Theories in Retailing
Chapter 2
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- NO single theory can be universally applicable
- Theory - A well-substantiated explanation of some aspect of the natural world; an organized system of accepted knowledge that applies in a variety of circumstances to explain a specific set of phenomena
Retailing
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These theories are based on:
- Competitive pressures and their importance
- Investments in organizational capabilities
- Creation of sustainable competitive advantage
- Implementation of strategic planning
- Needs of customer and his attitude
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classification
- Environmental - change in retail is attributed to the change in the environment in which the retailer operate
- Environmental theory
- Cyclical - Where a particular pattern and phases are identified in the changes and similar pattern is observed in related issues
- Wheel of retailing
- Accordion theory
- Evolution Theory : Where a new format is developed by the retailers as a result of intense competition or conflict between two types of retailers
- Dialectic Process Theory
- Natural Selection Theory
- Polarization Theory
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CLASSIFICATION OF THEORIES
Theories are classified based on
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Customer expectations
- Central place theory
- Gravitational theory
- Community building theory
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Environmental / natural selection theory
- "Survival of the fittest"
- Charles Darwin's view that organism evolve and change on the basis of survival of the fittest.
Retail Environment:
- Customers
- Competitors
- Changing Technology
- Legal environment
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Environmental Theory
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- Environment in which retailers operate is crucial
- Environment consists of social, economic, technology, cultural factors in which customers and retailers operate.
- It forces the retailer to evolve and change the strategy since it affects sales, profitability and image.
- Growth or decline, success or failure, profit or loss - depends on environment
- Size, nature, type, timing, location-influenced by environment
- Success-how quickly desired strategy is formulated to face challenges brought through changing environment.
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Retail Life Cycle
- Innovation
- Accelerated growth
- Maturity
- Decline
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The Retail Life Cycle
Cyclical theories
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- It follows cyclical mode in business transaction.
Two types:
- Wheel of retailing
- Accordion theory
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A. Wheel of Retailing- described by McNair
Wheel of retailing
Well known established theory of retail evolution
- This theory was developed by Malcom McNair
- Assumption that price sensitive consumer are not store loyal and new retailers are in a better position to implement lower operating cost.
- Entry phase: how new types of retailers enter the market as low status, low rent location etc.
- Trade up Phase: retailer meet success, improve location, more services etc.
- Vulnerability phase: marked as high cost structure and less adaptability
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Wheel of retailing
ACCORDIAN THEORY: Hollander used analogy of an orchestra.
- Open accordions
- Closed Accordions
- Proposes the retail fluctuate from the strategy of offering many merchandise categories with shallow assortment to the strategy of offering a deep assortment with a limited number of categories.
- Expansion and contraction calls to mind an accordian
- Also termed as General Specific General Theory
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Conflict theory/melting pot theory
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- Upgrading retail product & facilities because of competition. Leads to development of two similar retailers.
- Dialectic process / melting pot theory
- Adopting the plan and strategies of competitors
- It includes process of antithesis, thesis & synthesis
- New retails institutions result from stores
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CONFLICTUAL THEORY
Anti-thesis
Department Stores
Thesis
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Individual retailer
Synthesis
Hypermarkets and Supermarkets
Retailing evolves through blending of two opposites to create a new format.
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Thesis
Speciality store
High Margin
Low turnover
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High service
Narrow variety
Deep assortment
Antithesis
Full line Discount Store
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Low margin
High turn over
Low prices
No service
Broad variety
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Shallow assortment
Synthesis
Category Killer
Modest margins
Medium turnover
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Low prices
Limited services
Narrow variety
Deep assortment
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Polarization theory
- The reason to decline due to competition from multiples having buying power and economies of scale
- Polarisation – shift towards larger and smaller retailers with medium sized businesses.
- Smaller retailer forced into bankruptcy due to economy in operation for large retailers
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