proportion of intangibility and the product is not ‘distributed’ in the same way; the quality of a service product depends extensively on how the exchange is actually delivered with the ‘product’ experience being immediate and perishable. What is important to appreciate at this stage is that retailing covers all of these ‘products’ and that different types of products require unique sets of product management approaches in order to achieve consumer satisfaction.

Retail Product Sectors

Traditionally, the retail industry has used the main type of product sold to determine the ‘sector’ into which a business would fall, such as the clothing sector, the electrical sector, the furniture sector and so on. This method of classification, however, is becoming less meaningful as many of the larger retailers, particularly the supermarket groups, variety stores and department stores, cannot be classified in this way. Their coverage across product categories means that no one particular type of product dominates in sales value terms, and while the term ‘non-specialist retailer’ was devised for industry reporting, the sector comprising non-specialists has become so dominant, and includes retailers ranging from Tesco to Marks & Spencer to W.H. Smith, that the classification system itself has become somewhat redundant. In October 2003 the UK government announced that they were going to review the production of estimates of retail sales indices for the retail industry sectors (ONS, 2003). In order to give some idea of the structure of the UK retail industry by product area, Table 1.1 shows figures issued in 2011 for both the specialist and non-specialist retail sector categories.

As in the UK, a sizeable share of retail activity in most economically developed markets is dominated by large retail organizations, although structural differences may vary from country to country and impact upon the product sector characteristics in different ways. For example, the domination of the department store in countries like the US, Japan and Germany initially slowed the progress of speciality retailers (Alexander, 1997); planning restrictions have slowed the growth of large-scale retailers in France (McGoldrick, 2002). In emerging economies, a greater percentage of per capita expenditure will be allocated to food and medical supplies with lower percentages in sectors like electrical goods and clothing. In addition, some economies are likely to have a more fragmented retail structure, with fewer international players.

Table 1.1 The UK retail industry by sector

The Role of Product Management in Retailing

Traditionally, the retailer’s role within the distribution channel was to provide suitable selections of products in small quantities, via outlets located close to viable groups of consumers. In fact, a dictionary definition of the verb to retail is ‘the sale of goods in relatively small quantities to the public’ (Oxford Dictionary, 1996).

A fundamental role a retailer plays then is to ‘break bulk’. Until about the mid-twentieth century retailers were typically seen as ‘stockists’ of a particular range of manufacturers’ products. However, the role of the retailer has changed significantly, from being a passive distributor to an active intermediary who controls the product range offering by carefully selecting products from manufacturers and making them available to customers.

A historical overview

In the UK it was the abolition of resale price maintenance legislation in 1964 that accelerated the changes within the retail distribution industry: this change meant that retailers were allowed to determine their own pricing strategy for their product ranges, rather than having to adhere to prices set by manufacturers. The transfer of power allowed retailers to discount prices in order to increase volume, and thereby profits, and to reinvest the profits in more outlets, resulting in greater buying power. Manufacturers had little choice but to cooperate with the growing multiple retailers, who then wielded their power in many other areas of their business, such as developing their own brands, and improving store formats. Advances in information technology further contributed to the power of the retailer as a result of the sales analysis afforded by EPOS systems, and the database information that can be generated by electronic trading, customer loyalty schemes and other direct communications. The result is a high level of retail concentration: an industry that is dominated by a relatively small number of extremely powerful, marketing-orientated organizations (Burt and Sparks, 2003; McGoldrick, 2002). To a certain extent the internet is beginning to shift power back to the smaller retailer and the producing brand, and the consumer has limitless opportunities to research product offers at their own convenience. The popularity of online shopping is changing the dynamics of the retail industry, with physical stores in some product categories (e.g. music) being threatened with obsolescence. Irrespective of what happens to the concept of a shop, however, the activity of presenting a range of products to consumers in a pleasing and convenient manner will remain for the foreseeable future.

The retailer’s role has always been geared towards customer convenience. Their role in the distribution channel (see Figure 1.1) is to provide outlets that are readily accessible to consumers, to store a sufficient quantity of a product, so that consumers can buy products as and when they need them, and revisit the outlet when the need arises again. For this service to the customer, the retailer adds a profit margin. The profit a retailer makes contributes towards the costs of running the outlet(s), such as the costs of staffing, paying rent, rates and other maintenance costs and the costs of financing the stock. It also has to cover the costs incurred by the support activities of the retail organization, such as sourcing, marketing, distribution and systems. Any surplus profit can then be distributed to the owners or shareholders of the business.

Online retailing changes the costing model for retailers, and managing the financial implications with regard to the overall retail business is a challenge. It is too simplistic in multi-channel retailing to consider online sales as low-cost/high-profit retailing. Many online sales are generated by customers browsing and receiving good customer service in stores. The so-called omni-channel approach focuses on the customer experience irrespective of what are often referred to as ‘platforms’ through which a consumer engages with a retail brand (physical stores, website, mobile shop, social network and so on). Nevertheless, whatever a retailer’s infrastructure consists of, it cannot be m...