Page 86 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Unit 4: Retailing Structure

Availability of Substitutes Notes
The tendency in retail is not to specialize in one good or service, but to deal in wide range of
products and services. This means what one store offers is likely to be same as that offered by
another store. Thus threat from substitutes is high.

Competitive Rivalry

Retailers always face stiff competition and must fight with each other for market share and also
with unorganized sector. More recently, they have tried to reduce cut throat pricing competition
by offering frequent flier points, memberships and other special services to try and gain the
customer‘s loyalty. Thus retailers give each other stiff but healthy competition which is evident
from their aggressive marketing strategies and segment policies.
The arguments offered by critics against the retail sector reforms focus on one or more of the
following points:

Independent stores will close, leading to massive job losses. Walmart employs very few
people in the United States. If allowed to expand in India as much as Walmart has expanded
in the United States, few thousand jobs may be created but millions will be lost.
Walmart will lower prices to dump goods, get competition out of the way, become a
monopoly, and then raise prices. We have seen this in the case of the soft drinks industry.
Pepsi and Coke came in and wiped out all the domestic brands.
India doesn’t need foreign retailers, since home grown companies and traditional markets
may be able to do the job.

Work will be done by Indians, profits will go to foreigners.
Remember East India Company. It entered India as a trader and then took over politically.
There will be sterile homogeneity and Indian cities will look like cities anywhere else.
The government hasn’t built consensus
A business makes many decisions about the direction to go based on the success, or lack thereof,
of its competitors. From the customers; standpoint, competition provides choice. Businesses
must analyze competitors to find and exploit weaknesses to gain increased market share.
Businesses often conduct analyses to help identify strengths and weaknesses of current competitors
and threats which can come from future competitors in the marketplace.

Task Pick a retail company of your choice and study its competitive environment.

Self Assessment

Fill in the blanks:
6. In retail industry …………………. tend to have very little power.
7. ……………………… have comparatively high bargaining power in unorganized sector
than in organized sector.
8. Retailers always face stiff competition and must fight with each other for ……………………
and also with unorganized sector.
9. Businesses must analyze ……………………… to find and exploit weaknesses to gain
increased market share.

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