This would help in preventing the
loss of sale on high margin products and stop the switching pattern of
consumers. Additionally opportunity cost
of stock out is significant, hence Value4u would continue to invest in
inventory. This would help the firm save
on supplier costs resulting from rush orders. Value4u is certain that reliable
product availability is an investment in future market share.
Geographical Segmentation Strategy complemented by demographical
Value4U’s stores will be opened
in and around Pune region. Primary focus is low and middle income consumers
that reside in these regions are sensitive not only to prices but also to their
budgetary constraints. Such segment of population invests heavily in search
costs with long term efficiency at the back of their mind. Budget on grocery
forms significant economic expenditure1
for this strata of the population and hence invest in search costs. Although
search costs may prove to be expensive in the short run, long term yields
offset the costs. Population segment under consideration continue to follow
shopping pattern once established and economical and financial constraints
results in higher switching costs favoring status quo till there is change in
benefit cost derivation.
Value4U would also priorities
their shelf space. The firm will stock
slow moving items only if they are promoted by suppliers or manufacturers. Slotting fees will be charged for such items.
If possible, firm will also keep the option of extracting failure fees if items
do not meet sales criteria within stipulated time.
Private Labels- Value4U will focus on own private label i.e.
Value4U currently has product portfolio of more than 325 items catering to staple
needs of consumers. Firm will persist with discounts and promotions on private
label to generate footfalls and conversion. Own private label have higher
margins and concurrently consumers benefit from lower prices.
Value4U will prioritize pricing
strategy over volume growth strategy.
Retail industry has become fiercely competitive. Some of the major
retailers have financial cushion, some possess distinct capabilities, while
some focus on product assortment to increase basket size. Value4U will not focus
on volume growth to gain market share. Probability of increasing profitability
through volume growth is very restricted.
Pricing strategy: Price has very high leverage on profit if
marginal cost is over and above zero. Price increase is related with profits.
On the contrary, volume growth elevates profits only by additional revenue
minus marginal costs.
Necessary and essential products
have high promotional intensity that goes a long way in generating the shopping
traffic. Therefore requires low price consistency. Contraire, nature of perishable products impel
the rotation of the inventory. This petitions dynamic pricing strategy.
When FMCG firm start price wars
by utilizing promotions as price discrimination mechanism, Value4u will lower
the prices of private label brand below those FMCG promoted products. This will help Value4U prevents switching of
price sensitive customers. Another
advantage in employing this strategy is this would stop customers from stockpiling
FMCG products. Applying prices which are
lower than FMCG product will be undertaken only when FMCG engages in promotions
at our store. It is proved in numerous academic as well as empirical researches2
that promotion affect reference price of the product. Frequent promotions with
deep discount decrease reference price for customers. Consequently, customers
would wait for promotion to make purchases and go on stockpiling strategies. Also, promotional elasticities if exceed
price elasticities, then regular pricing strategy will not yield any growth for
Value4u pricing strategy is
concurrent with rational economics i.e. follow uniform pricing theory. Store
will keep uniform prices for all categories of customers. To expand further, if
there are customers who are one store shoppers then buying private label from
the store may bring additional purchases in other category. Customers who are two store shoppers would
also benefit because such strategy enables them to reallocate their demands
between two stores without incurring extra search costs and in the long run may
help them switch to Value4U brand completely. Furthermore, using price discrimination
strategy within the same consensus tract would lead to confusion and customers
might even become disillusioned with the Value4u store, if they find different
prices in contiguous stores. Be as it
may, Value4u, would consider price differentiation strategy in diverse trade
area provided these are dispersed and could provide opportunities for increased
gross margin and efficient inventory control.
Time Management Strategies3
– shopping at supermarket, convenience stores involved two costs i.e. fixed
cost and variable cost. Fixed cost consists of checkout, parking, and time to
and from supermarket. Time required to buy products not available at
supermarkets can be thought of as variable cost. Hence, Value4U will provide
all the necessary i.e. staple products in the shops. This will help consumer’s
variable cost and opportunity cost of time.
Storage cost strategy: low income consumers may not have storage
facilities available. So Value4u with its large reach cater to this population
segment handsomely. Having multiple stores within walking distance would help
them purchase the product as and when needed at low prices. High Income group
save by buying in bulk as they are indifferent to price elasticity because of
storage available for them.
Value4u is trying to develop inventory as a form
of sustainable competitive advantage. Rationale behind this strategy is –
supermarket could modify inventory and staffing decisions in real time and this
is the incentive that would help the firm in making investments in product
availability. Secondly, switching costs
for consumers. Consumers are accustomed to a store’s layout, they have
developed knowledge of shelves where regular and routine products are stocked
and if a supermarket runs out of inventory, consumers are forced albeit
reluctantly to switch either to alternative
1 Stigler (1996)
researched that, the more economically significant expenditure is to the
household’s budget, the greater would be the gain from searching for lower
2 Insert full references Schindler 1984a,
1984b, Robert Blatterberg
use in shopping: The role of personal characteristics
Journal of Retailing, Volume 70, Issue 4, Pages 345-365
William J. McDonald