2 Building & Sustaining Relationship in

Retailing
Introduction
to Retailing
Building &
Sustaining
Strategic
Planning in
Information
Gathering &
Relationship Retailing Processing
in Retailing

Retail Operation Developing Implementing Logistics and

Organization & Management Merchandise Merchandise Inventory
Human Plan Plan Management
Resource
Management

Establishing Integrating and Technology and

and Controlling Automation in
Maintaining a Retail Strategy Food Retailing
Retail Image

In chapter two, we explain what value really means and highlight it pivotal role in
retailers’ building and sustaining relationships. This chapter also describes how
relationship between channel members may be nurtured in a highly competitive
marketplace.

This chapter places great emphasis on helping students understand meaning of value,
building and sustaining relationship between the channel members and customers at the
same time highlighting retailers’ ethical performance.

Key terms for review:

Value Customer loyalty Owned-goods

Value chain Value delivery services
Expected customer system Nongoods service
service Service retailing consumerism
Customer Goods retailing
satisfaction Rented-goods
services

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Chapter Overview
Building and Sustaining
Relationship in Retailing

Value and Value Chain Retailer Relationships Customer relationships

The differences in Channel relationships

relationship building
between good & service
retailers

Learning Objectives

After reading this chapter, you should be able to:

1. Explain what ‘value’ really means and highlight it pivotal role in retailers’ building
and sustaining relationships.
2. Describe how both customer relationships and channel relationships may be
nurtured in today’s highly competitive marketplace
3. Explain the differences in relationship building between goods and services
retailers.
4. Discuss the impact of technology on relationships in retailing.
5. Consider the interplay between retailers’ ethical performance and relationships in
retailing.

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CHAPTER 2

BUILDING AND SUSTAINING RELATIONSHIPS IN RETAILING

Value and Value Chain

In channel distribution, there are several parties involved; manufacturer, wholesaler,

retailer, and customer. These parties are most apt to be satisfied with their interactions
when they have similar beliefs about the value provided and received and agree on the
payment for the level of value. From perspective of the manufacturer, wholesaler,
retailer, value is embodied by a series of activities and process – a value chain – that
provides certain value for the consumer. It is the totality of the tangible and intangible
product and customer service attributes offered to shoppers. The level of value relates to
each firm’s desire for a fair profit and it niche (such as discount vs. upscale). Where
firms may differ is in rewarding the value each provides and in allocating the activities
undertaken.
Form the customer perspective, value is the perception the shopper has of a value
chain. It is the customer’s view of all benefit received from a purchase (formed by the
total retail experience). Value is based on the perceived benefit received versus the price
paid. It varies by type of shopper. Price-oriented shoppers want low price, service-
oriented shoppers will pay more for superior customer service, and status-oriented
shoppers will pay a lot to patronize prestigious stores.

Why is “value” such a meaningful concept for every retailer in any kind of
setting?

• Customer must always belief they got their money’s worth.

• A strong retail effort is required so that customers perceive the level of value
provided in the manner the firm intends.
• Value is desired by all customers; however, it means different things to different
customers.
• Consumer comparison shopping for prices is easy through ads and the World
Wide Web. Thus, prices have moved closer together for different types of
retailers.
• Retail differentiation is essential so a firm is not perceived as a “me-too” retailer.
• A specific value / price level must be set. A retailer can offer RM100.00 worth of
benefits for a RM100.00 item or RM125.00 worth of benefits (through better
ambience and customer service) for the same item and a RM125.00 price. Either
approach can work if properly enacted and marketed.

The retail value chain

• Represents the total bundle of benefits offered to consumers through a channel

of distribution.
• It may comprises; store location and parking, retailer ambience, the level of
customer service, the products / brands carried, product quality, the retailer’s in-
stock position, delivery. Prices, the retailer’s image, and other elements.

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 • Customer is consent about the result of the value chain not the process (it not
about how the retailer delivered it but how the customer received it).
• Some elements of a retail value chain are visible to shoppers, such as display
windows, store hours, sales personnel, and point-of-sale equipment. Other
elements are not visible, such as store location planning, credit processing,
company warehouse, and many merchandising decisions. In some cases other
value are of concerned such as ambience for upscale store or numbers of sales
personnel for high-end store.

There are three aspects of value-oriented retail strategy:

1. Expected retail strategy – represents the minimum value chain elements a given
customer segment. For example for a young market segment they might expect
from the retail to offer mid-priced product. In most cases. There are expected
value chain elements: store cleanliness, convenient hours, well informed
employees, timely service, popular products in stock, parking, and return
privileges. If these expected elements are applied poorly, it will cause customer
dissatisfaction and relate to why shoppers avoid certain retailers.
2. Augmented retail strategy – includes the extra elements in a value chain that
differentiate one retailer from another. The augmented elements may includes
program such as exclusive brands, superior salespeople, loyalty programs,
delivery and other special services. Augmented features complement expected
value chain elements, and they are the key to continued customer patronage.
3. Potential retail strategy – comprises value chain elements not yet perfected by a
competing firm in a retail category. Pioneering on certain expect of product,
service and offering. However firms must excel at meeting customers’ basic
expectations and offering differentiated features from competitors if they are to
grow.

Five potential pitfalls to avoid in planning a value-oriented retail strategy.

 Planning value with just price perspective – value is tied to two factors:
benefits and price.
 Providing value-enhancing services that customers do not want or will not
pay extra for.
 Competing in the wrong value / price segment – offering a product or service
with a wrong value / price segment to target market.
 Believing augmented elements alone create value. Many retailers think that if
they offer a benefit not available from competitors that they will automatically
prosper. A restaurant that has a limited parking space will have problem
although they offer superb menu that could not be found elsewhere.
 Paying lip service to customer service – most firms believe that customers
are always right but the actual fact they not really embrace it.

A Value-Oriented Retailing Checklist

• Is value defined from consumer perspective?

• Does the retailer have a clear value / price point?

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 • Is the retailer’s value position competitively defensible?
• Are channel partners capable of delivering value-enhancing services?
• Does the retailer distinguish between expected and augmented value chain
element?
• Has the retailer identified meaningful potential value chain elements?
• Is the retailer’s value oriented approach aimed at a distinct market segment?
• Is the retailer’s value-oriented approach effectively communicated to the target
market?
• Can the target market clearly identify the retailer’s positioning strategy?
Does the retailer’s positioning strategy considers trade-offs in sales versus profit?
• Does the retailer set customer satisfaction goals?
• Does the retailer periodically measure customer satisfaction levels?
• Is the retailer careful to avoid the pitfalls in value-oriented retailing?
• Is the retailer always looking out for new opportunities that will create customer
value?

Customer Relationship
Loyal customers are the backbone of a business. In relationship retailing there are four
factors to keep in mind:
1. Customer base
2. Customer service
3. Customer satisfaction, and
4. Loyalty program

The Customer Base – retailers must regularly analyze their customer base in terms of
population and life-style trends, attitudes toward and reasons for shopping, the level of
loyalty, and the mix of new versus loyal customers.
There are various factors that influence shopping behavior:
1. More women than men enjoy shopping, and men shop more quickly than
women.
2. Due to time constraints, consumers now spend and average of only 75
minutes when visiting a shopping mall.
3. Consumer’s most important reason to shop at a given apparel retail store
are product availability, ease in finding products, confidence in products,
ease of shopping, and convenience of the location.
4. Consumer’s most important reason to shop at a given department store
are convenience, price, and assortment and quality of merchandise.
5. Consumer’s most important reason to shop at a given supermarket are
cleanliness, prices, accuracy in price scanning at the check-out counter,
and how clearly prices are labeled.

The Customer Service – refers to the identifiable, but sometimes intangible activities
undertaken by the retailer in conjunction with the goods and services it sells. It impacts
on the total retail experience. Consistent with a value chain philosophy, retailers must
apply two elements of customer service:
1. Expected customer service – the service level that customers want to
receive from any retailer.
2. Augmented service – includes the activities that enhance the shopping
experience and give retailer’s a competitive advantage.

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Retailer must apply the customer service effectively. In order to do this the firms must
first develop an overall service strategy and then plan individual service. Retailer should
or may view the customer service it offers.

Classifying Customer Services

(taken from Berman and Evan 2004)

Cost of Offering the Customer Service

High Low
Patronage Builders Patronage Solidifiers
High-cost activities that are The “low-cost little things” that
the primary factors behind increase loyalty
High
customer loyalties
Example: courtesy (referring to
Example: transaction speed the customer by name and
Value of credit, gift registry saying thank you), suggestion
selling
the Customer
Service to the Disappointers Basics
Shopper Low-cost activities that are
Expensive activities that do no
“naturally expected.” They don’t
real good.
Low build patronage, but their
absent could reduce patronage.
Examples: weekday deliveries
for two-earner families, home
Examples: free parking, in-store
economists
directories

Developing a customer service strategy – a retailer must make the following

fundamental decisions.

1. What customer services are expected and what customer services are
augmented for a particular retailer?
For example credit facilities when buying a car is an expected service,
retailers could not stay in business without them. While augmented service
are extra elements, retailer could serve its target market without such service;
however, using them enhances its competitive standing.

2. What level of customer service is proper to complement the firm’s image?

For example an upscale retailer would offer more customer service compared
to a normal grocery retailer because people expect the upscale retailer to
have a wider range of customer service.

3. Should there be a choice of customer service?

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 Some firms let customers select from various level of customer service;
others provide only one level. For example retailer may honor several credit
cards or only its own, trade in is only allowed on some items or all and etc.

4. Should customer service be free?

Retailers may charge customer for some customer service because of two
factors:
i. Costly and labor intensive – for example delivery and gift wrapping.
ii. Customer attitudes – people a more likely to be home for a delivery or
service call if a fee is imposed. Without fee, retailer may have to
attempt a delivery twice.

5. How can a retailer measure the benefits of providing customer service

against their cost?
The purpose of customer service is to enhance the shopping experience in a
manner that attracts and retains shoppers while maximizing sales and profits.
Thus, augmented customer services should not be offered unless they raise
total sales and profits.

6. How can service be terminated?

Once a customer service strategy is set, shoppers are likely to react
negatively to any customer service reduction. However some costly
augmented customer service may be stop with a proper explanation to
customer why such services are being terminated.

The Customer Satisfaction – occurs when the value and customer service provided
through a retailing experience meet or exceed consumer expectations. If the value and
customer service do not meet, the consumer will be dissatisfied. Most consumers do not
complain when dissatisfied. They just shop elsewhere. Why don’t shoppers complain?
1. Because most people feel complaining produces little or no positive
results, so they do not bother to complain.
2. Complaining is not easy. Consumers have to find the party to whom they
should complain, access to that party may be restricted, and written forms
may have to be completed.
In order for the retailer to obtain more feedback, they must make it easier to complain.
Make sure shoppers believe their concerned are being addressed, and sponsor ongoing
customer satisfaction surveys. Retailers should ask such questions as these and then
take corrective actions reflecting their shopper’s feelings:
1. “Please rate our customer service.”
2. “How often does our customer service expectation?”
3. “What do you like most about our customer service?” “What do you like
least?”

The Loyalty Programs – rewarding a retailer’s best customers, those with whom its
wants long-lasting relationships.
Customer Loyalty Program should offer
– Rewards that are useful and appealing and they are attainable in
reasonable time.
– The program honor shopping behavior –the greater the purchase the
greater the benefit.
– Features are unique and not redeemable elsewhere.

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 – Rewards stimulate both short and long run purchase.
– Frequent shoppers feel “special”
– Participant rule are publicized and rarely change.
– Customer communication are personalized
Channel Relationships
Within a value chain, the members of a distribution channel (manufacturer, wholesalers,
and retailers0 jointly represent a value delivery system, which comprises all the parties
that develop, produce, deliver, and sell and service particular goods and services. The
ramifications for retailers follow:
 Each channel member is dependent on the others. When consumers shop with a
certain retailer, they often do so because of both retailer and the products it
carries.
 All value delivery system activities must be detailed and responsibility assigned
to them.
 Small retailers may have to use supplier outside the normal distribution channel
to get the products they want and gain adequate supplier support. Although large
retailers may be able to buy directly from manufacturers, smaller retailers may
have to buy through wholesalers that handle small accounts.
 A value delivery system is as good as its weakest link. No matter how well a
retailer performs its activities, it will have unhappy shoppers if suppliers delivery
late or do not honor warranties.
 The nature of a given value delivery system must be related to target market
expectations.
 Channel member costs and functions are influenced by each party’s role. Long-
term cooperation and two-way information flows foster efficiency.
 Value delivery systems are complex due to the vast product assortment of
superstores, the many forms of retailing, and the use of multiple distribution
channels by some manufacturers.
 Non-stores retailing (such as mail-order, phone, and Web transactions) requires
a different delivery system than store retailing.
 Due to conflicting goals about profit margins, shelf space, and so on, some
channel members are adversarial – to the detriment of the value delivery system
and channel relationships.

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Elements Contributing to Effective Channel Relationships ( taken from Berman and Evans,
2004)
Final consumer
orientation
Consistency
Common
positioning goal Activities
performed
Input into
channel decisions
Proper
lead time
Trust
Effective Equitable profit
Relationships distribution
Fairness
Marketing
support
Reliability

Timeliness
Communication of payments

Inventory
Coordination planning

The Differences in Relationship Building between Goods and Service Retailers

• Goods retailing focuses on sale of tangible (physical) products.
• Service retailing involves transactions in which consumer do not purchase or
acquire ownership of tangible products

Three Kinds of Service Retailing

• Rented-goods Service – whereby consumer lease and use goods for specified
period of time. Tangible goods are leased for a fixed time, but ownership is not
obtained and goods must be return when rental period up. E.g. car rental.
• Owned-goods Service - whereby goods owned by consumed are repaired,
improved or maintained. Retailers providing the service never own the good
involved. E.g. air-conditioner repairs, lawn care, etc.
• Non-goods Service – whereby intangible personal services are offered to
consumers, who then experience the services rather than posses them. The
seller offers personal expertise for a specified time in return for a fee; tangible
goods are not involved. E.g. stock brokers, travel agents, massage, health
trainer, beautician etc.

Four Unique Aspects of Service Retailing that Influence Relationship Building

and Customer Retention
• The intangibility of many services makes a consumer’s choice of competitive
offerings tougher than with goods.

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 • The service provider and his or her services are sometimes inseparable
(localizing marketing efforts).
• The perishability of many services prevent storage and increase risks.
• The aspect of human nature involved in many services makes them more
variable.

Characteristics of Service Retailing that Differentiate it from Goods retailing

and their Strategic Implications (taken from Berman and Evans, 2004)

Characteristics of Selected Strategic Implication

Service Retailing

No patent protection for service

It is difficult to display and communicate service and service benefits.
Service prices are difficult to set
Quality judgment by customers may be subjective. Two dimensions
Intangibility of quality judgment are process quality (judged by the customer
during the service) and output quality (judged by the customer after
the service is performed)
Some service involve performances / experiences

The consumer may be involved in the production of services.

Centralized mass production of service is difficult.
Inseparability If a popular employee leaves a firm, customers may switch to the new
company where that person now works.

Service cannot be inventoried

Perishability The effects of seasonality can be severe.
Planning employee schedules can be complex.

Standardization and quality control are hard to achieve.

Service may be delivered by employees who are beyond the immediate
influence of management (at the customer’s home, on the road, etc).
Variability Customers may perceive variability in the service quality from one
occasion to the next occasion, even if such variability does not actually
occur.

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Selected Factors Affecting Consumer Perceptions of Service Retailing (taken from
Berman and Evans, 2004)

Retailer understanding Reliable self-service

Convenience
of consumer needs technologies

Readiness to respond
Promptness of service to
customer request

Overall
Clarity of service Services performed
Consumer
benefits right the first time
Perceptions
of
Service
The service Dependability in
Retailing
environment handling problems

Service quality Service provided as

and reliability promised

Information about the Respectful contact

Quality of employees
service with customers

Technology and Relationships in Retailing

Technology is beneficial to retailing relationships if it facilitates a better communication
flow between retailers and their customers, as well between retailers and their suppliers
– for faster and more dependable transactions.
 Electronic banking – involves both the use of automatic teller machines
(ATMs) and the instant processing of retail purchases. Allows centralized
recordkeeping and lets customer complete transactions 24 hours a day
and 7 days a week.

 Customer and supplier interactions – technology changed the nature of

retailer-customer and retailer-supplier interactions.
- Retailers widely use point-of-sale scanning equipment.
- Interactive electronic kiosk.
- Web portal.
- Electronic gift card.

Ethical Performance and Relationships in Retailing

• Ethics

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 – E.g. raising prices on scarce products after a natural disaster,
– not having adequate stock when a sale is advertised,
– charging high price in low income areas because consumers there do not
have the transportation mobility to shop out their neighborhoods.

• Social Responsibility
– Acts in the best interests of the society.
A retailer exhibiting social responsibility (CR) acts in the best interests of
society – as well as itself. Some forms of CR are virtually cost-free, such as
having employees participating in community events or disposing of waste
products in a more careful way. Some are more costly, such as donation to
charitable groups or giving away goods and services to school etc.

• Consumerism
– Involves the activities of government, business, and other organizations
to protect people from practices infringing upon their rights as consumers.
These actions recognize that consumers have basic right to safety
– One of the most worrisome issues of consumerism “how retailers handle
consumer privacy. A consumer oriented approach, comprising these
elements, can alleviate negative shopper feeling.

There are a lot more issues regarding the consumerism – in Malaysia there
are a lot more to do when consumerism are concern.

Discussion Questions

1. When a consumer dine at a fine dining restaurant, what factors determine

whether the consumer feels that he or she got a fair value? How does the
perception of value differ when that same customer dine at a fast food restaurant.

2. What are the expected and augmented value chain elements for each of these
retailers?
a. Fine Dining Restaurant
b. Fast Food Restaurant
c. Food Hawker / Stall

3. Why should retailer give special attention to its core or existing customers? And
how should it do so?

4. What is the connection between customer service and employee empowerment?

5. How would you measure the level of customer satisfaction with your college’s
cafeteria?

6. Do you think Social Responsibility is an important issue in Malaysia? Why?

7. In your opinion what are issues of consumerism in Malaysia?

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