Case Discussion Connecting With Consumers: Black & Decker

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CASE STUDY ATTACHED TO THIS POST .. USE REFRENCES APA STYLE

  • Please read the case and analyze it by answering these case analysis questions.
  • You may answer each case discussion question in each paragraph and separate different paragraphs for different questions. You don’t have to copy the discussion questions in your answer.
  • Although quantity is not quality, however I do not accept 1-2 sentence answers to each question. Please make a thorough case analysis, post 300 to 500 words’ case analysis (roughly 1.5-3 pages double spaced with12-font),

 

Case Discussion questions need to b answered in the paper

1. What is the cause of B&D’s 9% share vs. Makita’s 50%?
2. How does the buying behavior of the tradesman impact the situation?
3. What is Makita’s competitive strategy and what role does Milwaukee (the #2 brand in the segment play)?
4. Which action alternative should B&D pursue?

Harvard Business School 9-595-057 Rev. March 30, 2001

Professor Robert J. Dolan prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Certain non-public data have been disguised.

Copyright © 1995 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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The Black & Decker Corporation (A): Power Tools Division

Joe, I like you guys. But, look, I give Makita 10 feet of space. I give you 10 feet of space. They outsell you 8 to 1. What are we going to do about that?

In January 1991, statements like this no longer surprise Joseph Galli. Black & Decker’s (B&D) vice president of sales and marketing for power tools had heard similar sentiments expressed by many trade accounts. Makita Electric of Japan had practically taken over the professional power tools for tradesmen business since it entered the United States market a decade ago. “Tradesmen” was one of the three major segments of the power tools business—the others being “Consumer” and “Industrial.” “Consumer” represented “at home” use, while both “Tradesmen” and “Industrial” covered professional users. The distinguishing characteristic of the Tradesmen segment was that these buyers, such as a carpenter, bought tools for their own use on a job site. In Industrial, the buyer was generally a corporation purchasing tools for use by employees. By late 1990, Makita’s success in the Professional-Tradesmen segment was such that it held an 80% share in cordless drills, the single largest product category, and a 50% segment share overall. B&D had virtually created the portable power tools business in the United States beginning in the early 1900s. While it maintained the #1 market share position in the Consumer and Professional-Industrial segments, its entry in the relatively new Professional-Tradesmen segment held only about a 9% share.

The trade was asking for advertising allowances and rebate money on B&D’s Tradesmen products and profitability in this segment was near zero. B&D’s senior management resolved to put an end to this “no win” game, and Galli set about developing and gaining corporate support for a viable program to challenge Makita for leadership in this segment. He could not help but see the irony of a 9% Tradesmen segment share and no profitability against the results of two recent research studies: one showing B&D to be among the powerful brand names in the world, and the second establishing B&D’s professional tools to be the highest quality in the industry.

Black & Decker

In 1910, Duncan Black and Alonzo Decker, Sr., started a machine shop and, in 1917, received a patent on the world’s first portable power drill with pistol grip and trigger switch; 73 years after receiving its first patent, B&D was the world’s largest producer of power tools, power tool accessories, electric lawn and garden tools, and residential security hardware. Headquartered in

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595-057 The Black & Decker Corporation (A): Power Tools Division

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Towson, Maryland, B&D’s sales reached $4.8 billion in 1990, with nearly 50% of product revenues from outside the United States. Alonzo G. Decker, Jr., was honorary chairman of the company and a member of the board of directors. He had been chairman of the board and chief executive officer from 1968 to 1975. Prior to his becoming CEO, the CEO post had always been held by his father or co-founder Black. From its roots in power tools, B&D began a move “from the garage to the house” in 1979 with the introduction of the very successful Dustbuster® hand-held vacuum. This “into the house” thrust led to the purchase of General Electric’s Housewares Division in 1984 for $212 million. As part of the sale agreement, B&D could use General Electric’s name on products only until 1987.

Nolan Archibald, a Harvard Business School graduate and a former group president at Beatrice, became president and CEO in 1986. The early 1980s had been volatile years at B&D. It began the decade with a 19% net revenue increase to $1.2 billion in 1980, but sales stagnated at this level through 1983. In 1985, with net revenues at $1.7 billion, B&D posted a $215.1 million restructuring cost and a $158.4 million loss. For the 5-year period from 1981 through 1985, the company lost money. B&D’s $2.8 billion acquisition of Emhart Corporation in 1989 more than doubled B&D’s revenues and brought new strong brands, including Kwikset® locks and Price Pfister®

faucets, but raised the company’s long-term debt to $4.2 billion, representing about 84% of total capital. Figure A shows the growth in B&D sales and net income since Archibald became CEO.

Figure A Black & Decker Revenues and Operating Income, 1986-1990

1986 1987 1988 1989 1990 1986 1987 1988 1989 1990 1

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200

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$ in Millions$ in Billions

The five largest product groups and their percentage of B&D’s 1990 sales were:

• Power Tools and Accessories 29%

• Household Products 15%

• Information Systems and Services 11%

• Outdoor Products 9%

• Security Hardware 9%

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The Black & Decker Corporation (A): Power Tools Division 595-057

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Household products included hand-held vacuums, irons, mixers, food processors and choppers, coffee makers, and toasters and toaster ovens. The well-known Dustbuster and Spacemaker® (under-the-cabinet appliances) brands were part of this group. The B&D franchise was especially strong in cordless vacuums, irons, and toaster ovens, each holding over a 50% market share in the United States. In 1990, 29 new household products were introduced, including the Power Pro™

Dustbuster® heavy duty cordless vacuum. The household products line was heavily supported with media advertising.

The B&D name enjoyed substantial equity in both the United States and Europe. An independent survey of 6,000 brands showed Black & Decker’s brand-strength ranking to be #7 in the United States and #19 in Europe.1 This put Black & Decker in the company of Coca-Cola, Campbell’s, Walt Disney, Pepsi-Cola, Kodak, NBC, Kellogg’s, McDonald’s, and Hershey—the other firms rounding out the U.S. top ten.

Power Tools Market

In 1990, portable power tools in the United States was a $1.5 billion market. Products ranged from an electric screwdriver for the consumer who might use it once a year at home to heavy-duty miter saws used continually throughout the day at construction sites. Segmentation of the market was as shown in Figure B.

Figure B Segmentation of the U.S. Power Tools Market

Nonprofessional users accounted for $530 million or 35% of the market. In this Consumer segment, consumers bought tools at mass merchants, such as Wal-Mart and Kmart, and hardware stores for their own home use. The “for work” market was divided into a Professional-Industrial segment and a Professional-Tradesmen segment. The $550 million Professional-Industrial segment was made up primarily of commercial contractors working on large projects (e.g., office buildings,

 

1Landor Associates Survey.

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595-057 The Black & Decker Corporation (A): Power Tools Division

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bridges, etc.) and company assembly lines (e.g., automobile plants). In this segment, distributors (of which W.W. Grainger of Skokie, Illinois, with over 300 branch offices, was by far the largest) played an important role in providing technical expertise and service. For a given job, the distributor could both specify the contractor’s tool requirements and recommend specific brands. Grainger stocked more than 32,000 items to provide prompt delivery. In the Professional-Industrial segment, tools were typically purchased and owned by the company rather than the individual users.

The Professional-Tradesmen segment was targeted largely at tradesmen such as electricians, plumbers, carpenters, framers, roofers, and general remodelers working in residential construction. These tradespeople were expected to show up at the job site with their own necessary tools of the trade in working condition. These buyers tended to patronize newly emerging retail distribution channels including home centers such as The Home Depot and Lowe’s, in addition to the traditional hardware stores, such as Ace. While the smallest of the three segments in 1990, at $420 million (28%), Professional-Tradesmen was growing fastest at 9% compared with a 7% growth rate for Consumer and no growth for Professional-Industrial. Some “heavy do-it-yourselfers” bought tools in the Professional-Tradesmen segment, but this segment primarily comprised people who made a living with their tools.

B&D participated in all three segments. Black & Decker®-brand power tools held nearly a 30% share of the U.S. market overall.2 To serve these segments, B&D offered three separate lines and brand designations all under the Black & Decker family name, as follows:

Approximate

U.S. Market Segment Brand Logo Product Color

B&D Segment

Share 1990

B&D Segment

Revenues 1990

Professional-Industrial

• Size = $550MM

Charcoal Grey 20% $110 MM

Professional-Tradesmen

• Size = $420MM

Charcoal Grey 9% $35 MM

Consumer

• Size = $530MM

Black 45% $250 MM

In the Professional-Industrial segment, B&D’s share was near parity with Milwaukee Electric of Brookfield, Wisconsin. Founded in 1924, Milwaukee was a privately held firm, selling only in the high end of the market at a rate of approximately $200 million per year worldwide. The second tier suppliers in the Professional-Industrial segment were Bosch, Porter Cable, and Makita. The very knowledgeable purchase decision influencers in the Professional-Industrial segment viewed B&D as offering high-quality, differentiated products and excellent service. At the other end of the performance spectrum, in the Consumer segment, B&D’s brand recognition and image helped it attain the #1 position in the marketplace with nearly a 50% share over suppliers such as Skil, Craftsman, Wen, and various private label products.

 

2In addition, it manufactured some professional power tools under the Craftsman label for Sears, which held an additional 4% of the Professional-Tradesmen segment.

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The Black & Decker Corporation (A): Power Tools Division 595-057

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B&D’s strengths in the Professional-Industrial and Consumer segments did not transfer to the Professional-Tradesmen segment, where the approximate share positions in 1990 were as shown in Table A.

Table A Power Tools, Professional-Tradesmen Approximate Segment Shares, 1990

Makita ~50%

Milwaukee ~10%

Black & Decker ~9%

Ryobi ~9%

Skil ~5%

Craftsmana ~5%

Porter-Cable ~3%

Bosch ~3%

aManufactured in part by B&D and marketed by Sears.

Three product types—drills, saws, and sanders—represented nearly 80% of the total sales in the Professional-Tradesmen segment. The top three manufacturers offered broad product lines at approximately 175 SKUs each. Since its entry into the market in 1978, Makita had staked out leadership positions in virtually all products and distribution types within the Professional- Tradesmen segment. Exhibit 1 shows approximate shares for Makita, Milwaukee, and B&D for the largest categories in the segment. Exhibit 2 shows shares of Makita and B&D by the five major outlet types: (i) Two-Step (sales through distributors to independent retailers, such as Ace and ServiStar), (ii) Home Centers, (iii) Warehouse Home Centers, (iv) Membership Clubs, and (v) Farm Outlets.

Professional-Tradesmen revenues of approximately $35 million in 1990 for B&D translated into about $3 million in operating income. Gross margins ran about 35%, but SG+A costs were about 25%.

These numbers had become even more vivid for Galli in a recent Monday morning conversation with his boss, Gary DiCamillo, B&D’s president of Power Tools for the United States, who recounted this story:

Joe, yesterday, I stopped by that new Home Depot. It was a nice afternoon; lots of people around. They had one of those woodworking guys out on the sidewalk giving demonstrations for a couple of hours. He was using all Skil saws, and he was just packing up to go home when I came by at about 4 o’clock.

I said to him “What do you think of the Skil saws?” “Pretty good,” he said. So, I said, “Who else do you like?” He said “Oh, Milwaukee makes a nice reciprocating saw; Ryobi’s got some okay things.” “What about Makita?” I said. He said, “Oh, they’re okay—they’re all pretty good really—you just have to stay away from that Black & Decker!”

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595-057 The Black & Decker Corporation (A): Power Tools Division

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Black & Decker and the Professional Segment Buyer

While the “just got to stay away from that Black & Decker” view was perhaps extreme, Galli understood that B&D’s strength as a consumer brand was not necessarily beneficial for the Professional-Tradesmen segment. Some tradespeople viewed all B&D products as for use at home rather than on the job; and, conversely, there had been instances of a B&D product designed for at home use being subjected to the demands of the job site and failing.

The typical plumber, electrician, or general remodeler working in residential construction had about $3,000 invested in 10 or so “tools-of-the-trade.” He or she bought tools when a replacement was needed, spending on average $1,000 per year. Tools and their performance were a constant topic of conversation at the job site. Generally, tradespeople were satisfied with the tools available—the perception being that Makita provided a good baseline option in all major categories, and other suppliers had particular product strengths, e.g., Skil in circular saws.

As noted above in Exhibit 2, this buyer bought most frequently in independently owned stores served by distributors, i.e., the Two-Step in Exhibit 2. However, the Home Centers noted in Exhibit 2 were growing in importance. For example, the largest single outlet of Professional- Tradesmen tool sales in 1990 was The Home Depot at approximately $5 million; second was Home Club at $3.5 million, compared to the largest of the Two-Steps, Ace and ServiStar, at $2 million each. The Home Depot was the largest of the rapidly growing collection of home improvement chain stores. With 145 stores and $3.8 billion in 1990 sales, The Home Depot’s strategy was to stock 30,000 items in a 100,000 square foot location, with prices about 30% less than the traditional hardware store, while also providing superior customer service. Makita’s rise to marketplace dominance was aided by the rapid development of this new type of distribution.

B&D’s research on tradespeople’s perceptions of suppliers’ quality showed four tiers in the marketplace, as shown in Figure C.

Figure C Brand Perceptions of Professional-Tradesmen Segment Buyers

Highest Lowest

—Makita —Bosch —Black & Decker —Wen

—Milwaukee —Hitachi —Ryobi

—Porter Cable —Skil

—Panasonic —Craftsman (Sears)

Both Milwaukee and Makita priced at premiums over B&D, averaging 10% and 5%, respectively. Despite the price premium over B&D, Makita’s prices on some products were less than half of what the product sold for in Makita’s home market, Japan, where Makita was #2 in market share to Hitachi.

While Makita’s position with tradespeople was strong, retailers were not uniformly positive toward Makita. Some regarded it as “arrogant and dictatorial.” Makita offered no channel protection, selling the same products throughout a range of outlets including the discount oriented Membership Clubs, which B&D had decided not to include among its distributors of Professional- Tradesmen tools (see Exhibit 2). Some believed Makita to be “trading-down” its offerings by, among other things, positioning them as appropriate for Father’s Day giving.

While no tradesperson would explicitly note “product color” as a key attribute in the purchase decision, color was generally regarded as a significant product differentiator. Consumer tool manufacturers had largely followed B&D’s 1981 lead of making consumer tools black or charcoal

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The Black & Decker Corporation (A): Power Tools Division 595-057

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grey. B&D’s policy was to use black as its consumer grade color and charcoal grey for its Professional-Industrial and Professional-Tradesmen grades. Competing brands of professional tools were more highly differentiated in color, as shown in Figure D.

Figure D Color Differentiation: Professional End Users

• Makita – Teal • Milwaukee – Red • Bosch – Dark • Hitachi – Green • Black and Decker

– Charcoal Grey

Professional Grade

Consumer Grade

Black/ Charcoal Gre y

• Black and Decker • Craftsman • Skil

• Wen • Private LLabel

Products

Black & Decker Product Research

Product development had been a B&D focus since 1985 and B&D tools were highly regarded in the demanding Professional-Industrial segment, so Galli believed that the source of B&D’s share problem in the Professional-Tradesmen segment was not inherent product quality. This belief was tested in two ways. First, B&D conducted laboratory tests on its own and competitive products to assess performance, reliability, and durability. Figure E summarizes the results for the 14 major Professional-Tradesmen products. B&D’s offerings were characterized on a scale ranging from weak/undeveloped to competitive to leadership.

Second, B&D did extensive field tests. All identifying marks and colors were removed from products (both B&D and competitors). The products were then used in actual work situations for one month. Users provided comments on product performance and their interest in buying the product when a replacement was needed. This user testing supported the findings of the laboratory tests of Figure E, i.e., B&D’s product quality was very strongly competitive in the large majority of product categories.

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The Black & Decker Corporation (A): Power Tools Division 595-057

9

Research on Brand Awareness and Perceptions

Telephone surveys and B&D’s annual Image Study provided data on brand awareness, relative perceived quality, and ratings on specific attributes. Overall awareness of the major brands among the Professional-Tradesmen segment end users are shown in Table B.

Table B 1990 Total Awareness of Power Tool Suppliers Among Tradespeople

Awareness

Black & Decker 98% Hitachi 77% Milwaukee 95% Hilti 73% Skil 93% Porter Cable 67% Makita 90% Ryobi 50% Bosch 87%

Respondents were also asked to state their level of agreement with the statement, “Brand X is one of the Best.” The data on percentage of respondents “agreeing” or “strongly agreeing” with the statement are in Table C.

Table C ”One of the Best” Agreement Data

Milwaukee 80% Makita 67% Black & Decker 44%

The Image Study provided the same agree/strongly agree data at the level of specific attributes. In particular, Table D segregates those expressing a preference for Makita and those expressing a preference for Milwaukee and compares perceptions of those brands to perceptions of B&D.

Table D Percent Agreeing with the Statement

Those Who Prefer Makita

Those Who Prefer Milwaukee

Makita B&D Milwaukee B&D

Makes High-Quality Tools 82% 51% 91% 43% Makes Durable/Rugged Tools 71% 48% 91% 42% Proud to Own 78% 43% 86% 36% Easy to Get Service 44% 67% 68% 66% Stands Behind Products 56% 61% 69% 52%

As Galli reflected on the research data, he recalled some of the comments made to him by two tradesmen during site visits:

“. . . Black & Decker makes a good popcorn popper, and my wife just loves her Dustbuster, but I’m out here trying to make a living . . .”

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595-057 The Black & Decker Corporation (A): Power Tools Division

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“. . . On the job, people notice what you’re working with . . . if I came out here with one of those Black & Decker gray things, I’d be laughed at.”

Galli knew that a copycat strategy, e.g., paint it blue and spend some advertising dollars on a “Black & Decker as appropriate for the tradesmen” theme, would not receive internal support. Three options presented themselves:

Option 1. Harvest Professional-Tradesmen Channels

In this strategy, B&D would focus on the Consumer and the Professional-Industrial segments. In the Professional-Tradesmen segment, the focus would be on profitability even at the expense of market share.

Option 2. Get Behind Black & Decker Name with Sub-Branding

While there had been several half-hearted attempts to rebuild the B&D name in the Professional-Tradesmen segment, they had not been successful. One new aspect which might offer promise, though, was the sub-branding strategy, which had been so successful with the Spacemaker line and which Galli had used earlier in his career in the accessories business. Specifically, he had transitioned replacement saw blades from “Black & Decker” brand to “Piranha® by Black & Decker.” (See Exhibit 3.) In 1990, B&D had introduced the Sawcat™and Super Sawcat™ circular saws with some success. An intense sub-branding program could be developed in an integrated fashion.

Option 3. Drop the Black & Decker Name from the Professional-Tradesmen Segment

Galli imagined what internal reaction would be to such a proposal. Everyone had taken great pride in the #7 “brand power” position of the B&D name. As one of his colleagues commented to him, “Joe, it can’t make sense to pull the name of the creator of the power tools industry from a power tool. You’d be saying that B&D can’t make it in power tools. Besides, if General Electric can put its name on everything from jet engines to telephones, why can’t we?”

If he were to propose dropping the B&D name, he would need an alternative. One possibility was to develop a new brand name free of any negative associations, similar to Toyota’s creation of the Lexus brand. The other would be to use some other name already in B&D stable of brands. One of these possibilities was the DeWalt® brand from a line of stationary woodworking equipment. DeWalt was founded in 1918 and bought by Black & Decker in 1960. DeWalt was a leader in sales of large radial arm saws permanently installed at lumber yards. While sales of DeWalt products had reached $70 million annually at one time under B&D, the company had recently deemphasized the line due to the amount of product liability exposure that came with large, stationary woodworking equipment. The DeWalt name had never been used on a portable power tool.

The DeWalt name had been included in the awareness research described in Table B above. It received a 70% awareness rating, and most of those who knew DeWalt were positively disposed to it. Surprisingly, it had achieved an “Is One of the Best” agreement percent of 63% from tradesmen as compared to B&D’s 44% (Table C). Further research on the DeWalt brand showed that 51% of tradespeople would have some “purchase interest.” The “level of endorsement” by B&D impacted the “purchase interest” score. Specifically:

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The Black & Decker Corporation (A): Power Tools Division 595-057

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Identified As % Purchase Interest

• DeWalt 51% • DeWalt–Serviced and Distributed by Black & Decker 58% • DeWalt–Manufactured, Serviced and Distributed by Black & Decker 53%

Galli felt that any plan involving investing to build market share—Option 2 or Option 3— would have to provide for a minimal objective of doubling B&D’s Professional-Tradesmen segment share from under 10% to nearly 20% within three years, with major share “take-away” from Makita. Operating income would be expected to improve steadily from under 10% to at least 12%. He also knew that the Membership Clubs, which represented about 10% of segment sales for the industry were and would continue to be off-limits. Thus, he would not be able to attack the 85% share Makita held within that channel.

He wondered what type of reaction to expect from Makita if he pursued a “build share” option. Finally, he considered the risk. On the one hand, B&D was not making much money in the Professional-Tradesmen segment anyway, so financial risk was limited. On the other hand, there might be implications for the other two segments and embarrassment in the retail channels.

One of the color options he was considering was a bold “Industrial Yellow”—a familiar job site color associated with safety, but not yet used by any power tool brand. But, if the strategy was not success, Galli could not think of anything good that could come from his product being the same color as a lemon.

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595-057 The Black & Decker Corporation (A): Power Tools Division

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Exhibit 1 Market Shares of Professional-Tradesmen Tools by Product Type—1990

Approximate Shares

Product Approximate % of Market Makita Milwaukee B&D

• Drills (30%) – Cordless Drivers – Corded

16% 13%

80% 50%

<5% 20%

<10% 25%

• Saws (35%) – Circulara

– Miter – Reciprocating – Jig – Chop

14% 11%

<10% <5% <5%

55% 45% 30% 25% 50%

15% –

30% 15% <5%

<10% 15% 25%

<10% 20%

• Sanders (>15%) – Finishing – Beltb

<10% <5%

60% 20%

<5% –

<10% –

aSkil held approximately 20% of Circular Saws. bRyobi held approximately 45% of Belt Sanders.

Exhibit 2 Market Shares of Professional-Tradesmen by Channel Type—1990

Approximate Shares Within Channel Type

Approximate % of Professional Segment Sales in This Channel

Makita Share

B&D Share

Two-Step 40% 55% <10% Home Centers 25% 45% <10% Warehouse Home Centers 15% 45% 20% Membership Clubs 10% 85% 0% Farm Outlets 5% 45% 15%

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The Black & Decker Corporation (A): Power Tools Division 595-057

13

Exhibit 3 Piranha Sub-Brand

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Competencies For Project Managers

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Assignment 1: Competencies for Project Managers

Due Week 6 and worth 175 points

Read the 9 mini-case study series from the Project Management Institute on the Global Green Books Publishing company before starting this assignment.

Write a six to eight (6-8) page paper in which you:

Describe at least three challenges that supervisors face as managers of resources on projects similar to Global Green Books Publishing. Provide a rationale for your choices.

Identify at least three key skills/competencies supervisors need to be effective in managing teams’ performance while working on projects similar to Global Green Books Publishing. Provide a rationale for your choices.

Describe at least three challenges that team members face when working on projects similar to Global Green Books Publishing and provide a rationale for your choices.

Identify at least three skills/competencies that team members need in order to be effective in working on projects similar to Global Green Books Publishing and provide a rationale for your choices.

Use at least three (3) quality resources in this assignment. Note: Wikipedia and similar websites do not qualify as quality resources.

Your assignment must:

Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow SWS (Strayer Writing Standards). Check with your professor for any additional instructions.

Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

Assess the elements, processes, and reasons for managing projects.

Assess and prepare for project uncertainties.

Evaluate processes and tools for monitoring and controlling project performance.

Click here to view the grading rubric for this assignment.

Mini case 1

Mini-Case Study: Project Management at Global Green Books Publishing

Global Green Books Publishing was started two years ago by two friends, Jim King and Brad Mount, who met in college while studying in Philadelphia, USA. In the new business Jim focused on editing, sales and marketing while Brad Mount did the electronic assembly and publishing of books for Global Green Books. Their business was successful and profitable in the first two years, largely due to contracts from two big businesses.

In their third year they got very busy thanks to their third major customer, a local college that needed customized eBooks. They hired several part time employees to help them with their publishing business.

But by the end of third year of operation, Global Green Books started experiencing critical problems. They were:  unable to leverage all the new employees effectively  unable to deliver eBooks to their customers on schedule  unable to provide quality texts—time and money was being spent fixing defects in their products  unable to control costs—their business was not profitable in the third year.

Global Green Books saw a significant rise in issues, a lot of unpleasant “surprises” were cropping up; business was down as new resources were hired, also some of the projects were poorly estimated. The local university was unhappy as their eBook products reached campus late for use by professors and student. In some cases, the books were a week or two late. Since the courses must start on schedule and students need their books at the beginning of their courses, the new lucrative college customer was unhappy.

One of the new part-time employees hired by Jim and Brad, Samantha, had taken a project management course at college. Samantha was excited about the discipline of project management and had intentionally selected a job with Global Green Books Publishing as she saw an opportunity to polish her project management skills.

One fine day, Jim invited Samantha, for a lunch meeting. He was aware that Samantha was familiar with project management, and wanted to hear what she had to say about the problems he and Brad were facing. Over lunch he questioned why their small business which had operated and implemented projects so successfully over the first two years was being challenged significantly now. He specifically listed the problems they were facing and asked for input to solve them.

Samantha asked for more time to research all the issues but noted that Global Green Books, while being innovative, completed projects without a roadmap or a project plan and lacked a disciplined approach to project management. She noted that Jim and Brad did not use any project software for scheduling and they did not use tools or techniques to estimate, budget or to communicate with stakeholders. Finally, they had no processes in place to manage project risks and quality.

Impressed with this and other conversations, Jim King asked Samantha if she would consider joining them as a project associate or project manager on a full-time basis to help them introduce project management practices and help them tide over their current crisis.

Samantha accepted the offer! She has several key skills—she is an excellent communicator with very good interpersonal skills and detail-oriented. Within the first three months in her new role as PM, she introduced formal project management processes, created a PM manual and trained the employees to get the work done well.

Within nine months Samantha had fully turned things around. Due to proactive risk analysis and risk response planning, surprises and issues reduced. Communication with stakeholders was enhanced.

Brad and Jim noted that the company was delivering projects on schedule, the quality processes worked—and customers were happy with the products!

Comment on the following aspects of the case study:

a) Why did Global Green Books Publishing struggle? b) What were the specific PM solutions that were introduced by Samantha that worked? c) What kind of suggestions would you give to Brad and Jim if you were the PM? d) Are you aware of other similar start-up businesses that struggle in a similar manner? How did they overcome the challenges? e) Global Green Books Publishing is a technology intensive business, but Samantha is not technically knowledgeable, will she continue to be a successful project manager?

MINI CASE 2

Mini-Case Study: The Back to School Crunch at Global Green Books Publishing

Global Green Books Publishing is a successful printing and publishing company. Just two years old, it has taken on a great new customer, a local college that needs customized eBooks.

To deal with this new customer, they have hired several new part time employees to help them with their publishing business, some of them students at the college with flexible hours.

As the new school year drew closer, the orders started coming in. They had been told how many different printing jobs the college would need, but they weren’t all arriving at once, and orders were quite unpredictable in arriving from the professors at the college. Some professors needed rush orders for their classes. When Global Green Books finally got the orders, some of these jobs were much larger than they had thought they would be.

Printing these orders turned out to be very challenging. Not all of the new student hires were trained for all of the printing and binding equipment used to print and assemble to books. Some of them often made mistakes, some workers called off from work due to other demands, and there were often not enough people available to get all the work done before deadlines.

Quality was a serious issue, as they had to provide quality texts—if there were quality problems with the printed product, they would have to spend time and money to fixing defects in their products.

Deliveries started slipping past their requested dates and times. Global Green Books was unable to deliver eBooks to their customers on schedule.

The local university was unhappy as their eBook products reached campus late for use by professors and student. In some cases, the books were a week or two late.

Samantha had been hired as a project management assistant. In her new role as a project manager, one of the processes she was trying to institute was risk management. She started looking at what was happening in the business, talking about it with the owners and employees, and heard about the college’s unhappiness. As she did this, she started identifying risks and potential risks. As she went along, she started doing more proactive risk analysis and risk response planning, and as she did surprises and issues were reduced. By talking with stakeholders and addressing their concerns, communication with stakeholders was also enhanced.

Comment on the following aspects of the case study:

a) What risks can you identify? Why are they a risk to Global Green Books Publishing? b) What kind of impacts does each of your identified risks have? Can you categorize these as low impact, medium impact, or high impact? c) How probable are each of your identified risks? You can think about something simple like categorizing these as not very likely, likely, and highly likely to occur. d) What would you advise Global Green Books are their three most critical risks?

e) What would you suggest that they do about these three risks? Are there specific actions to deal with these risks? Have you identified a contingency plan to carry out if the risk occurs?

MINI CASE 3

Mini-Case Study: Defining Standard Projects at Global Green Books Publishing

Global Green Books Publishing is a successful printing and publishing company in its third year. It has survived the bringing on a large new customer and all the challenges of new work that this customer needed in a very short time.

Much of this work for the college is customized eBooks. As the first term progressed with Global Green Books making customized eBooks for this college, there were a number of issues that affected the quality of the eBooks produced and caused a great deal of rework for the company. The local university was unhappy as their eBook products sometimes reached campus late for use by professors and student. In some cases, the books were a week or two late.

The management of Global Green Books was also challenged by these projects. The college expected them delivered on-time and at a low cost, and the company was not always doing that. Accounting was having difficult tracking the costs for each of the books, and the shift supervisor were often having problems knowing what tasks needed to be completed and assigning the right employees to each task.

Some of the problems stemmed from the new part time employees. Since many of these workers had flexible schedules, it wasn’t always clear which tasks they were supposed to be working on when they came in to work. Each book being produced was indeed a book; but that was all they had in common. Each book had different production steps, different contents and reprint approvals required, and different layouts and cover designs. Some were just collections of articles to reprint once approvals were received, and others required extensive desktop publishing. Each eBook was a complex process, but was going to be made just once, as these eBooks were all customized for each professor and course each semester. Each eBook had to be produced on time, and had to be made to match just exactly what the professors requested.

Understanding what each eBook needed had to be clearly documented and understood before starting production. Global Green Books had been told by the college how many different printing jobs the college would need, but they weren’t all arriving at once, and orders were quite unpredictable in arriving from the professors at the college. Some professors needed rush orders for their classes. Some orders arrived as projected, but some came later than anticipated. When Global Green Books finally got all their orders, some of these jobs were much larger than they had thought they would be.

Each eBook needed to have a separate job order prepared that listed all the steps that needed to be completed, so that tasks could be assigned to each worker. These job orders were also becoming a problem. Not all the steps needed were getting listed in each order. Often the estimates of time for each task were not completed until after the work was done, causing problems as workers were supposed to move on to new tasks but were still finishing their previous tasks. Some tasks required specialized equipment or skills, sometimes from other groups within Global Green Books. Not all of the new student hires were trained for all of the printing and binding equipment used to print and assemble to books.

Global Green Books wanted to start developing a template for job orders. This template should list all of the possible tasks that should be performed in producing an eBook for the college. These tasks could be broken down into the different phases of the work.

In the Receive Order phase, the order should be received by Global Green Books from the professor or the college, it should be checked and verified, and a job order started. In checking and verifying each order, the customer representative should make sure that they have the requester’s name, email and phone number; the date needed, and a full list of all of the contents. They should also verify that they have received all of the materials that were supposed to be included with that order, and have fully identified all of the items that they need to request permissions for. Any problems found in checking and verifying should be resolved by contacting the professor.

In the Plan Order phase, all of the desktop publishing work is planned, estimated and assigned to production staff. Also all of the production effort to collate and produce the eBook are identified, estimated and scheduled, and assigned to production staff. Specific equipment resource needs are identified and equipment is reserved on the schedule to support the planned production effort.

In the Production Phase, permissions are acquired, desktop publishing tasks (if needed) are performed, content is converted, and the proof of the eBook is produced. A quality assistant will check the eBook against the job order and customer order to make sure it is ready for production, and once approved by quality, each of the requested eBook formats are created. A second quality check makes sure that each requested format is ready to release to the college.

In a Manage Production Phase, happening in parallel with the Production Phase, a supervisor will track progress, work assignments, and costs for each eBook. Any problems will be resolved quickly in an attempt to not have any rework or delays in releasing the eBooks to the college.

Each eBook will be planned using the standard job template as a basis for developing a unique plan for that eBook project.

Comment on the following aspects of the case study:

a) Printing books in a print shop, especially large quantities of a single book, is a process. A process is an ongoing day-to-day repetitive set of activities the print shop performs when producing its products. How are these customized eBooks different from a standard printing process? What characteristics make these customized eBooks a project? b) Who are the stakeholders in these eBook projects? How are they involved in or affected by an eBook project? c) Why is it important to have a defined project scope? Why is it important to make sure there is agreement about the scope and what will be done in producing each eBook? d) What kinds of information would you want supervisors to have available to them in the Manage Production phase? Why? e) Do you think developing a standard job template would be useful for Global Green Books? Why? What advantages could it give them in planning work? f) What other information, if any, would you like to see included in the standard job template? Why?

Create a Work Breakdown Structure for an eBook project. a) What are the major phases of work for making an eBook? b) What are the steps in each phase? c) Can you identify any substeps for any of the steps? What are they?

MINI CASE 4

Mini-Case Study: Cost Estimation at Global Green Books Publishing

Global Green Books Publishing is continuing to produce customized eBooks as a key new product line for it as a successful printing and publishing company. It has developed a template to help plan job orders. The major customer for these customized eBooks is a local college, who expected these books to be delivered at a low cost, and the company has not always been doing that. The Accounting department in Global Green Books was having difficult tracking the costs for each of the books.

Each eBook had a separate job order prepared that listed all the steps that needed to be completed, so that tasks could be assigned to each worker and costs estimated. With the existing job orders, estimates of time required for each task were sometimes not completed until after the work was done, causing problems as workers were supposed to move on to new tasks but were still finishing their previous tasks. Some tasks required specialized equipment or skills, sometimes from other groups within Global Green Books.

Along with its template for job orders, Global Green Books wanted to start developing a project estimate for each new eBook project. This cost estimate should capture direct costs and indirect costs. The direct costs for an eBook project include labor costs for those in the company working on the project, materials costs (if any), subcontractor or outside labor, and equipment and facility costs. Material costs for these eBooks include any permissions costs for content and images used in the eBook. Indirect costs for these eBooks computer support costs and sales commissions for each eBook project.

For an incoming eBook order for an eBook for a European History course, the following internal labor costs are projected during the Plan Order Phase:

Phase Task Staff Category Rate ($)

Hours

Receive Order Receive Order Customer Service Representative

CSR 12.00 .25 *

Receive Order Check Order Customer Service Representative

CSR 12.00 .50 *

Receive Order Verify Order Customer Service Representative

CSR-1 16.00 1.0 *

Plan Order Plan Work Supervisor Senior-1 28.00 1.0 Plan Order Assign Work Supervisor Senior-1 28.00 1.0 Plan Order Estimation Supervisor Senior-1 28.00 1.0 Plan Order Reserve Equipment Supervisor Senior-1 28.00 .50 Production Acquire Permissions Publishers Liaison PL 22.00 0 Production Desktop Publishing (DTP) DTP Specialist DTP-2 18.00 12.5 Production Content Conversion DTP Specialist DTP-1 12.50 4.0 Production Produce eBook (Proof and Final) DTP Specialist DTP-2 18.00 5.0 Production Quality Checks Quality Technician Customer Service Representative QC CSR-1 16.00 16.00 3.0 1.0

Manage Production Track Production Supervisor Senior-1 28.00 3.0

During the Plan Order Phase, the hours for the Receive Order phase (marked with an *) are actual times, as this work has already been performed.

In addition to these internal labors costs, the Production Supervisor has estimated that the European History eBook will incur these costs: ď‚· An overhead rate on all direct labor of 1.50. ď‚· Material costs of $1,000 for each permission needed ď‚· Equipment costs of $800 for unique equipment needed for this project (a special oversize map scanner) ď‚· Subcontract labor of $500 for installation and training in the use of the oversize map scanner ď‚· Computer support costs of $600 ď‚· Sales commission of 20%

In addition to direct and indirect costs, Global Green Books targets a 25% profit margin on each project, and budgets for a 10% contingency on labor and 20% contingency on permissions.

Comment on the following aspects of the case study:

a) What are the types of direct costs identified in this case? Why are they viewed as direct costs? b) What are two forms of costs identified? c) What are some problems that might arise that could impact the budget? d) Why would Global Green Books set aside contingencies? How would needed rework, if caught in the quality reviews, be accounted for in the budget? e) What are the main cost drivers of this project? f) What other information, if any, would you like to see included in the budget for this project? Why?

Create a budget for the European History eBook project.

a) What are the costs by major phases of work for making this European History eBook? b) What are the total costs for direct labor? c) What is the total estimated cost of this European History eBook?

MINI CASE 5

Mini-Case Study: Managing Change at Global Green Books Publishing

Global Green Books Publishing is producing customized eBooks for a local college. It has just received a large order for a new eBook on Strategic Human Resource Management in a Global Context from a senior professor in the business school. This distinguished faculty member is dissatisfied with the current textbooks, and wants a customized eBook for use with her oncampus courses, graduate seminars, and her executive education courses. This is the most complex eBook that Global Green Books has undertaken. Because this project is so important to the professor, and will be used in so many different settings with different schedules, the professor made sure that she had her complete eBook request in early to allow sufficient time for production. She had selected a broad set of the best papers and had written an introduction and background, along with discussion questions for each section. This meant that this project was going to have an extensive set of permissions to acquire before production could happen, as well as a large amount of desktop publishing for the new materials written by the professor. She was quite certain that she had given Global Green Books more than enough time to have her eBook ready before the first class needed it.

This large eBook went through the check and verify order step with a bit of back and forth with the professor to verify the information needed for the extensive number of permissions, so that started the project off with a bit of a delay. Because there were so many permissions, the Supervisor who planned this project, accelerated the work on obtaining permissions to make sure that all the permissions were received before they needed to start assembling and collating the eBook in production.

As the Publishers Liaison worked through the extensive list of permissions, the Customer Service Representative for the business school at the college started receiving several inputs from the college about this project. One set of inputs was a continuing series of requests from the professor. As new papers were released, she wanted to make a number of additions to the eBook. Also, as time went on and she had more time to review her eBook plans, she started identifying some changes that she wanted to make to her planned eBook.

Another input came from the business manager at the college bookstore, as he was quite concerned about the projected cost of this eBook. Because this eBook included so many reprints of existing articles and chapters, the estimated cost of the book was quite high. The college expected their eBooks to be delivered at a low cost, as its bookstore costs had to cover the bookstore overhead (servers for sales and distribution of the eBooks and marketing costs) and the bookstore’s markup, as well as the costs of the eBook from Global Green Books. The Global Green Books costs had to incorporate all the permissions costs, as well as all of the desktop publishing and production costs.

The Customer Service Representative communicated these issues to several people within Global Green Books: the account manager for the college account, the supervisor managing production for this eBook, the Publishers Liaison obtaining permissions for this book. The account manager was concerned about upsetting this important customer, the supervisor didn’t know how these various requests could all be accommodated or how it would impact his project, and the Publishers Liaison was worried both about added costs for new permissions and the

time it would take to get them and the costs they had already expended for permissions no longer needed.

And the professor’s requests just kept coming, at an increasing rate as it got closer to her deadline for needing this eBook.

The supervisor was starting to make some estimates of what each change requested by the professor would cost ď‚· An extra $500 for each new permission needed, in addition to the $500 already spent for each permission already acquired that can no longer be used ď‚· Two hours of Publishers Liaison effort for each new permission needed at an unburdened cost of $22 per hour (loaded cost is $55 with a 1.5 overhead rate) ď‚· One hour of supervisor time for replanning each change at an unburdened cost of $28 per hour (loaded cost is $70 with a 1.5 overhead rate) ď‚· Sales commission of 20%

This continuing series of requests for changes from the professor is quickly adding to the upwardly spiraling cost of this project. The supervisor feels that something must be done about this scope creep – continually changing scope.

Comment on the following aspects of the case study:

a) Who are the stakeholders of this project? Who are the key stakeholders of the project? b) What impacts could these requested changes have on the budget? c) Could these requested changes also impact the schedule? If so, how? d) What is Global Green Book’s process for dealing with changes from their customers? Do you see any possible issues with this process? e) How would you recommend that Global Green Books handle these changes? Who should be involved? f) What should Global Green Books do about the conflicting inputs from their customer – the bookstore manager who wants inexpensive eBooks and the professor who wants the best and most up-to-date collection of readings possible for her courses?

MINI CASE 6

Mini-Case Study: Developing Project Managers at Global Green Books Publishing

Global Green Books Publishing is continuing to grow. They now have three large customerstwo in traditional print-based work and the third is a local college. They produce customized eBooks for this local college. This newest line of work is growing, as other customers hear of their work, and the account managers are speaking with several other colleges and professional associations about taking on additional projects in electronic publishing.

As they have grown, they have had to start implementing some project management concepts to plan and manage their work. The founders hired Samantha as a project associate or project manager on a full-time basis to help them introduce project management practices and help them tide over the crisis they were experiencing with rapid growth. Within the first three months in her new role as PM, she introduced formal project management processes, created a PM manual and trained the employees to get the work done well. Within a year, the company was delivering projects on schedule, the quality processes worked—and customers were happy with the products! This success was leading to possible new work and greater opportunities to bring on new customers.

As the growth continued, Samantha was now feeling the pressure. She was only one person. And there was so much more to still do.

Using her project management skills, she had implemented more formal project management processes, created a PM manual and trained the employees to get the work done well. One area where she especially felt stretched thin was in supporting the supervisors.

As the eBook business grew, there were more and more demands on the supervisors. Many were great print technicians who had caught the eye of the founders for their attitudes and customer service ethic. But today, they were being called on to do more complex tasks than merely running a highly automated print copier. Supervisors are interacting with customers, as well as with internal account managers and customer service representatives. They are managing employees with a diverse set of skills, backgrounds, and motivations. It is increasingly hard for them to ask employees to take on hard challenges when they themselves do not have those skills and have not done the eBook publishing that the business is increasingly moving to.

Many of the supervisors have had a bit of project management mentoring from Samantha, but still know that they have to be both leaders and managers. As project teams come together to work on eBooks, there are challenges. Some of the challenges have to do with knowing the status of the work, as part-time employees come in and hand a piece of a project off to another worker. Some deal managing conflicts as they arise – both technical issues as permissions are delayed and content cannot yet be incorporated, leading to scheduling changes, and interpersonal issues among staff. Some of these conflicts occur between a mostly young, part-time contingent of student workers and the full-time employees. Supervisors are often drawn into mediating or resolving these conflicts. They really need to meld together their staff to create highly capable, productive project teams for these fast-paced eBook projects. The staff needs to

trust each other and their leadership to be fair and to balance work priorities with the times that they are available.

Supervisors need to provide leadership, to provide inspiration for their team, and to be good motivators of their team members, as well as be a good manager, worrying about the day-today and minute-by-minute accomplishment of the project’s goals. Being a good motivator also means that the supervisors must be good listeners to understand what issues are confronting their team members and the needs of their team members.

The supervisors were realizing that as a group they needed two things. One was a greater grasp of people skills, or so-called “soft” skills, to help make them more effective. The other was more support in project management as they needed to better track the details of the work, and the task level scheduling and rescheduling that was happening as team members come and go for their work shifts and as permissions sometimes take longer to obtain than planned.

Samantha is starting to discuss with her management and with the human resources and training group how they can meet some of these needs. Perhaps some leadership development training for supervisors could be arranged. And she is talking with her management about setting up a project management office (PMO) to have project management staff available to help the supervisors with some of their work tracking and scheduling challenges. She hopes that addressing these two issues will make their eBook delivery much smoother.

Comment on the following aspects of the case study:

a) What are some of the challenges facing supervisors? b) What skills do you think the supervisors need to be effective project managers? Why do they need these skills? c) Are there skills that team members need to be effective team members in a project? If so, what are these skills? d) Which characteristic or skill do you think is the most significant characteristic of an effective project manager? e) What steps could project managers take to help make their teams more effective? f) What advice would you give Samantha about setting up a project management office? What roles could these staff perform, and how could they interact with the existing projects? g) Can you describe other ways that this PMO function could be organized?

MINI CASE 7

Mini-Case Study: Closing Projects at Global Green Books Publishing

Global Green Books Publishing is continuing to grow. The customized eBooks line of work is continuing to grow, and they now have a lot of experience from the eBook projects that they have completed for their first eBook customer, a local college, and for their newer customers.

However, as new projects come in and start to run into problems, some of the project managers in the project management office and their manager, Samantha, were discussing how it seems like it is déjà vu all over again – some of the same problems that they thought they had solved in working with supervisors and their teams on past projects keep on occurring.

The eBook projects are functioning well, and customers are happy with the results. Repeat orders are coming in and new customers are turning to Global Green Books for their eBook production needs.

But, there are just some problems that seem to keep popping up. One of the project managers even described dealing with these problems as being like playing the popular arcade game of “Whack-a-Mole” – as soon as you deal with one to make it disappear, the same one or another one just pops up. It seems like a never-ending struggle to try and solve some of these problems, especially when some seem like they were already solved on another earlier project.

In the PM handbook that Samantha had implemented, when projects completed the supervisors finished tracking all of the actual effort and costs and turned that information over to cost accounting for billing purposes. As Samantha and colleagues implemented the project management office, they modified the PM manual to have a copy of this information also shared with the project management office. They have found this information to be sometimes useful as historical data to help develop estimates for new projects as requests for new eBooks come in from their customers.

The PMO team was discussing making changes to the PM manual and holding a short training for supervisors to implement some improvements to their project completion processes. They wanted to change their standard job template to incorporate these additions: ď‚· a planned task for supervisors to close out the project, ď‚· a task to create a lessons learned report, and ď‚· an optional task for a closing celebration for the team to mark the end of the project,

They felt that it was important that the PMO start capturing lessons learned. These could be collated by the supervisors at the end of the project, or they could encourage supervisors to plan, schedule and hold a project closing meeting with their team members to thank the team members and to collect lessons learned from all of the team. They could also invite feedback or participation from the relevant Customer Service Representatives and account managers.

The PMO received management approval for these changes, updated the PM manual, and held a brief training for supervisors. Supervisors liked the ideas, especially because the close-out meeting or team celebration would give them a chance to recognize and reward team members and would serve to motivate the teams for future projects. As time went on, the PMO started collecting these lessons learned from many projects.

As they collected these lessons learned from these projects, the PMO staff started to look at the data from the lessons learned across the projects. They examined frequency of the six kinds of issues that were being encountered on the projects. The histogram below shows their results.

Based on feedback from the leadership training that they had done with the supervisors, they had thought that the major cause of delays and extra costs on projects were part-time student employees calling off from work at the last minute, leaving planned work not performed until another resource could be assigned to it, which was often difficult as there were few slack resources. This made tasks late and sometimes delayed projects from completing on time.

Their analysis showed that that wasn’t the case at all. In fact only three of the problems on projects were caused by unplanned absences. In their Pareto analysis, the PMO staff identified three key problems, which they highlighted in red. Delays in obtaining necessary reprint permissions from certain publishers were the largest cause of problems, accounting for 34% of the problems encountered by eBook projects. Production staff calling in sick was the next most frequent problem, accounting for 28% of the problems. Customer changes, which often caused rework and delays, were the root cause of another 20% of the problems.

The PMO now knew what the most important issues were that were causing eBook projects to be delayed, and could make recommendations to mitigate each of these problems.

Comment on the following aspects of the case study:

a) What are some of the reasons why it is important to close out a project? What can project managers accomplish in closing out a project? b) Why should projects capture lessons learned? What are some ways that the project team members, project managers and the organization can use lessons learned? c) What benefits come from celebrating project accomplishments? Do you believe that rewards and recognition can serve as motivators for staff? d) Explain what a Pareto chart is. Why would you use this technique to identify and prioritize problem areas? Are there some limitations on interpreting the results of a Pareto analysis? e) If you were the PMO looking at this Pareto analysis, what recommendations might you make to address the three key problem areas in eBook projects that this analysis identified?

MINI CASE 8

Mini-Case Study: Team Building at Global Green Books Publishing

Global Green Books Publishing is continuing to grow. As their eBook business continues to drive that growth, they now are continuing to add staff to be able to keep up with customer demand. Most all of the new people and many of the eBook staff have not worked together in the original print-based business area of the company, and indeed are new to the company and its culture.

These new employees have a diverse set of skills, backgrounds, and motivations. Their supervisors know how to manage their projects, but do not always have the expertise to step in and do each of the unique tasks assigned to team members. Most of the employees that have been around since the beginning of the eBook business have been trained in their project management techniques, so they can get the work done well; but not all of the newer employees have had this training. There is just too much work that needs to be done to take time out for training.

Supervisors need provide leadership, to provide inspiration for their team and to be good motivators of their team members, as well as be a good manager, worrying about the day-today and minute-by-minute accomplishment of the project’s goals. Being a good motivator also means that the supervisors must be good listeners to understand what issues are confronting their team members and the needs of their team members.

Beyond this role as leaders, supervisors need to be a good manager. They need to identify the skills that they need for their projects. Supervisors at Global Green Books normally do this as they start from the standard job template for eBook projects and build the Work Breakdown Structure (WBS) for their eBook project. Next, they need to identify team members that have those skills, and work with their current project managers and with human resources to make sure that they will be available to support the new project. Based on the lessons learned analyses, a supervisor might also identify a person as a back-up for a critical role on the project, in case they run into difficulties or assigned staff are not available as planned.

Once the team is assembled, challenges can arise. Some of the challenges teams face have to do with knowing the status of the work, as part-time employees come in and hand a piece of a project off to another worker. Some deal managing conflicts as they arise – both technical issues as permissions are delayed and content cannot yet be incorporated, leading to scheduling changes, and inter-personal issues among staff. Some of these conflicts occur between a mostly young, part-time contingent of student workers and the full-time employees. Supervisors are often drawn into mediating or resolving these conflicts. They really need to meld together their staff to create highly capable, productive project teams for these fast-paced eBook projects. The staff needs to trust each other and their leadership to be fair and to balance work priorities with the times that they are available.

Supervisors are finding it is very important to make sure every team member understands the goals of the project, the roles of each team member and how they inter-relate, and the sense of urgency about completing the project. This urgency comes from understanding the intense schedules for completing eBooks and from understanding why it is important that all of the work come together to create a finished eBook – any part not completed keeps the final eBook from

going into quality check and release. Because of the issues around employee absence and the use of part-time employees, they are also trying to make sure that employees are able to do their role, but can also help out in related roles as needed.

To help build a common understanding of the project work and minimize some of the conflicts, Samantha is working with some the supervisors to hold a project kick-off meeting where the team reviews the goals and plan for the project, and develops and agrees to a project team charter. Letting the team develop their charter gives the supervisor an opportunity to observe how the team works together, and gives the team the ability to set ground rules for how they will work together. The team charter starts with the project goals. The team may set their goals in order to accomplish these project goals. Other topics that the team might address in their team charter include agreed-upon guidelines for how they want to participate in the project, conduct (or behavior), communications among project members, communicating status and problems, problem solving, and holding meetings. This charter and its guidelines that they team have agreed to can then serve as a basis for team building and team behaviors during the project.

Comment on the following aspects of the case study:

a) What are some of the challenges facing project teams? Have you encountered any of these problems in teams that you have been part of? What other team problems have you experienced? b) Are there skills that team members need to be effective team members in a project? If so, what are these skills? c) Why is it important that team members understand the goals and scope of the project? d) Think about creating a team charter. What categories of guidelines would you you’re your team to agree on before beginning work? Why would you include these categories? e) Brainstorm and identify some guidelines that you would suggest teams follow for each of these categories?  Team member participation in the project  Team member conduct (or behavior)  Communicating among project members (including communicating status and problems)  Holding meetings f) What are the advantages of a kick-off meeting? What are the advantages of developing a team charter?

MINI CASE 9

Mini-Case Study: Quality Management at Global Green Books Publishing

Global Green Books Publishing is growing its eBook business, satisfying demand for customized eBooks for the college market and for a growing number of commercial customers. These customers expect a high-quality product that works in each of the environments that there users use – various operating systems, eBook readers, and hardware (desktop computers, tablets/phablets, and smartphones).

As part of the standard development process, each eBook goes through several quality checks. When the order is received, a customer service representative checks the order and a more senior customer service representative verifies the order. During the Production Phase, a quality assistant will check the eBook against the job order and customer order to make sure it is ready for production, and once approved by quality, each of the requested eBook formats are created. A second quality check is performed by the customer service representative who is assigned to the customer to make sure that each requested format is ready to release to the customer.

Some customers (and their eBook users) are complaining about quality problems in the eBooks they have received from Global Green Books. Sometimes the eBooks do not work correctly in the intended environment. Sometimes, content is not clear or fuzzy. Sometimes, a quality check will find that not all parts of the requested order have been included in the eBook. This causes rework before the eBook can come back for a second quality check before being released to the customer service representative for the final quality check. In each of these cases, the “cost of quality” is the cost of NOT creating a quality product. Every time the project has to rework an eBook to correct a quality defect, the cost of quality increases.

Samantha and her project managers met with a key group of supervisors who are managing a critical number of the eBook projects. They reviewed the lessons learned data and brainstormed from their experiences with producing eBooks to identify some of the quality problems that they were seeing in the eBook projects. They identified a number of issues:  The customer’s quality requirements are never discussed within the project team. They are dealt with by the customer service representatives at the beginning and end of the eBook production process. This means that team members do not know what the customer expects and just do the tasks assigned without knowing what is “good”. They may have a very different or no understanding of what the customer’s quality needs are, unlike the customer service representatives.  The standard job template doesn’t suggest that supervisors plan into their project any reviews or checkpoints at which quality can be verified. The only quality checks come after the eBook is finished. This does quality checks of the whole eBook, but doesn’t allow for checks on each component –content formats, correct conversions or desk top publishing checks.  These two factors lead to a perception among team members that quality is just simply some testing by some other groups (quality and customer service), rather than a way of working and reviewing or checking work as they proceed. Further, many team members don’t even see quality as their responsibility, because it’s something done by someone else.

ď‚· One of the challenges facing the customer service representatives is that they do test each eBook, but they cannot always check each eBook in an environment that is the same as that used by the end users of the eBook. Sometimes users have different equipment than the customer service representatives have to use for their testing. There are times when this causes surprises after the eBook is released. This leads to external failure costs for dealing with processing customer complaints, dealing with rework to fix the eBooks, and releasing a revised eBook. Luckily the customers handle distribution to their users, so Global Green Books is not bearing the cost of customer returns and warranty claims that they might have if they were selling a consumer product directly to consumers.

The group agrees that they would like to make some changes to bring their total quality costs below the costs of quality that they are currently incurring. This means that they want to reduce the costs of failing to meet customer requirements or expectations, and reinvest those savings into preventing problems as they go that do not meet the customer’s requirements, and checking to make sure that the eBook and all of its components conform to the customer’s requirements. Catching some of the quality problems sooner, before the entire eBook is produced will also reduce the internal failure costs that they are experiencing. These internal failure costs are rework and re-checking following the quality checks by Quality and the customer service representative.

Comment on the following aspects of the case study:

a) Consider the problems that Samantha and the group identified. What do you think are the causes of these problems? b) What would you suggest they do differently to eliminate these problems? c) Who should be responsible for quality? What would you recommend be the specific responsibilities of each identified role? d) What prevention activities would you suggest to prevent poor quality in the eBook products? Examples could be planning for quality activities or team building activities focused on improving quality e) What appraisal activities would you suggest to evaluate the eBook product to ensure that it meets quality standards and customer requirements? Should they add in-process checks of eBook components in addition to their current final inspection/tests? If so, who should do these? f) What would you suggest they do to involve team members more in pursuit of high quality eBooks for their customers?

Assignment 1: Competencies for Project Managers

Due Week 6 and worth 175 points

Read the 9 mini-case study series from the Project Management Institute on the Global Green Books Publishing company before starting this assignment.

Write a six to eight (6-8) page paper in which you:

Describe at least three challenges that supervisors face as managers of resources on projects similar to Global Green Books Publishing. Provide a rationale for your choices.

Identify at least three key skills/competencies supervisors need to be effective in managing teams’ performance while working on projects similar to Global Green Books Publishing. Provide a rationale for your choices.

Describe at least three challenges that team members face when working on projects similar to Global Green Books Publishing and provide a rationale for your choices.

Identify at least three skills/competencies that team members need in order to be effective in working on projects similar to Global Green Books Publishing and provide a rationale for your choices.

Use at least three (3) quality resources in this assignment. Note: Wikipedia and similar websites do not qualify as quality resources.

Your assignment must:

Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow SWS (Strayer Writing Standards). Check with your professor for any additional instructions.

Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

Assess the elements, processes, and reasons for managing projects.

Assess and prepare for project uncertainties.

Evaluate processes and tools for monitoring and controlling project performance.

Click here to view the grading rubric for this assignment.

 

 

Mini case 1

Mini-Case Study: Project Management at Global Green Books Publishing

Global Green Books Publishing was started two years ago by two friends, Jim King and Brad Mount, who met in college while studying in Philadelphia, USA. In the new business Jim focused on editing, sales and marketing while Brad Mount did the electronic assembly and publishing of books for Global Green Books. Their business was successful and profitable in the first two years, largely due to contracts from two big businesses.

In their third year they got very busy thanks to their third major customer, a local college that needed customized eBooks. They hired several part time employees to help them with their publishing business.

But by the end of third year of operation, Global Green Books started experiencing critical problems. They were:  unable to leverage all the new employees effectively  unable to deliver eBooks to their customers on schedule  unable to provide quality texts—time and money was being spent fixing defects in their products  unable to control costs—their business was not profitable in the third year.

Global Green Books saw a significant rise in issues, a lot of unpleasant “surprises” were cropping up; business was down as new resources were hired, also some of the projects were poorly estimated. The local university was unhappy as their eBook products reached campus late for use by professors and student. In some cases, the books were a week or two late. Since the courses must start on schedule and students need their books at the beginning of their courses, the new lucrative college customer was unhappy.

One of the new part-time employees hired by Jim and Brad, Samantha, had taken a project management course at college. Samantha was excited about the discipline of project management and had intentionally selected a job with Global Green Books Publishing as she saw an opportunity to polish her project management skills.

One fine day, Jim invited Samantha, for a lunch meeting. He was aware that Samantha was familiar with project management, and wanted to hear what she had to say about the problems he and Brad were facing. Over lunch he questioned why their small business which had operated and implemented projects so successfully over the first two years was being challenged significantly now. He specifically listed the problems they were facing and asked for input to solve them.

Samantha asked for more time to research all the issues but noted that Global Green Books, while being innovative, completed projects without a roadmap or a project plan and lacked a disciplined approach to project management. She noted that Jim and Brad did not use any project software for scheduling and they did not use tools or techniques to estimate, budget or to communicate with stakeholders. Finally, they had no processes in place to manage project risks and quality.

Impressed with this and other conversations, Jim King asked Samantha if she would consider joining them as a project associate or project manager on a full-time basis to help them introduce project management practices and help them tide over their current crisis.

 

 

 

Samantha accepted the offer! She has several key skills—she is an excellent communicator with very good interpersonal skills and detail-oriented. Within the first three months in her new role as PM, she introduced formal project management processes, created a PM manual and trained the employees to get the work done well.

Within nine months Samantha had fully turned things around. Due to proactive risk analysis and risk response planning, surprises and issues reduced. Communication with stakeholders was enhanced.

Brad and Jim noted that the company was delivering projects on schedule, the quality processes worked—and customers were happy with the products!

 

Comment on the following aspects of the case study:

a) Why did Global Green Books Publishing struggle? b) What were the specific PM solutions that were introduced by Samantha that worked? c) What kind of suggestions would you give to Brad and Jim if you were the PM? d) Are you aware of other similar start-up businesses that struggle in a similar manner? How did they overcome the challenges? e) Global Green Books Publishing is a technology intensive business, but Samantha is not technically knowledgeable, will she continue to be a successful project manager?

 

MINI CASE 2

Mini-Case Study: The Back to School Crunch at Global Green Books Publishing

 

Global Green Books Publishing is a successful printing and publishing company. Just two years old, it has taken on a great new customer, a local college that needs customized eBooks.

To deal with this new customer, they have hired several new part time employees to help them with their publishing business, some of them students at the college with flexible hours.

As the new school year drew closer, the orders started coming in. They had been told how many different printing jobs the college would need, but they weren’t all arriving at once, and orders were quite unpredictable in arriving from the professors at the college. Some professors needed rush orders for their classes. When Global Green Books finally got the orders, some of these jobs were much larger than they had thought they would be.

Printing these orders turned out to be very challenging. Not all of the new student hires were trained for all of the printing and binding equipment used to print and assemble to books. Some of them often made mistakes, some workers called off from work due to other demands, and there were often not enough people available to get all the work done before deadlines.

Quality was a serious issue, as they had to provide quality texts—if there were quality problems with the printed product, they would have to spend time and money to fixing defects in their products.

Deliveries started slipping past their requested dates and times. Global Green Books was unable to deliver eBooks to their customers on schedule.

The local university was unhappy as their eBook products reached campus late for use by professors and student. In some cases, the books were a week or two late.

Samantha had been hired as a project management assistant. In her new role as a project manager, one of the processes she was trying to institute was risk management. She started looking at what was happening in the business, talking about it with the owners and employees, and heard about the college’s unhappiness. As she did this, she started identifying risks and potential risks. As she went along, she started doing more proactive risk analysis and risk response planning, and as she did surprises and issues were reduced. By talking with stakeholders and addressing their concerns, communication with stakeholders was also enhanced.

 

Comment on the following aspects of the case study:

a) What risks can you identify? Why are they a risk to Global Green Books Publishing? b) What kind of impacts does each of your identified risks have? Can you categorize these as low impact, medium impact, or high impact? c) How probable are each of your identified risks? You can think about something simple like categorizing these as not very likely, likely, and highly likely to occur. d) What would you advise Global Green Books are their three most critical risks?

 

 

 

e) What would you suggest that they do about these three risks? Are there specific actions to deal with these risks? Have you identified a contingency plan to carry out if the risk occurs?

 

MINI CASE 3

Mini-Case Study: Defining Standard Projects at Global Green Books Publishing

 

Global Green Books Publishing is a successful printing and publishing company in its third year. It has survived the bringing on a large new customer and all the challenges of new work that this customer needed in a very short time.

Much of this work for the college is customized eBooks. As the first term progressed with Global Green Books making customized eBooks for this college, there were a number of issues that affected the quality of the eBooks produced and caused a great deal of rework for the company. The local university was unhappy as their eBook products sometimes reached campus late for use by professors and student. In some cases, the books were a week or two late.

The management of Global Green Books was also challenged by these projects. The college expected them delivered on-time and at a low cost, and the company was not always doing that. Accounting was having difficult tracking the costs for each of the books, and the shift supervisor were often having problems knowing what tasks needed to be completed and assigning the right employees to each task.

Some of the problems stemmed from the new part time employees. Since many of these workers had flexible schedules, it wasn’t always clear which tasks they were supposed to be working on when they came in to work. Each book being produced was indeed a book; but that was all they had in common. Each book had different production steps, different contents and reprint approvals required, and different layouts and cover designs. Some were just collections of articles to reprint once approvals were received, and others required extensive desktop publishing. Each eBook was a complex process, but was going to be made just once, as these eBooks were all customized for each professor and course each semester. Each eBook had to be produced on time, and had to be made to match just exactly what the professors requested.

Understanding what each eBook needed had to be clearly documented and understood before starting production. Global Green Books had been told by the college how many different printing jobs the college would need, but they weren’t all arriving at once, and orders were quite unpredictable in arriving from the professors at the college. Some professors needed rush orders for their classes. Some orders arrived as projected, but some came later than anticipated. When Global Green Books finally got all their orders, some of these jobs were much larger than they had thought they would be.

Each eBook needed to have a separate job order prepared that listed all the steps that needed to be completed, so that tasks could be assigned to each worker. These job orders were also becoming a problem. Not all the steps needed were getting listed in each order. Often the estimates of time for each task were not completed until after the work was done, causing problems as workers were supposed to move on to new tasks but were still finishing their previous tasks. Some tasks required specialized equipment or skills, sometimes from other groups within Global Green Books. Not all of the new student hires were trained for all of the printing and binding equipment used to print and assemble to books.

 

 

 

Global Green Books wanted to start developing a template for job orders. This template should list all of the possible tasks that should be performed in producing an eBook for the college. These tasks could be broken down into the different phases of the work.

In the Receive Order phase, the order should be received by Global Green Books from the professor or the college, it should be checked and verified, and a job order started. In checking and verifying each order, the customer representative should make sure that they have the requester’s name, email and phone number; the date needed, and a full list of all of the contents. They should also verify that they have received all of the materials that were supposed to be included with that order, and have fully identified all of the items that they need to request permissions for. Any problems found in checking and verifying should be resolved by contacting the professor.

In the Plan Order phase, all of the desktop publishing work is planned, estimated and assigned to production staff. Also all of the production effort to collate and produce the eBook are identified, estimated and scheduled, and assigned to production staff. Specific equipment resource needs are identified and equipment is reserved on the schedule to support the planned production effort.

In the Production Phase, permissions are acquired, desktop publishing tasks (if needed) are performed, content is converted, and the proof of the eBook is produced. A quality assistant will check the eBook against the job order and customer order to make sure it is ready for production, and once approved by quality, each of the requested eBook formats are created. A second quality check makes sure that each requested format is ready to release to the college.

In a Manage Production Phase, happening in parallel with the Production Phase, a supervisor will track progress, work assignments, and costs for each eBook. Any problems will be resolved quickly in an attempt to not have any rework or delays in releasing the eBooks to the college.

Each eBook will be planned using the standard job template as a basis for developing a unique plan for that eBook project.

Comment on the following aspects of the case study:

a) Printing books in a print shop, especially large quantities of a single book, is a process. A process is an ongoing day-to-day repetitive set of activities the print shop performs when producing its products. How are these customized eBooks different from a standard printing process? What characteristics make these customized eBooks a project? b) Who are the stakeholders in these eBook projects? How are they involved in or affected by an eBook project? c) Why is it important to have a defined project scope? Why is it important to make sure there is agreement about the scope and what will be done in producing each eBook? d) What kinds of information would you want supervisors to have available to them in the Manage Production phase? Why? e) Do you think developing a standard job template would be useful for Global Green Books? Why? What advantages could it give them in planning work? f) What other information, if any, would you like to see included in the standard job template? Why?

 

 

 

Create a Work Breakdown Structure for an eBook project. a) What are the major phases of work for making an eBook? b) What are the steps in each phase? c) Can you identify any substeps for any of the steps? What are they?

 

MINI CASE 4

Mini-Case Study: Cost Estimation at Global Green Books Publishing

 

Global Green Books Publishing is continuing to produce customized eBooks as a key new product line for it as a successful printing and publishing company. It has developed a template to help plan job orders. The major customer for these customized eBooks is a local college, who expected these books to be delivered at a low cost, and the company has not always been doing that. The Accounting department in Global Green Books was having difficult tracking the costs for each of the books.

Each eBook had a separate job order prepared that listed all the steps that needed to be completed, so that tasks could be assigned to each worker and costs estimated. With the existing job orders, estimates of time required for each task were sometimes not completed until after the work was done, causing problems as workers were supposed to move on to new tasks but were still finishing their previous tasks. Some tasks required specialized equipment or skills, sometimes from other groups within Global Green Books.

Along with its template for job orders, Global Green Books wanted to start developing a project estimate for each new eBook project. This cost estimate should capture direct costs and indirect costs. The direct costs for an eBook project include labor costs for those in the company working on the project, materials costs (if any), subcontractor or outside labor, and equipment and facility costs. Material costs for these eBooks include any permissions costs for content and images used in the eBook. Indirect costs for these eBooks computer support costs and sales commissions for each eBook project.

For an incoming eBook order for an eBook for a European History course, the following internal labor costs are projected during the Plan Order Phase:

Phase Task Staff Category Rate ($)

Hours

Receive Order Receive Order Customer Service Representative

CSR 12.00 .25 *

Receive Order Check Order Customer Service Representative

CSR 12.00 .50 *

Receive Order Verify Order Customer Service Representative

CSR-1 16.00 1.0 *

Plan Order Plan Work Supervisor Senior-1 28.00 1.0 Plan Order Assign Work Supervisor Senior-1 28.00 1.0 Plan Order Estimation Supervisor Senior-1 28.00 1.0 Plan Order Reserve Equipment Supervisor Senior-1 28.00 .50 Production Acquire Permissions Publishers Liaison PL 22.00 0 Production Desktop Publishing (DTP) DTP Specialist DTP-2 18.00 12.5 Production Content Conversion DTP Specialist DTP-1 12.50 4.0 Production Produce eBook (Proof and Final) DTP Specialist DTP-2 18.00 5.0 Production Quality Checks Quality Technician Customer Service Representative QC CSR-1 16.00 16.00 3.0 1.0

Manage Production Track Production Supervisor Senior-1 28.00 3.0

 

 

 

 

During the Plan Order Phase, the hours for the Receive Order phase (marked with an *) are actual times, as this work has already been performed.

In addition to these internal labors costs, the Production Supervisor has estimated that the European History eBook will incur these costs: ď‚· An overhead rate on all direct labor of 1.50. ď‚· Material costs of $1,000 for each permission needed ď‚· Equipment costs of $800 for unique equipment needed for this project (a special oversize map scanner) ď‚· Subcontract labor of $500 for installation and training in the use of the oversize map scanner ď‚· Computer support costs of $600 ď‚· Sales commission of 20%

In addition to direct and indirect costs, Global Green Books targets a 25% profit margin on each project, and budgets for a 10% contingency on labor and 20% contingency on permissions.

Comment on the following aspects of the case study:

a) What are the types of direct costs identified in this case? Why are they viewed as direct costs? b) What are two forms of costs identified? c) What are some problems that might arise that could impact the budget? d) Why would Global Green Books set aside contingencies? How would needed rework, if caught in the quality reviews, be accounted for in the budget? e) What are the main cost drivers of this project? f) What other information, if any, would you like to see included in the budget for this project? Why?

Create a budget for the European History eBook project.

a) What are the costs by major phases of work for making this European History eBook? b) What are the total costs for direct labor? c) What is the total estimated cost of this European History eBook?

 

MINI CASE 5

Mini-Case Study: Managing Change at Global Green Books Publishing

 

Global Green Books Publishing is producing customized eBooks for a local college. It has just received a large order for a new eBook on Strategic Human Resource Management in a Global Context from a senior professor in the business school. This distinguished faculty member is dissatisfied with the current textbooks, and wants a customized eBook for use with her oncampus courses, graduate seminars, and her executive education courses. This is the most complex eBook that Global Green Books has undertaken. Because this project is so important to the professor, and will be used in so many different settings with different schedules, the professor made sure that she had her complete eBook request in early to allow sufficient time for production. She had selected a broad set of the best papers and had written an introduction and background, along with discussion questions for each section. This meant that this project was going to have an extensive set of permissions to acquire before production could happen, as well as a large amount of desktop publishing for the new materials written by the professor. She was quite certain that she had given Global Green Books more than enough time to have her eBook ready before the first class needed it.

This large eBook went through the check and verify order step with a bit of back and forth with the professor to verify the information needed for the extensive number of permissions, so that started the project off with a bit of a delay. Because there were so many permissions, the Supervisor who planned this project, accelerated the work on obtaining permissions to make sure that all the permissions were received before they needed to start assembling and collating the eBook in production.

As the Publishers Liaison worked through the extensive list of permissions, the Customer Service Representative for the business school at the college started receiving several inputs from the college about this project. One set of inputs was a continuing series of requests from the professor. As new papers were released, she wanted to make a number of additions to the eBook. Also, as time went on and she had more time to review her eBook plans, she started identifying some changes that she wanted to make to her planned eBook.

Another input came from the business manager at the college bookstore, as he was quite concerned about the projected cost of this eBook. Because this eBook included so many reprints of existing articles and chapters, the estimated cost of the book was quite high. The college expected their eBooks to be delivered at a low cost, as its bookstore costs had to cover the bookstore overhead (servers for sales and distribution of the eBooks and marketing costs) and the bookstore’s markup, as well as the costs of the eBook from Global Green Books. The Global Green Books costs had to incorporate all the permissions costs, as well as all of the desktop publishing and production costs.

The Customer Service Representative communicated these issues to several people within Global Green Books: the account manager for the college account, the supervisor managing production for this eBook, the Publishers Liaison obtaining permissions for this book. The account manager was concerned about upsetting this important customer, the supervisor didn’t know how these various requests could all be accommodated or how it would impact his project, and the Publishers Liaison was worried both about added costs for new permissions and the

 

 

 

time it would take to get them and the costs they had already expended for permissions no longer needed.

And the professor’s requests just kept coming, at an increasing rate as it got closer to her deadline for needing this eBook.

The supervisor was starting to make some estimates of what each change requested by the professor would cost ď‚· An extra $500 for each new permission needed, in addition to the $500 already spent for each permission already acquired that can no longer be used ď‚· Two hours of Publishers Liaison effort for each new permission needed at an unburdened cost of $22 per hour (loaded cost is $55 with a 1.5 overhead rate) ď‚· One hour of supervisor time for replanning each change at an unburdened cost of $28 per hour (loaded cost is $70 with a 1.5 overhead rate) ď‚· Sales commission of 20%

This continuing series of requests for changes from the professor is quickly adding to the upwardly spiraling cost of this project. The supervisor feels that something must be done about this scope creep – continually changing scope.

 

Comment on the following aspects of the case study:

a) Who are the stakeholders of this project? Who are the key stakeholders of the project? b) What impacts could these requested changes have on the budget? c) Could these requested changes also impact the schedule? If so, how? d) What is Global Green Book’s process for dealing with changes from their customers? Do you see any possible issues with this process? e) How would you recommend that Global Green Books handle these changes? Who should be involved? f) What should Global Green Books do about the conflicting inputs from their customer – the bookstore manager who wants inexpensive eBooks and the professor who wants the best and most up-to-date collection of readings possible for her courses?

MINI CASE 6

 

Mini-Case Study: Developing Project Managers at Global Green Books Publishing

 

Global Green Books Publishing is continuing to grow. They now have three large customerstwo in traditional print-based work and the third is a local college. They produce customized eBooks for this local college. This newest line of work is growing, as other customers hear of their work, and the account managers are speaking with several other colleges and professional associations about taking on additional projects in electronic publishing.

As they have grown, they have had to start implementing some project management concepts to plan and manage their work. The founders hired Samantha as a project associate or project manager on a full-time basis to help them introduce project management practices and help them tide over the crisis they were experiencing with rapid growth. Within the first three months in her new role as PM, she introduced formal project management processes, created a PM manual and trained the employees to get the work done well. Within a year, the company was delivering projects on schedule, the quality processes worked—and customers were happy with the products! This success was leading to possible new work and greater opportunities to bring on new customers.

As the growth continued, Samantha was now feeling the pressure. She was only one person. And there was so much more to still do.

Using her project management skills, she had implemented more formal project management processes, created a PM manual and trained the employees to get the work done well. One area where she especially felt stretched thin was in supporting the supervisors.

As the eBook business grew, there were more and more demands on the supervisors. Many were great print technicians who had caught the eye of the founders for their attitudes and customer service ethic. But today, they were being called on to do more complex tasks than merely running a highly automated print copier. Supervisors are interacting with customers, as well as with internal account managers and customer service representatives. They are managing employees with a diverse set of skills, backgrounds, and motivations. It is increasingly hard for them to ask employees to take on hard challenges when they themselves do not have those skills and have not done the eBook publishing that the business is increasingly moving to.

Many of the supervisors have had a bit of project management mentoring from Samantha, but still know that they have to be both leaders and managers. As project teams come together to work on eBooks, there are challenges. Some of the challenges have to do with knowing the status of the work, as part-time employees come in and hand a piece of a project off to another worker. Some deal managing conflicts as they arise – both technical issues as permissions are delayed and content cannot yet be incorporated, leading to scheduling changes, and interpersonal issues among staff. Some of these conflicts occur between a mostly young, part-time contingent of student workers and the full-time employees. Supervisors are often drawn into mediating or resolving these conflicts. They really need to meld together their staff to create highly capable, productive project teams for these fast-paced eBook projects. The staff needs to

 

 

 

trust each other and their leadership to be fair and to balance work priorities with the times that they are available.

Supervisors need to provide leadership, to provide inspiration for their team, and to be good motivators of their team members, as well as be a good manager, worrying about the day-today and minute-by-minute accomplishment of the project’s goals. Being a good motivator also means that the supervisors must be good listeners to understand what issues are confronting their team members and the needs of their team members.

The supervisors were realizing that as a group they needed two things. One was a greater grasp of people skills, or so-called “soft” skills, to help make them more effective. The other was more support in project management as they needed to better track the details of the work, and the task level scheduling and rescheduling that was happening as team members come and go for their work shifts and as permissions sometimes take longer to obtain than planned.

Samantha is starting to discuss with her management and with the human resources and training group how they can meet some of these needs. Perhaps some leadership development training for supervisors could be arranged. And she is talking with her management about setting up a project management office (PMO) to have project management staff available to help the supervisors with some of their work tracking and scheduling challenges. She hopes that addressing these two issues will make their eBook delivery much smoother.

 

Comment on the following aspects of the case study:

a) What are some of the challenges facing supervisors? b) What skills do you think the supervisors need to be effective project managers? Why do they need these skills? c) Are there skills that team members need to be effective team members in a project? If so, what are these skills? d) Which characteristic or skill do you think is the most significant characteristic of an effective project manager? e) What steps could project managers take to help make their teams more effective? f) What advice would you give Samantha about setting up a project management office? What roles could these staff perform, and how could they interact with the existing projects? g) Can you describe other ways that this PMO function could be organized?

 

MINI CASE 7

 

Mini-Case Study: Closing Projects at Global Green Books Publishing

 

Global Green Books Publishing is continuing to grow. The customized eBooks line of work is continuing to grow, and they now have a lot of experience from the eBook projects that they have completed for their first eBook customer, a local college, and for their newer customers.

However, as new projects come in and start to run into problems, some of the project managers in the project management office and their manager, Samantha, were discussing how it seems like it is déjà vu all over again – some of the same problems that they thought they had solved in working with supervisors and their teams on past projects keep on occurring.

The eBook projects are functioning well, and customers are happy with the results. Repeat orders are coming in and new customers are turning to Global Green Books for their eBook production needs.

But, there are just some problems that seem to keep popping up. One of the project managers even described dealing with these problems as being like playing the popular arcade game of “Whack-a-Mole” – as soon as you deal with one to make it disappear, the same one or another one just pops up. It seems like a never-ending struggle to try and solve some of these problems, especially when some seem like they were already solved on another earlier project.

In the PM handbook that Samantha had implemented, when projects completed the supervisors finished tracking all of the actual effort and costs and turned that information over to cost accounting for billing purposes. As Samantha and colleagues implemented the project management office, they modified the PM manual to have a copy of this information also shared with the project management office. They have found this information to be sometimes useful as historical data to help develop estimates for new projects as requests for new eBooks come in from their customers.

The PMO team was discussing making changes to the PM manual and holding a short training for supervisors to implement some improvements to their project completion processes. They wanted to change their standard job template to incorporate these additions: ď‚· a planned task for supervisors to close out the project, ď‚· a task to create a lessons learned report, and ď‚· an optional task for a closing celebration for the team to mark the end of the project,

They felt that it was important that the PMO start capturing lessons learned. These could be collated by the supervisors at the end of the project, or they could encourage supervisors to plan, schedule and hold a project closing meeting with their team members to thank the team members and to collect lessons learned from all of the team. They could also invite feedback or participation from the relevant Customer Service Representatives and account managers.

The PMO received management approval for these changes, updated the PM manual, and held a brief training for supervisors. Supervisors liked the ideas, especially because the close-out meeting or team celebration would give them a chance to recognize and reward team members and would serve to motivate the teams for future projects. As time went on, the PMO started collecting these lessons learned from many projects.

 

 

 

As they collected these lessons learned from these projects, the PMO staff started to look at the data from the lessons learned across the projects. They examined frequency of the six kinds of issues that were being encountered on the projects. The histogram below shows their results.

 

 

 

Based on feedback from the leadership training that they had done with the supervisors, they had thought that the major cause of delays and extra costs on projects were part-time student employees calling off from work at the last minute, leaving planned work not performed until another resource could be assigned to it, which was often difficult as there were few slack resources. This made tasks late and sometimes delayed projects from completing on time.

Their analysis showed that that wasn’t the case at all. In fact only three of the problems on projects were caused by unplanned absences. In their Pareto analysis, the PMO staff identified three key problems, which they highlighted in red. Delays in obtaining necessary reprint permissions from certain publishers were the largest cause of problems, accounting for 34% of the problems encountered by eBook projects. Production staff calling in sick was the next most frequent problem, accounting for 28% of the problems. Customer changes, which often caused rework and delays, were the root cause of another 20% of the problems.

The PMO now knew what the most important issues were that were causing eBook projects to be delayed, and could make recommendations to mitigate each of these problems.

 

 

 

Comment on the following aspects of the case study:

a) What are some of the reasons why it is important to close out a project? What can project managers accomplish in closing out a project? b) Why should projects capture lessons learned? What are some ways that the project team members, project managers and the organization can use lessons learned? c) What benefits come from celebrating project accomplishments? Do you believe that rewards and recognition can serve as motivators for staff? d) Explain what a Pareto chart is. Why would you use this technique to identify and prioritize problem areas? Are there some limitations on interpreting the results of a Pareto analysis? e) If you were the PMO looking at this Pareto analysis, what recommendations might you make to address the three key problem areas in eBook projects that this analysis identified?

 

MINI CASE 8

 

Mini-Case Study: Team Building at Global Green Books Publishing

 

Global Green Books Publishing is continuing to grow. As their eBook business continues to drive that growth, they now are continuing to add staff to be able to keep up with customer demand. Most all of the new people and many of the eBook staff have not worked together in the original print-based business area of the company, and indeed are new to the company and its culture.

These new employees have a diverse set of skills, backgrounds, and motivations. Their supervisors know how to manage their projects, but do not always have the expertise to step in and do each of the unique tasks assigned to team members. Most of the employees that have been around since the beginning of the eBook business have been trained in their project management techniques, so they can get the work done well; but not all of the newer employees have had this training. There is just too much work that needs to be done to take time out for training.

Supervisors need provide leadership, to provide inspiration for their team and to be good motivators of their team members, as well as be a good manager, worrying about the day-today and minute-by-minute accomplishment of the project’s goals. Being a good motivator also means that the supervisors must be good listeners to understand what issues are confronting their team members and the needs of their team members.

Beyond this role as leaders, supervisors need to be a good manager. They need to identify the skills that they need for their projects. Supervisors at Global Green Books normally do this as they start from the standard job template for eBook projects and build the Work Breakdown Structure (WBS) for their eBook project. Next, they need to identify team members that have those skills, and work with their current project managers and with human resources to make sure that they will be available to support the new project. Based on the lessons learned analyses, a supervisor might also identify a person as a back-up for a critical role on the project, in case they run into difficulties or assigned staff are not available as planned.

Once the team is assembled, challenges can arise. Some of the challenges teams face have to do with knowing the status of the work, as part-time employees come in and hand a piece of a project off to another worker. Some deal managing conflicts as they arise – both technical issues as permissions are delayed and content cannot yet be incorporated, leading to scheduling changes, and inter-personal issues among staff. Some of these conflicts occur between a mostly young, part-time contingent of student workers and the full-time employees. Supervisors are often drawn into mediating or resolving these conflicts. They really need to meld together their staff to create highly capable, productive project teams for these fast-paced eBook projects. The staff needs to trust each other and their leadership to be fair and to balance work priorities with the times that they are available.

Supervisors are finding it is very important to make sure every team member understands the goals of the project, the roles of each team member and how they inter-relate, and the sense of urgency about completing the project. This urgency comes from understanding the intense schedules for completing eBooks and from understanding why it is important that all of the work come together to create a finished eBook – any part not completed keeps the final eBook from

 

 

 

going into quality check and release. Because of the issues around employee absence and the use of part-time employees, they are also trying to make sure that employees are able to do their role, but can also help out in related roles as needed.

To help build a common understanding of the project work and minimize some of the conflicts, Samantha is working with some the supervisors to hold a project kick-off meeting where the team reviews the goals and plan for the project, and develops and agrees to a project team charter. Letting the team develop their charter gives the supervisor an opportunity to observe how the team works together, and gives the team the ability to set ground rules for how they will work together. The team charter starts with the project goals. The team may set their goals in order to accomplish these project goals. Other topics that the team might address in their team charter include agreed-upon guidelines for how they want to participate in the project, conduct (or behavior), communications among project members, communicating status and problems, problem solving, and holding meetings. This charter and its guidelines that they team have agreed to can then serve as a basis for team building and team behaviors during the project.

 

Comment on the following aspects of the case study:

a) What are some of the challenges facing project teams? Have you encountered any of these problems in teams that you have been part of? What other team problems have you experienced? b) Are there skills that team members need to be effective team members in a project? If so, what are these skills? c) Why is it important that team members understand the goals and scope of the project? d) Think about creating a team charter. What categories of guidelines would you you’re your team to agree on before beginning work? Why would you include these categories? e) Brainstorm and identify some guidelines that you would suggest teams follow for each of these categories?  Team member participation in the project  Team member conduct (or behavior)  Communicating among project members (including communicating status and problems)  Holding meetings f) What are the advantages of a kick-off meeting? What are the advantages of developing a team charter?

MINI CASE 9

Mini-Case Study: Quality Management at Global Green Books Publishing

 

Global Green Books Publishing is growing its eBook business, satisfying demand for customized eBooks for the college market and for a growing number of commercial customers. These customers expect a high-quality product that works in each of the environments that there users use – various operating systems, eBook readers, and hardware (desktop computers, tablets/phablets, and smartphones).

As part of the standard development process, each eBook goes through several quality checks. When the order is received, a customer service representative checks the order and a more senior customer service representative verifies the order. During the Production Phase, a quality assistant will check the eBook against the job order and customer order to make sure it is ready for production, and once approved by quality, each of the requested eBook formats are created. A second quality check is performed by the customer service representative who is assigned to the customer to make sure that each requested format is ready to release to the customer.

Some customers (and their eBook users) are complaining about quality problems in the eBooks they have received from Global Green Books. Sometimes the eBooks do not work correctly in the intended environment. Sometimes, content is not clear or fuzzy. Sometimes, a quality check will find that not all parts of the requested order have been included in the eBook. This causes rework before the eBook can come back for a second quality check before being released to the customer service representative for the final quality check. In each of these cases, the “cost of quality” is the cost of NOT creating a quality product. Every time the project has to rework an eBook to correct a quality defect, the cost of quality increases.

Samantha and her project managers met with a key group of supervisors who are managing a critical number of the eBook projects. They reviewed the lessons learned data and brainstormed from their experiences with producing eBooks to identify some of the quality problems that they were seeing in the eBook projects. They identified a number of issues:  The customer’s quality requirements are never discussed within the project team. They are dealt with by the customer service representatives at the beginning and end of the eBook production process. This means that team members do not know what the customer expects and just do the tasks assigned without knowing what is “good”. They may have a very different or no understanding of what the customer’s quality needs are, unlike the customer service representatives.  The standard job template doesn’t suggest that supervisors plan into their project any reviews or checkpoints at which quality can be verified. The only quality checks come after the eBook is finished. This does quality checks of the whole eBook, but doesn’t allow for checks on each component –content formats, correct conversions or desk top publishing checks.  These two factors lead to a perception among team members that quality is just simply some testing by some other groups (quality and customer service), rather than a way of working and reviewing or checking work as they proceed. Further, many team members don’t even see quality as their responsibility, because it’s something done by someone else.

 

 

 

ď‚· One of the challenges facing the customer service representatives is that they do test each eBook, but they cannot always check each eBook in an environment that is the same as that used by the end users of the eBook. Sometimes users have different equipment than the customer service representatives have to use for their testing. There are times when this causes surprises after the eBook is released. This leads to external failure costs for dealing with processing customer complaints, dealing with rework to fix the eBooks, and releasing a revised eBook. Luckily the customers handle distribution to their users, so Global Green Books is not bearing the cost of customer returns and warranty claims that they might have if they were selling a consumer product directly to consumers.

The group agrees that they would like to make some changes to bring their total quality costs below the costs of quality that they are currently incurring. This means that they want to reduce the costs of failing to meet customer requirements or expectations, and reinvest those savings into preventing problems as they go that do not meet the customer’s requirements, and checking to make sure that the eBook and all of its components conform to the customer’s requirements. Catching some of the quality problems sooner, before the entire eBook is produced will also reduce the internal failure costs that they are experiencing. These internal failure costs are rework and re-checking following the quality checks by Quality and the customer service representative.

 

Comment on the following aspects of the case study:

a) Consider the problems that Samantha and the group identified. What do you think are the causes of these problems? b) What would you suggest they do differently to eliminate these problems? c) Who should be responsible for quality? What would you recommend be the specific responsibilities of each identified role? d) What prevention activities would you suggest to prevent poor quality in the eBook products? Examples could be planning for quality activities or team building activities focused on improving quality e) What appraisal activities would you suggest to evaluate the eBook product to ensure that it meets quality standards and customer requirements? Should they add in-process checks of eBook components in addition to their current final inspection/tests? If so, who should do these? f) What would you suggest they do to involve team members more in pursuit of high quality eBooks for their customers?

 
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Case Pinterest: Revolutionizing The Web-Again

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Write a 2 page (500) paper summarizing the case and answering any three of the questions at the end.  You are allowed to discuss the case with your classmates if you wish, but you must write your own paper.  Please turn it in by email as usual.

 

Pinterest: Revolutionizing the Web-Again; starting on page 561 (Case and Questions Attached); summarize the case and answer 3 of the 4 questions

 

Need it done by Friday

Company Case Pinterest: Revolutionizing the Web—Again

Ben Silbermann runs ragged. And it isn’t because the 31-yearold

husband is up before dawn every morning with his infant son.

It has a lot more to do with the fact that he is the founder and

CEO of Pinterest, the latest “hottest Web site on the planet.” In

less than two years, Pinterest reached the milestone of 10 million

unique monthly visitors—faster than any other online site in history.

At that time, it was driving more traffic than Google+, You-

Tube, and LinkedIn combined. A year later, it reached 50 million

unique monthly visitors. So far, 70 million members have created

750 million Pinterest boards and have pinned 30 billion items.

Pinterest is growing so fast that trying to quantify its success with

such numbers seems pointless.

Rather, the impact of this brash young start-up can be observed

in more substantial ways. In fact, Pinterest seems to have

accomplished the unlikely achievement of revolutionizing the

Web—something that seems to happen only every few years.

Like Amazon, Google, Facebook, and others before it, Pinterest

has put businesses and other online sites everywhere on notice

that they’d better orient themselves around its platform or be left

behind. And like other Internet revolutionists before it, Pinterest’s

impact has caused even the online giants to stop and take notice.

Indeed, Pinterest is changing Web design. It is also changing

e-commerce. And it looks as though Pinterest has solved one of

the Internet’s biggest problems—discovery.

The Discovery Problem

At first blush, Pinterest may seem like any other social media site,

full of people sharing images and commenting on them. Silbermann’s

big idea for Pinterest came as he and college buddy Paul

Sciarra struggled to make a business out of their first product,

a shopping app called Tote. Although Tote failed to take off, it

revealed a pent-up need among Internet users. Tote users didn’t

buy things (kind of a necessity for a shopping app). But they did

e-mail themselves pictures of products to view later.

Silbermann—a lifetime collector of “stuff”—could identify with

that. As a boy, he had a particular fascination with collecting bugs. “I

really liked insects,” he says. “All kinds: flies, grasshoppers, weevils.”

He spent his youth collecting, pinning, drying, tagging—creating his

own private museum of natural history. So when Silbermann and

Sciarra met Pinterest’s third co-founder, Evan Sharp, the idea of digital

collections—of books, clothes, or even insects—as a powerful

medium for self-expression began to take shape.

As the three began working on developing Pinterest, something

about all-things-Internet bothered Silbermann. Despite the

seemingly infinite possibilities for exploration, expression, and

creation, he felt that the Internet was organized in a way that

boxed people in. For starters, the nature of “search” in any online

context may seem to promote discovery, but it actually stunts it.

For example, Google depends on finely tuned queries in order to

yield useful results. Try to find something when you’re not quite

sure what you want—say, “nice Father’s Day gift” or even “very

special Father’s Day gift”—and Google isn’t really much help. The

bottom line is, if you try talking to Google as you would talk to a

friend or a department store clerk, it won’t know where to begin.

The belief that discovery is a problem on the Internet isn’t

original to Silbermann. In fact, it’s an issue that many digital designers

have struggled with since the launch of the Web but no

one has been able to solve fully. Take Amazon, for example. As

successful as Amazon is, its entire structure mirrors every other

e-commerce site—a detailed system of menus and categories.

To browse for something, users must work within this structure

while at the same time being pulled in dozens of different directions

by suggested items and competing products.

“You spend three hours buying a $20 toaster,” says Barry

Schwartz, psychology professor and author of The Paradox of

Choice. “Amazon and Google pretty much stink at browsing,”

echoes Leland Rechis, director of product experience at Etsy. But

Amazon and Google are not alone. The entire Internet is structured

as a series of ever-more-specific menus, inconsistent with how

the human mind works. Such structure inhibits the types of freeassociative

leaps that happen naturally as people walk through

shopping malls, meander through a museum, or even drive down

the street.

As Silbermann and his co-founders worked to sketch out Pinterest,

the three were also intent on eliminating another limiting

characteristic of online design. Other social networks are organized

around “feeds”—lines of text or images organized by time.

This setup lets users browse multiple images at once. The Pinterest

team wanted to change this. “We were really excited about

bringing something that wasn’t immediate and real time, something

that wasn’t a chronological feed,” says Sharp. They pictured

a grid of images, rather than the directories, time stamps,

and pagination commonly imposed by the Web. The goal for Pinterest

was to create an interface that would feel more like visiting

a store or a museum.

As Pinterest took shape, its creators never questioned that it

was to be a social network at its core. What set Pinterest apart

in yet another way was Silbermann’s ability to look outside the

tunnel-vision of other social media entrepreneurship. Although

the current social Web is frequented by millions, most users are

observers, not creators. Thus, they take part on only one level.

Not everyone is a photographer, a filmmaker, or a broadcaster.

“Most people don’t have anything witty to say on Twitter or anything

gripping to put on Facebook, but a lot of them are really interesting

people,” Silbermann says. “They have awesome taste in

books or furniture or design, but there was no way to share that.”

Something Completely Different

The Pinterest team’s focus on solving some of the most limiting

characteristics of the Internet bore fruit. When Pinterest launched

in March 2010, it was widely hailed as one of the most visually

stunning online sites ever. Silbermann, Sciarra, and Sharp worked

through 50 versions of the site, painstakingly tweaking and perfecting

column widths, layouts, and ways of presenting pictures.

“From the beginning, we were aware that if we were going to get

somebody to spend all this time putting together a collection,

at the very least, the collection had to be beautiful,” Silbermann

says. Pinterest’s grid is a key element of its design—interlocking

images of fixed width and varying heights that rearrange every

time a new image is pinned, meaning users rarely see the same

home page twice.

Pinterest also bucked conventional online design in other

ways. At a time when “gamification” was hot, Pinterest displayed

no elements of competition. There is no leader board or any other

means of identifying the most popular pinners. Pinterest also did

away with page views—the predominate metric for illustrating

growth and momentum. Rather, Pinterest’s “infinite scroll” automatically

loads more images as the user expands the browser or

scrolls downward. With almost no time spent clicking or waiting

for pages to load, this feature has proven addictive for many.

“When you open up Pinterest,” Silbermann says, “you should

feel like you’ve walked into a building full of stuff that only you

are interested in. Everything should feel handpicked for you.” Silbermann

and his cohorts have obviously succeeded. Page after

page, Pinterest gives the feel of a collection designed by an individual

to reflect her or his needs, ambitions, and desires. It’s as

if each person is saying, “Here are the beautiful things that make

me who I am—or who I want to be.” There is no single theme to

a pinboard. Pinterest is a place where young women plan their

weddings, individuals create the ultimate wish list of food dishes,

and couples assemble furniture sets for their new homes. Unlike

other social networks, every Pinterest home page is an everchanging

collage that reflects the sum of each user’s choices.

Because Pinterest’s design has departed from Internet convention

in so many ways, it’s only natural that its growth dynamics

would also break from previous trends. Most successful social

services spread through early adopters on the nation’s coasts,

then break through to the masses. But Pinterest’s growth has

been scattered throughout the heartland, driven by such unlikely

cohorts as the “bloggernacle” of tech-savvy young Mormons.

Additionally, nearly 83 percent of Pinterest’s users are women,

most between the ages of 25 and 54—another demographic not

normally associated with fast-growing social media sites.

Hope for Monetization

But perhaps the biggest splash that Pinterest has made in the online

pool is its huge influence on consumer purchasing. Although

many dot-coms have made profits by online sales, the digital

world in general still struggles with turning eyeballs into dollars.

Even Facebook, although it turns a profit, prompts relatively few

of its one-billion-plus members to open their wallets.

But something about the combination of Pinterest’s elegant design

and smart social dynamics has users shopping like mad. A

Pinterest user following an image back to its source and then buying

an item spends an average of $180. For Facebook users, it’s only

$80. And for Twitter, it’s only $70. But Pinterest is having a much

greater impact than those numbers indicate. Although Pinterest is

still far from the top in terms of members and unique visits, when

it comes to e-commerce referrals, Pinterest is the market leader,

driving 40 percent of traffic and edging out social media dominator

Facebook by 1 percent. Even more impressive, Pinterest traffic

converts to a sale 22 percent more often than Facebook traffic.

Companies are jumping on this opportunity. Initially, brands

could drive traffic to their own Pinterest or external sites by paying

opinion leaders to pin images of their products. For example,

companies pay 31-year-old Satsuki Shibuya, a designer with more

than a million followers, between $150 and $1,200 per image.

This method works well because, with Pinterest’s authentic feel,

it’s almost impossible to tell the difference between paid pins and

unpaid pins—something that can’t be said of other online sites.

But recently, Pinterest has entered the world of advertising with

promoted pins and is poised to make a big online advertising push.

More than a dozen marketers have signed up with a $1 million to

$2 million commitment, including Kraft, General Mills, Nestle, Gap,

and Expedia. “Our target is 25- to 54-year-old women, and Pinterest

is a perfect fit,” says Deanie Elsner, chief marketing officer for

Kraft Foods. For Kraft, Pinterest has already been an effective way

to connect with the younger half of that demographic that is typically

harder to reach. “It lets them be the hero,” she said, referring

to Kraft’s practice of publishing recipes on its Pinterest site.

It’s little wonder then that so many other social media sites

have taken note of Pinterest. Numerous copycat sites (such as

Fancy and Polyvore) have mimicked Pinterest’s look and feel,

right down to the font selections. The influence of Pinterest’s design

is also notable on sites such as Lady Gaga’s social network

LittleMonsters.com and the question-and-answer site Quora.

Even Facebook’s move to its current Timeline format is notably

Pinterest-like.

Despite all the ways that Pinterest has departed from the typical

path of social media development, it has largely stayed the

course in terms of making money. That is, it spent the first few

years building its network and honing its site. This year, the company

will begin generating revenue. Silbermann and friends are

still tossing other ideas around. In addition to advertising, Pinterest

could also adopt a referral fee model, retaining a percentage

of the sale of every item sold as the result of a pin. Pinterest

has been valued at $5 billion and has had no trouble raising all

the venture capital that it needs, despite having yet to earn any

money. “There was never a doubt in our minds that we could

make a s**tload of money,” says a former Pinterest employee.

Apparently, investors feel the same way.

 

Questions for Discussion

17-18 Analyze the forces in the marketing environment that have contributed to Pinterest’s explosion in popularity.

17-19 Why has Pinterest demonstrated such a high influence on consumers’ decisions to purchase products?

17-20 Discuss ways that companies can use Pinterest to build their own brands and generate sales.

17-21 What threats does Pinterest face in the future? Give recommendations for dealing with those threats.

 
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Do Power Players Rule? (CASE 1)

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page 180

13th edition 

Responses to the mini-case questions that appear at the end of each case should be typed, single-spaced using 1” margins with a 12-point font.  Each mini-case should have a cover page that includes the case name, textbook edition you are using, as well as your name, date, course name and number.  Responses should include many details whether from the case or from your own research.  Each assignment should be 2 pages (not including the cover sheet).  Remember, the more detailed, the better the assignment.  Please do not retype the questions.  Simply list the question # and your response.  These are individual assignments.

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RETAIL MANAGEMENT A Strategic Approach THIRTEENTH EDITION GLOBAL EDITION

Barry Berman Hofstra University

Joel R. Evans Hoftsra University

Patrali Chatterjee Montclair State University

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Authorized adaptation from the United States edition, entitled Retail Management: A Strategic Approach, 13th edition, ISBN 978-0-13-379684-1, by Barry Berman, Joel R. Evans, and Patrali Chatterjee, published by Pearson Education © 2018.

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Brief Contents

Preface 11

PART 1 An Overview of Strategic Retail Management 21 Chapter 1 An Introduction to Retailing 22 Chapter 2 Building and Sustaining Relationships in Retailing 44 Chapter 3 Strategic Planning in Retailing 71

PART 2 Situation Analysis 109 Chapter 4 Retail Institutions by Ownership 110 Chapter 5 Retail Institutions by Store-Based Strategy Mix 130 Chapter 6 Web, Nonstore-Based, and Other Forms of Nontraditional

Retailing 151

PART 3 Targeting Customers and Gathering Information 187

Chapter 7 Identifying and Understanding Consumers 188 Chapter 8 Information Gathering and Processing in Retailing 211

PART 4 Choosing a Store Location 239 Chapter 9 Trading-Area Analysis 240 Chapter 10 Site Selection 264

PART 5 Managing a Retail Business 291 Chapter 11 Retail Organization and Human Resource Management 292 Chapter 12 Operations Management: Financial Dimensions 315 Chapter 13 Operations Management: Operational Dimensions 332

PART 6 Merchandise Management and Pricing 357 Chapter 14 Developing Merchandise Plans 358 Chapter 15 Implementing Merchandise Plans 382 Chapter 16 Financial Merchandise Management 404 Chapter 17 Pricing in Retailing 427

PART 7 Communicating with the Customer 459 Chapter 18 Establishing and Maintaining a Retail Image 460 Chapter 19 Promotional Strategy 482

PART 8 Putting It All Together 515 Chapter 20 Integrating and Controlling the Retail Strategy 516

Appendix: Careers in Retailing 539 Glossary 546 Endnotes 560 Name Index 577 Subject Index 581

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Preface 11

PART 1 An Overview of Strategic Retail Management 21

Chapter 1 An Introduction to Retailing 22

Chapter Objectives 22 Overview 23

The Framework of Retailing 23 Reasons for Studying Retailing 25 The Special Characteristics of Retailing 29

The Importance of Developing and Applying a Retail Strategy 30

The Home Depot Corporation: Successfully Navigating the Omnichannel Landscape 31 The Retailing Concept 34

The Focus and Format of the Text 38 Chapter Summary 38 •†Key Terms†39†•†Questionsâ€for Discussion 39 • Web-Based Exercise: blog (www.bermanevansretail.com) 39

Appendix Understanding the Recent Economic Environment in the United States and Around the Globe 40

The Current Economic Situation in the United States 40 The Impact of the Downturn on Economies Around the World 41 The Effect of the Current Economic Climate on Retailing 41 Strategic Options for Retailers 42

Chapter 2 Building and Sustaining Relationships in Retailing 44

Chapter Objectives 44 Overview 45

Value and the Value Chain 46 Retailer Relationships 48

Customer Relationships 49 Channel Relationships 56

The Differences in Relationship Building Between Goods and Service Retailers 57 Technology and Relationships in Retailing 59

Electronic Banking 60 Customer and Supplier Interactions 60

Ethical Performance and Relationships in Retailing 62

Ethics 62 Social Responsibility 63 Consumerism 64

Chapter Summary 66 • Key Terms†67†•†Questionsâ€for â€Discussion†67†•†Web-Basedâ€Exercise:†Sephora (www.sephora.com)†67

Appendix Planning for the Unique Aspects of Service Retailing 68

Abilities Required to be a Successful Service Retailer 68 Improving the Performance of Service Retailers 68 The Strategy of Pal’s Sudden Service: Baldrige Awardâ€Winner†70

Chapter 3 Strategic Planning in Retailing 71

Chapter Objectives 71 Overview 72

Situation Analysis 73 Organizationalâ€Mission†73 Ownershipâ€andâ€Managementâ€Alternatives†75 Goods/Serviceâ€Category†77 Personalâ€Abilities†78 Financialâ€Resources†79 Timeâ€Demands†79

Objectives 80 Sales 80 Profit 81 Satisfaction of Publics 81 Image (Positioning) 82 Selection of Objectives 84

Identification of Consumer Characteristics and Needs 84 Overall Strategy 85

Controllable Variables 85 Uncontrollableâ€Variables†87 Integrating Overall Strategy 88

Specific Activities 88 Control 90 Feedback 90 A Strategic Planning Template For Retail Management 90

4

Contents

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CONTENTS 5

Chapter Summary 94 •†Key Terms†94†•†Questionsâ€for†Discussion 95 • Web-Based Exercise: Angie’s List (www.angieslist.com) 95

Appendix The Special Dimensions of Strategic Planning in a Global Retailing Environment 96

Opportunities and Threats in Global Retailing 96 U.S. Retailers in Foreign Markets 98 Foreign Retailers in the U.S. Market 98

Part 1 Short Cases 100 Case 1: Retailers MUST Be Future- Oriented 100 Case 2: Stores That Accommodate Those with Physical Limitations 100 Case 3: Is the Proliferation of Job Titles Helping or Hurting? 101 Case 4: Competition and Quick Foodservice 102

Part 1 Comprehensive Case 104 Ideas Worth Stealing 104

PART 2 Situation Analysis 109

Chapter 4 Retail Institutions by Ownership 110

Chapter Objectives 110 Overview 111

Retail Institutions Characterized by Ownership 111

Independent 112 Chain 114 Franchising 116 Leased Department 120 Vertical Marketing System 121 Consumer Cooperative 123

Chapter Summary 123 •†Keyâ€Terms†124†•†Questionsâ€for†Discussion 124 • Web-Based Exercise: 7-Elevenâ€(www.franchise.7-eleven.com) 125

Appendix The Dynamics of Franchising 126

Managerial Issues in Franchising 126 Franchisor–Franchiseeâ€Relationships†127

Chapter 5 Retail Institutions by Store- Based Strategy Mix 130

Chapter Objectives 130 Overview 131

Considerations in Planning a Retail Strategy Mix 131

The Wheel of Retailing 131 Scrambled Merchandising 133

The Retail Life Cycle 134

How Retail Institutions are Evolving 136 Mergers, Diversification, and Downsizing 136 Cost Containment and Value-Driven Retailing†137

Retail Institutions Categorized By Store- Based Strategy Mix 138

Food-Oriented Retailers 139 General Merchandise Retailers 142

Chapter Summary 149 •†Keyâ€Terms†150†•†Questionsâ€for†Discussion 150 • Web-Based Exercise: Dillard’s (www.dillards.com) 150

Chapter 6 Web, Nonstore-Based, and Other Forms of Nontraditional Retailing 151

Chapter Objectives 151 Overview 152

Direct Marketing 154 The Domain of Direct Marketing 156 The Customer Database: Key to Successful Direct Marketing 156 Emerging Trends 156 The Steps in a Direct-Marketing Strategy 159 Key Issues Facing Direct Marketers 161

Direct Selling 161 Vending Machines 163 Electronic Retailing: The Emergence of the World Wide Web 164

The Role of the Web 164 The Scope of Web Retailing 165 Characteristicsâ€ofâ€Webâ€Users†167 Factors to Consider in Planning Whether to Have aâ€Webâ€Site†167 Mobileâ€Appsâ€Enablingâ€Onlineâ€Retailing†170 Examplesâ€ofâ€Webâ€Retailingâ€inâ€Action†170

Other Nontraditional Forms of Retailing 172

Videoâ€Kiosks†172 Airportâ€Retailing†172

Chapterâ€Summary†173†•†Keyâ€Terms†175†•†Questionsâ€for†Discussion†175†•†Web-Basedâ€Exercise:†“Charts & Data” section of Internet Retailer’s Web site (www.internetretailer.com)†175

Appendix Omnichannel Retailing 176 Advantages of Omnichannel Retail Strategies†177 Developing a Well-Integrated Omnichannel Strategy†177 Specialâ€Challenges†179

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6 CONTENTS

Part 2 Short Cases 180 Case 1: Do Power Players Rule? 180 Case 2: Will the Favorites of Today Remain Popular? 180 Case 3: Omnichannel Strategies of Top Retailers 181 Case 4: Omnichannel Food Retailing Still Needs Work 182

Part 2 Comprehensive Case 183 What Consumers Find Expendable versus Untouchable 183 What Are Consumers Finding Expendable? 183 Ongoing Recovery 183 Mash-Up 184 Older and Wiser? 185 Tracking Trends 185 Gender Trends 186

PART 3 Targeting Customers and Gathering Information 187

Chapter 7 Identifying and Understanding Consumers 188

Chapter Objectives 188 Overview 189

Consumer Demographics and Lifestyles 190

Consumer Demographics 190 Consumer Lifestyles 192 Retailing Implications of Consumer Demographics and Lifestyles 194 Consumer Profiles 196

Consumer Needs and Desires 196 Shopping Attitudes and Behavior 197

Attitudesâ€towardâ€Shopping†197 Where People Shop 199 The Consumer Decision Process 200 Types of Consumer Decision Making 203 Impulse Purchases and Customer Loyalty 204

Retailer Actions 206 Retailersâ€withâ€Massâ€Marketingâ€Strategies†207 Retailers with Concentrated Marketing Strategies†207 Retailers with Differentiated Marketing Strategies 208

Environmental Factors Affecting Consumers 208 Chapter Summary 208 •†Keyâ€Terms†209†•†Questionsâ€for†Discussion 210 • Web-Based Exercise: Claire’s (www.claires.com) and Icing (www.icing .com) 210

Chapter 8 Information Gathering and Processing in Retailing 211

Chapter Objectives 211 Overview 212

Information Flows in a Retail Distribution Channel 213 Avoiding Retail Strategies Based on Inadequate Information 214 The Retail Information System 215

Building and Using a Retail Information System 215 Databaseâ€Management†217 Gathering Information through the UPC and EDI 220

The Marketing Research Process 221 Secondary Data 224 Primaryâ€Data†227

Chapter Summary 230 •†Keyâ€Terms†231†•†Questionsâ€for†Discussion 231 • Web-Based Exercise: Coca-Cola Retailing Research Council (www. ccrrc.org) 231

Part 3 Short Cases 232 Case 1: Eating Patterns in America 232 Case 2: The Convenience Economy Comes of Age 232 Case 3: Are Hot Retailers of 2015 Still Hot? 233 Case 4: Navigating the Shopper Universe through Big Data 234

Part 3 Comprehensive Case 235 How Do You Attract and Satisfy Millennials? 235

PART 4 Choosing a Store Location 239

Chapter 9 Trading-Area Analysis 240 Chapter Objectives 240 Overview 241

The Importance of Location to a Retailer 241 Trading-Area Analysis 242

The Use of Geographic Information Systems in Trading-Area Delineation and Analysis 244 Theâ€Sizeâ€andâ€Shapeâ€ofâ€Tradingâ€Areas†247 Delineating the Trading Area of an Existing Store 249 Delineating the Trading Area of a New Store 250

Characteristics of Trading Areas 253 Characteristics of the Population 256 The Nature of Competition and the Level of Saturation 259

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CONTENTS 7

Chapter Summary 261 •†Keyâ€Terms†262†•†Questionsâ€for†Discussion 262 • Web-Based Exercise: Web site of Site Selection Online (www.siteselection. com) 263

Chapter 10 Site Selection 264 Chapter Objectives 264 Overview 265

Types of Locations 265 The Isolated Store 265 The Unplanned Business District 266 The Planned Shopping Center 269

The Choice of a General Location 274 Location and Site Evaluation 275

Pedestrianâ€Traffic†275 Vehicularâ€Traffic†276 Parkingâ€Facilities†276 Transportation†277 Storeâ€Composition†278 Specificâ€Site†278 Termsâ€ofâ€Occupancy†279 Overall Rating 281

Chapter Summary 281 •†Keyâ€Terms†282†•†Questionsâ€for†Discussion 282 • Web-Based Exercise: Main Street America (www.preservationnation. org/main-street) 282

Part 4 Short Cases 283 Case 1: Are Smaller and Faster Better? 283 Case 2: Organize, Optimize, Synchronize 283 Case 3: Removing Barriers to Cross- Border Commerce 284 Case 4: Warehouse Management: Right Time, Right Place 285

Part 4 Comprehensive Case 286

PART 5 Managing a Retail Business 291

Chapter 11 Retail Organization and Human Resource Management 292

Chapter Objectives 292 Overview 293

Setting Up a Retail Organization 293 Specifying Tasks to Be Performed 294 Dividing Tasks among Channel Members and Customers 294 Grouping Tasks into Jobs 295 Classifying Jobs 296 Developing an Organization Chart 296

Organizational Patterns in Retailing 297 Organizational Arrangements Used by Small Independentâ€Retailers†297 Organizational Arrangements Used by Department Stores 298 Organizational Arrangements Used by Chain Retailers 300 Organizational Arrangements Used by Diversified Retailers 300

Human Resource Management in Retailing 301

The Special Human Resource Environment of Retailing 303 The Human Resource Management Process in Retailing 305

Chapter Summary 313 •†Keyâ€Terms†314†•†Questionsâ€for†Discussion 314 • Web-Based Exercise: Macy’s, Inc. has dedicated to “Careers After College” (www.macyscollege.com) 314

Chapter 12 Operations Management: Financial Dimensions 315

Chapter Objectives 315 Overview 316

Profit Planning 316 Asset Management 317

The Strategic Profit Model 319 Other Key Business Ratios 320 Financial Trends in Retailing 321

Budgeting 324 Preliminary Budgeting Decisions 325 Ongoing Budgeting Process 326

Resource Allocation 328 The Magnitude of Various Costs 329 Productivity 329

Chapter Summary 330 •†Keyâ€Terms†331†•†Questionsâ€for†Discussion 331 •†Web-Basedâ€Exercise:â€QuickBooksâ€(http:// quickbooks.intuit.com/tutorials) 331

Chapter 13 Operations Management: Operational Dimensions 332

Chapter Objectives 332 Overview 333

Operating a Retail Business 333 Operations Blueprint 333 Store Format, Size, and Space Allocation 335 Personnelâ€Utilization†337 Store Maintenance, Energy Management, and Renovations 338 Inventory Management 340 Store Security 341 Insurance 342 Credit Management 343

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8 CONTENTS

Technology and Computerization 344 Outsourcing 346 Crisis Management 346

Chapterâ€Summary†347†•†Keyâ€Terms†348†•†Questionsâ€for†Discussion 348 • Web-Based Exercise: Pricer (www.pricer.com/en/Solutions) 348

Part 5 Short Cases 349 Case 1: Assistant Store Manager 349 Case 2: Manager, Training and Development 349 Case 3: Senior Manager of Digital Operations 350 Case 4: Retail Shrinkage: A Significant Problem 351

Part 5 Comprehensive Case 352 Predicting Retail Trends 352 Predictions of 2016 Retailing Trends 352

PART 6 Merchandise Management and Pricing 357

Chapter 14 Developing Merchandise Plans 358

Chapter Objectives 358 Overview 359

Merchandising Philosophy 359 Buying Organization Formats and Processes 361

Level of Formality 361 Degree of Centralization 361 Organizational Breadth 362 Personnel Resources 362 Functions Performed 364 Staffing 364

Devising Merchandise Plans 364 Forecasts 364 Innovativeness 366 Assortment 369 Brands†372 Timing†375 Allocation†375

Category Management 376 What Manufacturers Think about Retailers†377 Whatâ€Retailersâ€Thinkâ€aboutâ€Manufacturers†377

Merchandising Software 378 Generalâ€Merchandiseâ€Planningâ€Software†378 Forecastingâ€Software†378 Innovativenessâ€Software†378 Assortmentâ€andâ€Allocationâ€Software†379 Category Management Software 380

Chapter Summary 380 •†Keyâ€Terms†381†•†Questionsâ€for†Discussion 381 • Web-Based Exercise: TXT Retail Web site (http://-txtretail.txtgroup.com/ solutions/ assortment-planning-buying/) 381

Chapter 15 Implementing Merchandise Plans 382

Chapter Objectives 382 Overview 383

Implementing Merchandise Plans 383 Gathering Information 383 Selecting and Interacting with Merchandise Sources 385 Evaluating Merchandise 386 Negotiatingâ€theâ€Purchase†387 Concluding Purchases 388 Receiving and Stocking Merchandise 389 Reordering Merchandise 391 Re-evaluating on a Regular Basis 392

Logistics 392 Performance Goals 393 Supply Chain Management 394 Order Processing and Fulfillment 394 Transportation and Warehousing 396 Customer Transactions and Customer Service†397

Inventory Management 398 Retailer Tasks 398 Inventory Levels 398 Merchandise Security 399 Reverse Logistics 400 Inventory Analysis 401

Chapter Summary 402 •†Keyâ€Terms†402†•†Questionsâ€for†Discussion 403 • Web-Based Exercise: “Business” section of the U.S. Postal Service’s Web site (www.usps.com/business) 403

Chapter 16 Financial Merchandise Management 404

Chapter Objectives 404 Overview 405

Inventory Valuation: The Cost and Retail Methods of Accounting 405

The Cost Method 406 The Retail Method 408

Merchandise Forecasting and Budgeting: Dollar Control 411

Designating Control Units 411 Sales Forecasting 412 Inventory-Level Planning 413 Reduction Planning 416 Planning Purchases 416 Planning Profit Margins 418

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CONTENTS 9

Unit Control Systems 418 Physical Inventory Systems 419 Perpetual Inventory Systems 419 Unit Control Systems in Practice 420

Financial Inventory Control: Integrating Dollar and Unit Concepts 421

Stock Turnover and Gross Margin Return on Investment 421 When to Reorder 423 How Much to Reorder 424

Chapter Summary 425 •†Keyâ€Terms†425†•†Questionsâ€for†Discussion 426 • Web-Based Exercise: benchmarking section of the Retail Owners Institute Web site (http://retailowner.com/ Benchmarks) 426

Chapter 17 Pricing in Retailing 427 Chapter Objectives 427 Overview 428

External Factors Affecting a Retail Price Strategy 429

The Consumer and Retail Pricing 429 The Government and Retail Pricing 431 Manufacturers, Wholesalers, and Other Suppliers—and Retail Pricing 433 Competition and Retail Pricing 434

Developing a Retail Price Strategy 435 Retail Objectives and Pricing 435 Broad Price Policy 436 Price Strategy 438 Implementation of Price Strategy 443 Priceâ€Adjustments†447

Chapter Summary 450 •†Keyâ€Terms†450†•†Questionsâ€for†Discussion 451 • Web-Based Exercise: Neiman Marcus (www.neimanmarcus.com) 451

Part 6 Short Cases 452 Case 1: Buyer of Sports Equipment 452 Case 2: Adapting to the Internet of Things (IoT) 452 Case 3: High Marks by Suppliers and Wholesalers for Convenience Stores 453 Case 4: Data-Driven Pricing 454

Part 6 Comprehensive Case 456 Knocking Off the Knockoffs? 456

PART 7 Communicating with the Customer 459

Chapter 18 Establishing and Maintaining a Retail Image 460

Chapter Objectives 460 Overview 461

The Significance of Retail Image 461 Components of a Retail Image 462 The Dynamics of Creating and Maintaining a Retail Image 462

Atmosphere 464 A Store-Based Retailing Perspective 464 Aâ€Nonstore-Basedâ€Retailingâ€Perspective†474 Encouraging Customers to Spend More Time Shoppingâ€â€ 476 Communityâ€Relations†479

Chapterâ€Summary†479†•†Keyâ€Terms†480†•†Questionsâ€for†Discussion 480 • Web-Based Exercise: Johnny Rockets (www.johnnyrockets.com) 481

Chapter 19 Promotional Strategy 482 Chapter Objectives 482 Overview 483

Elements of the Retail Promotional Mix 483

Advertising 483 Public Relations 490 Personal Selling 491 Sales Promotion 494

Planning a Retail Promotional Strategy 499

Determining Promotional Objectives 499 Establishing an Overall Promotional Budget 500 Selecting the Promotional Mix 501 Implementing the Promotional Mix 501 Reviewing and Revising the Promotional Plan 505

Chapter Summary 506 •†Keyâ€Terms†506†•†Questions†forâ€Discussion†507†•†Web-Based†Exercise: Web site (www.entrepreneur.com/ article/241607)†507

Part 7 Short Cases 508 Case 1: Keep It Simple 508 Case 2: More than Price 508

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10 CONTENTS

Case 3: Enhancing the In-Store Experience through Facial Recognition Software 509 Case 4: Revitalizing Customer Loyalty 510

Part 7 Comprehensive Case 511 Inside the Mind of Shake Shack’s Founder 511

PART 8 Putting It all Together 515

Chapter 20 Integrating and Controlling the Retail Strategy 516

Chapter Objectives 516 Overview 517

Integrating the Retail Strategy 518 Planning Procedures and Opportunity Analysis 518 Defining Productivity in a Manner Consistent with the Strategy 519 Performance Measures 521 Scenario Analysis 525

Control: Using the Retail Audit 526 Undertakingâ€anâ€Audit†527 Responding to an Audit 529

Possible Difficulties in Conducting a Retail Audit 529 Illustrations of Retail Audit Forms 529

Chapter Summary 531 •†Keyâ€Terms†532†•†Questionsâ€for†Discussion 532 • Web-Based Exercise: American Customer Satisfaction Index (www. theacsi.org) 532

Part 8 Short Cases 533 Case 1: Envision the Future: Part 1 533 Case 2: Envision the Future: Part 2 533

Part 8 Comprehensive Case 535 Achieving Excellence in Retailing 535 Research Methodology 538

Appendix: Careers in Retailing 539 Glossary 546 Endnotes 560 Name Index 577 Subject Index 581

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Preface

We are quite proud and very thankful to have produced a book that has been so enduringly popu- lar. The book has been adopted by universities and colleges around the world, and it has been translated into Chinese and Russian.

Both Joel and I (Barry) are pleased to welcome a new co-author for this edition. Dr. Patrali Chatterjee (Ph.D. in Management with a major in Marketing) is a Full Professor of Marketing in the Feliciano School of Business at Montclair State University. She is currently an officer for the American Collegiate Retailing Association (ACRA). She has published her research in several academic journals and been featured in business media, as well. Professor Chatterjee has also consulted for several Fortune 500 companies.

As we move further into the twenty-first century, our goal is to seamlessly meld the tradi- tional framework of retailing with the realities of the competitive environment and the emergence of high-tech as a backbone for retailing. Retail Management: A Strategic Approach is a cutting-edge text, while retaining the coverage and features most desired by professors and students. To remain timely, we regularly post material about current events at our blog (www. bermanevansretail.com), which already has more than 1,500 posts and viewers from 180 countries.

Our enthusiasm for teaching and writing remains quite high. We all teach a full schedule of undergraduate and graduate courses in the Zarb School of Business at Hofstra University (Barry and Joel) and the Feliciano School of Business at Montclair State University (Patrali); both schools are fully accredited by AACSB International. We have been all been active in and supportive of ACRA. Barry has served as president and is in the ACRA Hall of Fame, while Joel has edited several conference proceedings and Patrali is an officer on the board.

The concepts of a strategic approach and a retail strategy remain our cornerstones. We were the first authors to take this primary orientation to the teaching of retail management. With a strategic approach, the fundamental principle is that the retailer has to plan for and adapt to a complex, changing environment. Both opportunities and constraints must be considered. A retail strategy is the overall plan or framework of action that guides a retailer. Ideally, it will be at least one year in duration and outline the mission, goals, consumer market, overall and specific activi- ties, and control mechanisms of the retailer. Without a pre-defined and well-integrated strategy, the firm may flounder and be unable to cope with the environment that surrounds it. Through our text, we want the reader to become a good retail planner and decision maker and be able to adapt to change.

Retail Management is designed as a one-semester text for students of retailing or retail man- agement. Due to the flexible pedagogical elements that accompany the book and the ability of the instructor to cover all or selected chapters in the book, Retail Management has been used by four-year and two-year schools, in undergraduate and graduate courses, and by business schools and nonbusiness schools. In many cases, students will have already been exposed to marketing principles. We feel retailing should be viewed as one form of marketing and not distinct from it.

NEW TO THE THIRTEENTH EDITION Since the first edition of Retail Management: A Strategic Approach, we have sought to be as con- temporary and forward-looking as possible. We are proactive rather than reactive in our prepa- ration of each edition. That is why we still take this adage of Walmart’s founder, the late Sam Walton so seriously: “Commit to your business. Believe in it more than anybody else.”

For the Thirteenth Edition, there are many changes in Retail Management:

1. All data and examples are as current as possible and reflect the current economic and world situations as much as possible. We believe it is essential that our book take into account the economic environment that has dramatically affected so many businesses and consumers.

2. There is now extensive coverage of omnichannel retailing—an evolving practice whereby the best retailers understand and seamlessly integrate all of their interactions across channels (including stores, online, mobile, social media, and more).

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12 PREFACE

3. ALL NEW CHAPTER-OPENING VIGNETTES—each relating to the evolving nature of retailing. We had a lot of fun writing these vignettes: Chapter 1: Multichannel versus Omnichannel Experiences Chapter 2: The Role of Digital and Traditional Channels in Delivering in-Store Service Chapter 3: Brand Intimacy: How Consumers Form Bonds with Brands Chapter 4: Tesla Motors Seeks to Bypass the Franchise Dealer Network Chapter 5: The Evolution of Factory Outlets Chapter 6: Buy Online, Pick Up In Store Programs Chapter 7: Online Groceries: Traditional Grocer’s New Threat Chapter 8: Lip Service Versus Real Customer Service Chapter 9: Trading-Area Analysis for Traditional and Destination Retailers Chapter 10: The Impact of Store Closings on Shopping Centers Chapter 11: Strategies to Reduce Retail Employee Turnover Chapter 12: Incremental Versus Zero-Based Budgeting Chapter 13: Facial Recognition: The Faceoff Against Retail Credit Card Fraud Chapter 14: Amazon’s Dash Button Chapter 15: American Eagle Outfitters New Distribution Center Chapter 16: Strategies to Reduce Markdowns Chapter 17: Retailer Price Matching Programs Chapter 18: The In-Store Service Imperative Chapter 19: Apps with Generation Z Appeal Chapter 20: Customer Satisfaction Suffers: American Customer Satisfaction Data

4. ALL NEW BOXES! They now include thought-provoking questions. Topics include: a. Technology in Retailing

Chapter 1: Generating Location-Sensitive Offers Chapter 2: Automated Customized Service Chapter 3: Retail Planning Software Chapter 4: Loyalty Programs Chapter 5: Sephora’s Phygital Makeover Chapter 6: Bringing Concierge Service to Online Shopping Chapter 7: Recommendation Engines Chapter 8: Mobile Beacons and Data Collection Chapter 9: GIS Systems Chapter 10: Lease Management Software Chapter 11 Job Listing Web Sites Chapter 12: The Impact of Self-Scanning on Impulse Sales Chapter 13: Energy Management Chapter 14: Store Planning Software Chapter 15: Retailers Taking the Right Steps to Fight Shrinkage Chapter 16: Point-of-Sale (POS) Systems Chapter 17: Oracle Markdown Software Chapter 18: 3D Afoot Chapter 19: Smartphone Couponing Chapter 20: Retail Planning Using EXCEL

b. Retailing Around the World Chapter 1: Debenhams Goes East: The Continuing Expansion of the UK Department

Store Retailer Chapter 2: Lane Crawford; Selling Luxury Goods in Hong Kong Chapter 3: Handling Payments from Global Customers Chapter 4: KFC in China Chapter 5: McDonald’s Investments in Russia Chapter 6: The Global Retail E-Commerce Index Chapter 7: Global Adaptation Chapter 8: Studying a Consumer’s Purchase Journey Chapter 9: Doomed Locations? Chapter 10: Pop-Up Stores Chapter 11: Recruiting of Retail Executives

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PREFACE 13

Chapter 12: Ikea’s Global Results Chapter 13: Countries’ Payment-Related Issues Chapter 14: Young Chinese Favor Global Brands Chapter 15: Processing Foreign Credit Cards Chapter 16: Gray Market Sourcing Chapter 17: Game Stores: Africa’s Largest Discounter Chapter 18: Hyatt Hotels Promotes Global Social Responsibility Chapter 19: Burberry’s Chinese Promotional Strategy Chapter 20: Best Buy’s Failure in China

c. Ethics in Retailing Chapter 1: Environmental Sustainability Chapter 2: Community Champions in the UK Chapter 3: Deceptive Price Advertising Chapter 4: Unethical Behavior by Franchisors Chapter 5: Bargaining Power by Category Killers Chapter 6: Sales Tax Collection By Online Retailers Chapter 7: Selling Add-Ons Chapter 8: Retail Security Breaches Chapter 9: Gentrification Issues Chapter 10: Shopping Center Leases Chapter 11: Zero-Hour Contracts Chapter 12: Restrictive Loan Covenants Chapter 13: Corporate Responsibility at Target Chapter 14: What’s a Fair Return Policy Chapter 15: Upcycling: A Form of Green Marketing Chapter 16: Markdown Allowances Chapter 17: Trust and Fairness in Revenue Management Chapter 18: Product Reviews on the Web Chapter 19: Using of Promotional Goods Chapter 20: Why Do Poor Ethics Occur?

d. Careers in Retailing Chapter 1: Hiring From Within Versus Best Person for the Job Chapter 2: Category Managers Chapter 3: “Builders,” “Maintainers,” and “Undertakers” Chapter 4: Succession Planning Chapter 5: Considering Being a Retail Buyer as a Career Chapter 6: Web Developers Chapter 7: Marketing Research as a Career Chapter 8: Careers in Customer Relationship Management Chapter 9: Trading-Area Analysis Careers Chapter 10: Site-Selection Based Careers Chapter 11: Buyer Training Chapter 12: Retail Financial Analyst Chapter 13: Security Personnel Chapter 14: Buying for a Retailer’s Private-Label Program Chapter 15: Opportunistic Buying by Discounters Chapter 16: Retailing Accounting Careers Chapter 17: Carol Meyrowitz of TJX Chapter 18: Joseph Bona’s Design Career Path Chapter 19: Omnichannel Promotions Manager Chapter 20: Retail Audit Personnel

5. ALL NEW! 30 shorter cases, as well as 8 comprehensive cases. Every case is based on real companies and real situations. Cases include: a. Short cases:

Part One 1. Retailers MUST Be Future-Oriented 2. Stores that Accommodate Those with Physical Limitations

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14 PREFACE

3. Is the Proliferation of Job Titles Helping or Hurting? 4. Competition and Quick Foodservice

Part Two 1. Do Power Players Rule? 2. Will the Favorites of Today Remain Popular? 3. Omnichannel Strategies of Top Retailers 4. Omnichannel Food Retailing Still Needs Work

Part Three 1. Eating Patterns in America 2. The Convenience Economy Comes of Age 3. Are Hot Retailers of 2015 Still Hot? 4. Navigating the Shopper Universe Through Big Data

Part Four 1. Are Smaller and Faster Better? 2. Organize, Optimize, Synchronize 3. Removing Barriers to Cross-Border Commerce 4. Warehouse Management: Right Time, Right Place

Part Five 1. Assistant Store Manager 2. Manager, Training and Development 3. Senior Manager of Digital Operations 4. Retail Shrinkage: A Significant Problem

Part Six 1. Buyer of Sports Equipment 2. Adapting to the Internet of Things (IoT) 3. High Marks by Suppliers and Wholesalers for Convenience Stores 4. Data-Driven Pricing

Part Seven 1. Keep It Simple 2. More than Price 3. Enhancing the In-Store Experience Through Facial Recognition Software 4. Revitalizing Customer Loyalty

Part Eight 1. Envision the Future: Part 1 2. Envision the Future: Part 2

a. Part Cases: Part One: Ideas Worth Stealing Part Two: What Consumers Find Expendable Vs. Untouchable Part Three: How Do You Attract and Satisfy Millennials? Part Four: Autenticidad en Acción: Mexican Delights the Real Deal at Food City Remodel Part Five: Predicting Retail Trends Part Six: Knocking Off the Knockoffs Part Seven: Inside the Mind of Shake Shack’s Founder Part Eight: Achieving Excellence in Retailing

6. MANY photos and images have been replaced or updated throughout. 7. The hundreds of PowerPoint slides that accompany the book have been fully revised; AND

there are descriptions related to each slide. 8. Our blog (www.bermanevansretail.com) has been updated. We have a current (multiple posts

each week), dynamic, multimedia, interactive blog just for students and professors interested in retailing. There is a lot of cool stuff there. Please join us at (www.bermanevansretail.com). Our blog has a lot of career material. There are more than 325 career-related posts at the blog.

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PREFACE 15

Substantive Changes for the Thirteenth Edition by Chapter

▶▶ Chapter 1 (An Introduction to Retailing). The importance of omnichannel retailing is high- lighted. We describe Home Depot’s overall strategy and its approach to the complex market- place. And to properly capture the importance of the economic situation facing retailers today, we update the chapter appendix to reflect the state of economy after the worldwide recession period: “Understanding the Recent Economic Environment in the United States Around the Globe.” The appendix covers the U.S. economy, the global effects of the downturn, the effect of the current economic climate on retailing, and strategic options for retailers.

▶▶ Chapter 2 (Building and Sustaining Relationships in Retailing). There is more coverage of “value” and “relationships” in retailing—with both customers and other channel members. Retailer interactions with customers depend on the customer base and customer service, and they have an impact on customer satisfaction; and there are different types of loyalty programs. Emerging technologies often enable retailers to form stronger relationships; and retailer ethics can stimulate or deter shoppers. The end-of-chapter appendix (“Planning for the Unique Aspects of Service Retailing”) reflects current thinking on service retailing.

▶▶ Chapter 3 (Strategic Planning in Retailing). There is greater attention to strategic plan- ning in today’s marketplace, with numerous examples. The software that supplements the section of this chapter devoted to a strategic planning template—Computer-Assisted Strategic Retail Management Planning—has been updated and is available for download at our blog (www.bermanevansretail.com). The chapter appendix (“The Special Dimensions of Strate- gic Planning in a Global Retailing Environment”) notes the challenges for retailers operating outside their home markets and various trends in global retailing.

▶▶ Chapter 4 (Retail Institutions by Ownership). All of the data on retail ownership formats (independents, chain-owned, franchisee-operated, leased departments, owned by manufac- turers or wholesalers, or consumer-owned) have been updated. The appendix on franchis- ing opportunities (“The Dynamics of Franchising”) presents current information on various aspects of franchising.

▶▶ Chapter 5 (Retail Institutions by Store-Based Strategy Mix). All of the data on store- based retail strategies have been updated – 14 strategic formats in all that are divided into food-based and general-merchandise-based categories. There are numerous new examples.

▶▶ Chapter 6 (Web, Nonstore-Based, and Other Forms of Nontraditional Retailing). The emerging and critical omnichannel perspective of retailing is discussed in more detail in this chapter than in Chapter 1; and single-channel, multichannel, and omnichannel retailing are contrasted. The coverage of online retailing reflects the present state of the Web and mobile channels, and includes many examples. There is a fully updated and refocused appendix on retail supply chains (“Omnichannel Retailing”) and its impact.

▶▶ Chapter 7 (Identifying and Understanding Consumers). There is a strong emphasis on the retailing ramifications of the empowered consumer, as well as consumer characteristics, attitudes, and behavior. We include current demographic data on U.S. and foreign consumers, consumer profiles, and shopping attitudes and behavior.

▶▶ Chapter 8 (Information Gathering and Processing in Retailing). This chapter looks at information flows in a retail distribution channel and notes the ramifications of inadequate research. We then describe the retail information system, database management, and data warehousing. The barcode discussion is enhanced.

▶▶ Chapter 9 (Trading-Area Analysis). There is new material on geographic information sys- tems, as well as many new retail applications. We have increased the coverage of the TIGER digital mapping system, which is the basis for most geographic information systems’ software.

▶▶ Chapter 10 (Site Selection). We include many new retail applications and examples. ▶▶ Chapter 11 (Retail Organization and Human Resource Management). There is more

emphasis on employee turnover and the human resource environment in retailing, as well as updated coverage of women and minorities in retailing. We also have substantially revised some of the organization charts.

▶▶ Chapter 12 (Operations Management: Financial Dimensions). We have new material on incremental and zero-based budgeting, as well as updated information on key business ratios, financial trends, and resource allocation.

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16 PREFACE

▶▶ Chapter 13 (Operations Management: Operational Dimensions). There is a new discus- sion of digital payment systems, as well as updated material on operations issues in retailing.

▶▶ Chapter 14 (Developing Merchandise Plans). Innovative practices are highlighted. We place greater emphasis on a merchandising-based philosophy and the activities necessary to carry it out. There is updated coverage of merchandising practices, the popularity of private brands (including a new quiz), and category management.

▶▶ Chapter 15 (Implementing Merchandise Plans). There is enhanced coverage of the power of large retailers, RFID (radio frequency identification), logistics, and inventory management.

▶▶ Chapter 16 (Financial Merchandise Management). There is updated coverage of financial merchandise management, including unanticipated markdowns.

▶▶ Chapter 17 (Pricing in Retailing). We focus on the retailer’s need to provide value to customers, regardless of its price orientation—and the growing power of the consumer due to online comparison shopping.

▶▶ Chapter 18 (Establishing and Maintaining a Retail Image). We place more focus on the total retail experience (both in the store and online), retail positioning, and atmospherics and Web-based retailers, as well as how to increase shopping time.

▶▶ Chapter 19 (Promotional Strategy). There are many new applications and examples— especially with regard to mobile apps and social media—and a strong strategic emphasis on the retail promotional strategy.

▶▶ Chapter 20 (Integrating and Controlling the Retail Strategy). There is an in-depth dis- cussion on integrating the retail strategy in today’s high-tech marketplace, as well as how to assess a strategy, with a detailed example based on TJX.

▶▶ Appendix (Careers in Retailing). We emphasize the strong long-term possibilities (through 2024) for careers in retailing. There is a new table citing 10 retail positions with unique responsibilities.

BUILDING ON THE E-VOLUTION OF RETAIL MANAGEMENT: A STRATEGIC APPROACH From a retailer perspective, we see four formats—all covered in Retail Management— competing in the new millennium (cited in descending order of importance):

▶▶ Combined “bricks-and-mortar” and “clicks-and-mortar” retailers. These are store-based retailers that also offer online shopping, thus providing customers the ultimate in choice and convenience. Virtually all of the world’s largest retailers, as well as many medium and small firms, fall into this category; and they are omnichannel retailers. This is clearly the fast-growing format in retailing. Even Amazon.com, a long-time online only retailer, is now opening some physical stores.

▶▶ Clicks-and-mortar retailers. These are the online-only retailers that have emerged. Rather than use their own physical store facilities, these companies promote a “virtual” shopping experience: wide selections, convenience, and—sometimes—low prices. Among the firms in this category are Priceline—the discount airfare and hotel retailer—and Zappos –the retailer of shoes, apparel, and a whole lot more.

▶▶ Direct marketers with clicks-and-mortar retailing operations. These are firms that have relied on traditional nonstore media such as print catalogs, direct selling in homes, and TV infomercials to generate business. Almost of them have added Web sites to enhance their businesses. Leaders include Lands’ End and QVC. These direct marketers will continue to see a dramatic increase in the proportion of sales coming from the Web.

▶▶ Bricks-and-mortar retailers. These are companies that rely on their physical facilities to make sales. They do not sell online but use the Web for providing information and customer service and for image building. Auto dealers typically offer product information and cus- tomer service online but conduct their sales transactions at retail stores. Firms in this category represent the smallest grouping of retailers. Many will need to rethink their approach as online competition intensifies.

We now have access to more information sources, from global trade associations to gov- ernment agencies. The information in Retail Management, Thirteenth Edition, is more current

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PREFACE 17

than ever because we are using the original sources themselves and not waiting for data to be published months or a year after being compiled. We are also able to include a greater range of real-world examples because of the information at company Web sites.

Will this help you? Yes. You will benefit because our philosophy has always been to make Retail Management as reader-friendly, up-to-date, and useful as possible. In addition, we want students to benefit from our experiences—in this case, our E-xperiences.

Retail Management: A Strategic Approach, Thirteenth Edition, incorporates many E-features in the book; and at our lively and constantly updated blog (www.bermanevansretail.com).

Our blog includes many features that are intended to enrich both the student’s and profes- sor’s understanding and appreciation of retailing. These include:

▶▶ More than 1,600 blog posts and counting. To stay current, we post multiple times EVERY week!

▶▶ A multimedia approach—with embedded videos, colorful infographics (charts with data), photos, and links to a huge number of real world sources.

▶▶ Post categories keyed to each of 8 parts of the book. ▶▶ Additional post categories on such important issues as: Careers in Retailing, Global Retail-

ing, Nontraditional Retailing, Online Retailing, Privacy and Identity Theft, Social Media and Retailing, and Strategy Mix.

But, that’s not all! Our Web site has career material; and each chapter of the book ends with a Web-based exercise.

BUILDING ON A STRONG TRADITION Besides introducing the E-features just mentioned, Retail Management, Thirteenth Edition, care- fully builds on its heritage as the market leader in strategic retail management. These features have been retained from earlier editions of Retail Management:

▶▶ A strategic decision-making orientation, with many illustrative flow charts, figures, tables, and photos. The chapter coverage is geared to the six steps used in developing and applying a retail strategy, which are first described in Chapter 1.

▶▶ Full coverage of all major retailing topics—including merchandising, consumer behavior, information systems, omnichannel retailing, store location, operations, logistics, service retailing, the retail audit, retail institutions, franchising, human resource management, com- puterization, and retailing in a changing environment.

▶▶ A real-world approach focusing on both small and large retailers. ▶▶ Real-world boxes on current retailing issues in each chapter. These boxes further illustrate

the concepts presented in the text by focusing on real firms and situations. ▶▶ A numbered summary keyed to chapter objectives, a key terms listing, and discussion ques-

tions at the end of each chapter. ▶▶ Both short cases involving a wide range of retailers and retail practices and comprehensive

cases. ▶▶ Up-to-date information from such sources as Advertising Age, Businessweek, Chain Store

Age, Direct Marketing, Entrepreneur, Fortune, Inc., International Journal of Retail & Dis- tribution Management, Journal of Retailing, Multichannel Merchant, Progressive Grocer, Retailing Today, Shopping Centers Today, Standard & Poor’s, Stores, and Wall Street Journal.

▶▶ End-of-chapter appendixes on service retailing (following Chapter 2), global retailing (fol- lowing Chapter 3), and franchising (following Chapter 4).

▶▶ End-of-text appendix “Careers in Retailing” and a glossary.

HOW THE TEXT IS ORGANIZED Retail Management: A Strategic Approach has eight parts. Part One introduces the field of retail- ing, the basics of strategic planning, the importance of building and maintaining relations, and the decisions to be made in owning or managing a retail business. In Part Two, retail institutions are examined in terms of ownership types, as well as store-based, nonstore-based, electronic, and nontraditional strategy mixes. The wheel of retailing, scrambled merchandising, the retail life

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18 PREFACE

cycle, and the Web are covered. Part Three focuses on target-marketing and information-gather- ing methods, including discussions of why and how consumers shop and the retailing informa- tion system and data warehouse. Part Four presents a four-step approach to location planning: trading-area analysis, choosing the most desirable type of location, selecting a general locale, and deciding on a specific site.

Part Five discusses the elements involved in managing a retail business: the retail orga- nization structure, human resource management, and operations management (both financial and operational). Part Six deals with merchandise management—developing and implementing merchandise plans, the financial aspects of merchandising, and pricing. In Part Seven, the ways to communicate with customers are analyzed, with special attention paid to retail image, atmo- sphere, and promotion. Part Eight deals with integrating and controlling a retail strategy.

At the end of the text, Appendix: Careers in Retailing highlights career opportunities in re- tailing. There is also a comprehensive Glossary.

INSTRUCTOR RESOURCES At Pearson’s Higher Ed catalog, www.pearsonglobaleditions.com/berman, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit https://support.pearson.com/getsupport for answers to frequently asked questions and toll-free user support phone numbers. The following supplements are available with this text: • Instructor’s Resource Manual • Test Bank • TestGen® Computerized Test Bank • PowerPoint Presentations. This title is available as an E-book and can be purchased at most E-book retailers.

Recommended Syllabi A course in retail management is taught in a number of ways and according to different term calen- dars. Accordingly, here are two different recommended syllabi to assist instructors in their course preparation. These syllabi suggest coverage for schools on both the semester and quarter system.

These syllabi are merely recommended. We recognize that greater or lesser emphasis may be placed on particular retailing topics.

Recommended Syllabus for a 14-Week Semester Course

Week Amount of Coverage Topics Text Chapters

1 ½ week An introduction to retailing 1

1–2 1 week Relationship retailing/strategic planning in retailing

2, 3

2–3 1½ weeks Retail institutions categorized by ownership, strategy mix, Web, nonstore, and other forms of nontraditional retailing

4, 5, 6

4 ½ week Understanding consumer behavior 7

4–5 1 week Information systems and marketing research in retailing

8

5–6 1½ weeks Trading-area analysis and site selection 9, 10

7–8 1½ weeks Retail organization and human resource management; and operations management

11, 12, 13

8–9 1 week Buying and handling merchandise 14, 15

9–10 1 week Financial merchandise planning and management

16

10–11 1 week Pricing in retailing 17

11–12 1 week Establishing and maintaining a retail image 18

12–13 1 week Promotional strategy 19

14 1 week Integrating and controlling the retail strategy 20

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PREFACE 19

Recommended Syllabus for a 10-Week Semester Course

Week Amount of Coverage Topics Text Chapters

1 ½ week An introduction to retailing 1

1–2 1 week Strategic planning in retailing 2, 3

2–3 1½ week Retail institutions characterized by ownership, strategy mix, Web, nonstore, and other forms of nontraditional retailing

4, 5, 6

4 ½ week Understanding consumer behavior 7

4 ½ week Information systems and marketing research in retailing

8

5 1 week Trading-area analysis and site selection 9, 10

6 1 week Retail organization and human resource man- agement; and operations management

11, 12, 13

7 1 week Merchandise management 14, 15, 16

8 1 week Pricing in retailing 17

9 1 week Establishing and maintaining a retail image, and promotional strategy

18, 19

10 1 week Integrating and controlling the retail strategy 20

CONCLUDING REMARKS As always, we are extremely “hands on” in developing and maintaining all instructor materials and teaching resources. Please feel free to send us feedback regarding any aspect of Retail Management or its package. We promise to reply to any correspondence.

Sincerely,

Barry Berman (E-mail at [email protected]), Zarb School of Business, Hofstra University, Hempstead, NY 11549

Joel R. Evans (E-mail at [email protected]), Zarb School of Business, Hofstra University, Hempstead, NY, 11549

Patrali Chatterjee (E-mail at [email protected], Feliciano School of Business, Montclair State University, Montclair, NJ 07043

Global Edition Acknowledgments For their contributions to the content of the Global Edition, Pearson would like to thank Diane and Jon Sutherland, and for their feedback, Ronan Jouan de Kervenoael, Sabancı Üniversitesi; Hasan Gilani, University of Brighton; Khaled Haque; and Stephanie Phang, Tunku Abdul Rahman University College.

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Barry Berman Hofstra University

Joel R. Evans Hoftsra University

Patrali Chatterjee Montclair State University

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Welcome to Retail Management: A Strategic Approach, 13th edition. We hope you find the book is informative, timely, action-oriented, and reader-friendly. Visit our popular blog (www.bermanevansretail.com) for interactive, useful, up-to-date features that complement the text—including chapter hotlinks, a study guide, and much more!

In Part One, we explore the field of retailing, establishing and maintaining relationships, and the basic principles of strategic planning and the decisions made in owning or managing a retail business.

Chapter 1 describes retailing, shows why it should be studied, and examines its special characteristics. We note the value of strategic planning, including a detailed review of Home Depot (a titan of retailing). The retailing concept is presented, along with the total retail experience, customer service, and relationship retailing. The focus and format of the text are comprehensive. An appendix, “Understanding the Recent Economic Environment in the United States and Around the Globe,” appears at the end of this chapter.

Chapter 2 looks at the complexities of retailers’ relationships—with both customers and other channel members. We examine value and the value chain, customer relationships and channel relationships, the differences in relationship building between goods and service retailers, the impact of technology on retailing relationships, and the interplay between ethical performance and relationships in retailing. The chapter ends with an appendix on planning for the unique aspects of service retailing.

Chapter 3 shows the usefulness of strategic planning for all kinds of retailers. We focus on the planning process: situation analysis, objectives, identifying consumers, overall strategy, specific activities, control, and feedback. We also look at the controllable and uncontrollable parts of a retail strategy. Strategic planning is shown as a series of interrelated steps that are continuously reviewed. A detailed computerized strategic planning template, available at our Web site, is described. At the end of the chapter, there is an appendix on the strategic implications of global retailing.

Part 1

An Overview of Strategic Retail Management

Source: nasirkhan/Shutterstock. Reprinted by permission.

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22

1 An Introduction to Retailing

Chapter Objectives

1. To define retailing, consider it from various perspectives, demonstrate its impact, and note its special characteristics

2. To introduce the concept of strategic planning and apply it

3. To show why the retailing concept is the foundation of a successful business, with an emphasis on the total retail experience, customer service, and relationship retailing

4. To indicate the focus and format of the text

Source: iQoncept/Shutterstock. Reprinted by permission.

Digital technologies such as Web 2.0, social media, and mobile media have dramatically altered how businesses and consumers get information, make decisions, communicate, transact, and own versus share possessions around the world. In this always-connected, 24/7/365 competitive retailing landscape, consumers choose how, when, and where they want to interact with retailers. Retailers are expected to be proactive and adaptive in anticipating their consumers’ needs at the time and utilize an omnichannel approach to provide the customer with a seamless shopping experience, whether the customer is shopping online from a desktop or a mobile device, by telephone, or in a bricks-and-mortar store. Accordingly, in Retail Management: A Strategic Approach, we begin each chapter with a discussion of omnichannel perspectives relevant to the retailing topics in that chapter.

How do we distinguish between multichannel and omnichannel experiences? Multichannel retailing is associated with a retailer having separate channels—store and Web—as alternatives. A traditional multichannel retail environment has few linkages among these channel alternatives. Simply put, although shoppers can purchase an item through either channel, important linkages among channels may not exist. For example, consumers may not be able to view store inventories online, can be charged different prices in each channel, cannot arrange for store pickup on a Web order, may not return Web purchases to a local store, and a store and Web site can have separate customer databases.

In contrast, omnichannel retailing delivers a consistent, uninterrupted, and seamless brand experience regardless of channel or device (store, laptop computer, iPad, smartphone, etc.). Omnichannel retailing assumes that there are various shopping journey maps that use mobile, Web, and stores quite differently. As an example, product discovery can be Web or social- media–based, information search can use the Web or in-store observation, and consumers can purchase an item via a mobile device but seek to return it to a store. Omnichannel retailing is by nature seamless and integrated.

At www.bermanevansretail.com, we’ve set up a dynamic retailing blog with all sorts of interesting and current information—retailer links, career opportunities, news about the retail industry and individual retailers, and more. Check it out!

Many different kinds of retailers, both large and small, utilize multiple technologies, employ social and mobile media to communicate with customers, reinforce their images, introduce new locations and merchandise, sell products, run special promotions, and so much more.

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CHAPTER 1 • An InTRoduCTIon To RETAIlIng 23

overview Retailing encompasses the business activities involved in selling goods and services to consumers for their personal, family, or household use. It includes every sale to the final consumer— ranging from cars to apparel to meals at restaurants to movie tickets. Retailing is the last stage in the distribution process from supplier to consumer.

Today, retailing is at a complex crossroad. On the one hand, retail sales are at their highest point in history (despite a dip during the 2008–2010 “Great Recession”). Walmart is the lead- ing company in the world in terms of sales, but Amazon.com, predominately an online retailer with few physical stores as of this writing has an annual growth rate of 25 percent compared to 1 percent for Walmart.1 New technologies are improving retail productivity. There are many oppor- tunities to start a new retail business—or work for an existing one—and to become a franchisee. Global retailing possibilities abound, especially for pure-online retailers that can replicate their business models globally without the capital costs of store-based retailing.

On the other hand, retailers face numerous challenges. The rise of the U.S. dollar against major currencies in recent years has had a major impact on retailers, their suppliers, and con- sumers around the world. Many consumers are bored with shopping for products or do not have much time for it and are spending more for experiences. Some locales have too many stores, and retailers often spur one another into frequent price cutting (and low profit margins). Customer service expectations are high at a time when more retailers offer self-service, automated systems, and omnichannel ordering and pick-up services. Although online E-commerce accounts for only 7.1 percent of U.S. retail sales, today it is growing at a faster rate and displacing sales revenues at stores. Some retailers are still grappling with their omnichannel strategy in terms of capital and human resource investments for in-store versus digital formats; coordinating merchandising, pric- ing, and logistics across channels; and the relative emphasis to place on image enhancement, cus- tomer information and feedback, and sales transactions. The widespread proliferation of mobile and social media technologies has been difficult for many retailers to adapt to in their strategies all over the world. These are among the key issues that retailers must resolve:

How can we better serve our customers while earning a fair profit?

How can we stand out in a highly competitive environment where consumers have so many choices?

How can we better coordinate our merchandising, pricing, and service strategy across all our channels when costs, profit margins, and target segments differ across the channels?

How can we grow our business while retaining a core of loyal customers?

Retail decision makers can best address these questions by fully understanding and applying the basic principles of retailing in a well-structured, systematic, and focused retail strategy. That is the philosophy behind Retail Management: A Strategic Approach.

Can retailers flourish in today’s tough marketplace? You bet! Just look at your favorite restau- rant, gift shop, and food store. Look at the success of retailers such as Costco, Starbucks, L Brands (whose major brands include Victoria’s Secret and Bath & Body Works), and Amazon.com. What do they have in common? A desire to please the customer and a strong market niche. To prosper in the long term, they all need a strategic plan and a willingness to adapt—both central thrusts of this book. See Figure 1-1.

In this chapter, we look at the framework of retailing, the value of developing and applying a sound retail strategy, and the focus and format of the text. A special appendix at the end of this chapter examines the impact of the global economic environment on retailers in the United States and around the world.

THE FRAMEWORK OF RETAILING To appreciate the role of retailing and the range of retailing activities, let’s view it from three perspectives:

1. Suppose we manage a manufacturing firm that makes cosmetics. How should we sell these items? We could distribute via big chains such as Sephora or small neighborhood stores, have our own sales force visit people in their homes as Mary Kay does, or set up our own

Visit Amazon.com’s Web site (www.amazon.com) and see what drives one of the world’s “hot” retailers.

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24 PART 1 • An ovERvIEw of sTRATEgIC RETAIl mAnAgEmEnT

stores (if we have the ability and resources to do so). We could sponsor TV infomercials or magazine ads, complete with a toll-free phone number.

2. Suppose we have an idea for a new way to teach first-graders how to use computer software for spelling and vocabulary. How should we implement this idea? We could lease a store in a strip shopping center and run ads in a local paper, rent space in a local YMCA and rely on teacher referrals, or do mailings to parents and visit children in their homes. In each case, the service is offered “live.” But there is another option: We could use an animated Web site to teach children online.

3. Suppose that we, as consumers, want to buy apparel. What choices do we have? We could go to a department store or an apparel store. We could shop with a full-service retailer or a discount store. We could go to a shopping center or order from a catalog. We could patronize retailers that carry a wide range of clothing (from outerwear to jeans to suits) or firms that specialize in one clothing category (such as leather coats). We could surf the Web and visit retailers around the globe. We could also look at Facebook and see what other consumers are saying about various retailers.

There is a tendency to think of retailing as primarily involving the sale of tangible (physical) goods. However, retailing also includes the sale of services and digital goods. And this is a big part of retailing! A service may be the shopper’s primary purchase (such as a haircut) or it may be part of the shopper’s purchase of a good (such as furniture delivery). Sales in many physical goods—product categories such as books, movies, and music—are now dominated by their digi- tal applications in the format of downloads. Obviously, retailing does not have to involve a store. Mail and phone orders, direct selling to consumers in their homes and offices, Web transactions, kiosks, and vending machine sales all fall within the scope of retailing. In fact, retailing does not even have to include a “retailer.” Manufacturers, importers, nonprofit firms, wholesalers, and individual artisans on online platforms, such as Etsy.com, act as retailers when they sell to final consumers.

Let’s now examine various reasons for studying retailing and its special characteristics.

FIGURE 1-1 A Willingness to Adapt Is Essential for Retailers The most successful retailers over the long run are those which recognize that consumers and the marketplace are constantly evolving. They do research to get feedback and then act accordingly.

Source: iQoncept/ Shutterstock. Reprinted by permission.

Service businesses such as Jiffy Lube (www .jiffylube.com) are engaged in retailing.

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CHAPTER 1 • An InTRoduCTIon To RETAIlIng 25

Reasons for Studying Retailing Retailing is an important field to study because of its impact on the economy, its functions in dis- tribution, and its relationship with firms selling goods and services to retailers for their resale or use. These factors are discussed next. A fourth factor for students of retailing is the broad range of career opportunities, as highlighted with a “Careers in Retailing” box in each chapter, Appendix A at the end of this book, and our blog (www.bermanevansretail.com). See Figure 1-2.

THE IMPACT OF RETAILING ON THE ECONOMY Retailing is a major part of U.S. and world com- merce. Retail sales and employment are vital economic contributors, and retail trends often mirror trends in a nation’s overall economy.

According to the Department of Commerce, annual U.S. retail store sales in 2015 were $4.785 trillion—representing one-third of the total economy. During that year, more than one-fifth of the world’s retail sales occurred in the United States.2 The weighted-average share of retail E-commerce in overall U.S. retail sales has been steadily growing from 3.4 percent in 2007 to 7.1 percent in 2015.3 Share of online retail sales is slightly higher in Europe at 7.5 percent and highest in the Asia-Pacific region at 10.2 percent. Telephone and mail-order sales by nonstore retailers, vending machines, and direct selling generate hundreds of billions of dollars in additional yearly revenues. Personal expenditures on financial, medical, legal, educational, and other services account for another several hundred billion dollars in annual retail revenues.

Durable goods stores—including motor vehicles and parts dealers; furniture, home furnish- ings, electronics and appliance stores; and building materials and hardware stores—make up 30 percent of U.S. retail store sales. Nondurable goods and services stores—including general merchandise stores; food and beverage stores; health- and personal-care stores; gasoline sta- tions; clothing and accessories stores; sporting goods, hobby, book, and music stores; eating and drinking places; and miscellaneous retailers—together account for 70 percent of U.S. retail store sales.

The world’s 250 largest retailers generate more than $4.6 trillion in annual revenues. They represent 29 nations. Seventy-six of the largest 250 retailers are based in the United States, 28 in Japan, 17 in Germany, 16 in Great Britain, and 15 in France. Five of the 250 top retailers are nonstore retailers.4 The 10 largest retailers in the United States generate nearly one trillion dol- lars in annual domestic revenues and more than 1.2 trillion dollars in total worldwide sales. They operate over 32,000 U.S. stores. See Table 1-1. Visit our blog (www.bermanevansretail.com) for additional information on retailing.

Retailing is a major source of jobs. In the United States alone, 15 million people—about one- tenth of the total labor force—work for traditional retailers (including food and beverage service firms, such as restaurants). Yet this figure understates the true number of people who work in retailing because it does not include the several million persons employed by other service firms, seasonal employees, proprietors, and unreported workers in family businesses or partnerships.

FIGURE 1-2 Encouraging People to Consider a Career in Retailing To attract and retain high-quality, motivated workers, retailers should properly train them, empower them to be responsive to reasonable requests that may “break the rules” (without always having to ask the boss), and reward—and visibly recognize—superior performance. A key aspect of a meaningful reward system is an employee’s opportunities for upward mobility in terms of a better job and a bigger paycheck (promoting from within).

Source: Dusit/Shutterstock. Reprinted by permission.

Learn more about the exciting array of retailing career opportunities (www.allretailjobs.com).

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26 PART 1 • An ovERvIEw of sTRATEgIC RETAIl mAnAgEmEnT

Retailing is the largest private-sector employer in the United States. According to the National Retail Federation, anyone whose employment results in a consumer product—from those who supply raw materials to manufacturers to truck drivers who deliver goods—counts on retail for their livelihood. With 35 million stores and the vast number of suppliers, the retail industry is responsible for 42 million jobs, and $1.6 trillion in labor income, and it accounts for $2.6 trillion of the U.S. gross domestic product (GDP).5

From a cost perspective, retailing is a significant field of study. In the United States in 2015, on average, 36 cents of every dollar spent in department stores, 47 cents spent in women’s apparel stores, and 28 cents spent in pharmacies and drugstores go to the retailers to cover operating costs, activities performed, and profits. Costs include rent, displays, wages, ads, and maintenance. Only a small part of each dollar is profit. Profit margins in the retail sector vary. Whereas audio/video and consumer electronics stores have pre-tax profit margins of 4.2 percent, the pre-tax profit margins averaged 2.1 percent for department stores in 2015.6 In its fiscal year ending January 31, 2016, Walmart, the world’s largest retailer, had after-tax profits of 3.1 percent of sales.7 Figure 1-3 shows costs and profits for Walgreens Boots Alliance, an international drugstore chain.

The Occupational Outlook Handbook (www.bls.gov/ oco) is a great source of information on employment trends.

TABLE 1-1 The 10 Largest Retailers Based in the United States

Rank Company web Address major Retail Emphasis

2015 u.s. sales

(millions)

2015 number of u.s. stores

2015 worldwide

sales (millions)

1 Walmart www.walmart.com Full-line discount stores, supercenters, membership clubs

$353,108 5,182 $500,108

2 Kroger www.kroger.com Supermarkets, convenience stores, jewelry stores

103,878 3,747 103,878

3 Costco www.costco.com Membership clubs 83,545 476 116,671

4 Home Depot www.homedepot.com Home centers 79,297 1,965 88,621

5 Walgreen Boots Alliance

www.walgreens.com Drugstores 76,604 8,052 92,670

6 Target www.target.com Full-line discount stores, supercenters

73,226 1,774 73,226

7 CVS Health www.cvshealth.com Drugstores 72,151 9,659 73,546

8 Amazon.com www.amazon.com Web merchant 61,619 N/A 104,060

9 Albertsons www.albertsons.com Supermarkets, drugstores

58,443 2,311 58,443

10 Lowe’s www.lowes.com Home centers 57,486 1,805 59,051

Source: Based on material in David P. Schulz, “Stores Top 100 Retailers,” STORES Magazine (July 2016). Reprinted by permission Copyright 2016. STORES Magazine.

Two opposing human resources strategies in retailing are (1) limiting promotions to only those working within the firm ver- sus (2)  recruiting personnel from competing companies. The promote-from-within strategy reduces employee turnover, encourages employee loyalty, and develops specific career paths for current employees. It also minimizes the difficulty in training new employees on company policies.

The hire-from-outside strategy seeks the best person for the position regardless of employment history with the given retailer. This strategy encourages firms to adopt new ways of thinking and enables a retailer to attract personnel with skills and contacts developed at their prior firms.

Under what conditions should a retailer use the hire-from- outside strategy? How can a retailer using this strategy reduce the poor morale from existing staff?

CAREERs In RETAIlIng Hiring from within Versus Best Person for the Job

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CHAPTER 1 • An InTRoduCTIon To RETAIlIng 27

RETAIL FUNCTIONS IN DISTRIBUTION Retailing is the last stage in a channel of distribution—all the businesses and people involved in the physical movement and transfer of ownership of goods and services from producer to consumer. A typical distribution channel is shown in Figure 1-4. Retailers often act as the contact between manufacturers, wholesalers, and the consumer. Many manufacturers would like to make one basic type of item and sell their entire inventory to as few buyers as possible, but consumers usually want to choose from a variety of goods and services and purchase a limited quantity. Retailers collect an assortment from various sources, buy in large quantity, and sell in small amounts. This is the sorting process. See Figure 1-5.

Another job for retailers is communicating both with customers and with manufacturers and wholesalers. Shoppers learn about the availability and characteristics of goods and services, store hours, sales, and so on from retailer ads, salespeople, and displays. Manufacturers and wholesalers are informed by their retailers with regard to sales forecasts, delivery delays, customer complaints, defective items, inventory turnover, and more. Many goods and services have been modified due to retailer feedback.

For small suppliers, retailers can provide assistance by transporting, storing, marking, adver- tising, and pre-paying for products. Small retailers may need the same type of help from their suppliers. The tasks performed by retailers affect the percentage of each sales dollar they need to cover costs and profits.

Retailers also complete transactions with customers. This means having convenient loca- tions, filling orders promptly and accurately, and processing credit purchases. Some retailers also provide customer services such as gift wrapping, delivery, and installation. To make themselves even more appealing, many firms now engage in omnichannel retailing, whereby a retailer sells to consumers through multiple retail formats (points of contact). Most large retailers operate both physical stores and Web sites to make shopping easier and to accommodate consumer desires. Some firms provide information and sell to customers through multiple touch points: retail stores, mail order, Web sites, tablets, smartphones, and a toll-free phone number. See Figure 1-6.

For these reasons, products are usually sold through retailers not owned by manufacturers (wholesalers). This lets the manufacturers reach more customers, reduce costs, improve cash flow, increase sales more rapidly, and focus on their area of expertise. Select manufacturers, such

Sherwin-Williams (www .sherwin-williams.com) is not only a manufacturer but also a retailer.

FIGURE 1-3 The High Costs and Low Profits of Retailing— Where the Typical $100 Spent with Walgreens Boots Alliance Goes

Source: Computed and estimated by the authors from Walgreens Boots Alliance 2016 Reports.

$21.87$73.92 $0.79 $3.42

Manufacturer’s costs and profits

Retailer’s operating, personnel, advertising, and other costs

Retailer’s income taxes

Retailer’s after-tax profits

FIGURE 1-4 A Typical Channel of Distribution Manufacturer Wholesaler Retailer Finalconsumer

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28 PART 1 • An ovERvIEw of sTRATEgIC RETAIl mAnAgEmEnT

as Sherwin-Williams, Coach, and Nike, operate retail facilities (besides selling at independent retailers). In running their stores, these firms complete the full range of retailing functions and compete with conventional retailers.

THE RELATIONSHIPS AMONG RETAILERS AND THEIR SUPPLIERS Relationships among retailers and suppliers can be complex. Because retailers are part of a distribution channel, manufacturers and wholesalers must be concerned about the caliber of displays, customer service, store hours, and retailers’ reliability as business partners. Retailers are also major customers of goods and services for resale, store fixtures, computers, management consulting, and insurance.

These are some issues over which retailers and their suppliers have different priorities: control over the distribution channel, profit allocation, the number of competing retailers handling suppli- ers’ products, product displays, promotion support, payment terms, and operating flexibility. Due to the growth of large chains, retailers have more power than ever. Unless suppliers know retailer needs, they cannot have good rapport with them; so long as retailers have a choice of suppliers, they will choose those offering more.

FIGURE 1-5 The Retailer’s Role in the Sorting Process Wholesaler

Wholesaler Retailer

Wholesaler

Manufacturer Brand A

Brand C customers

Brand D customers

Brand E customers

Brand F customers

Brand B customers

Brand A customers

Manufacturer Brand B

Manufacturer Brand C

Manufacturer Brand D

Manufacturer Brand E

Manufacturer Brand F

FIGURE 1-6 The Multiple Retail Channels of WOM (World of Music) WOM (World of Music) is a German-based retailer with physical facilities and a strong online presence https://wom.de/?lang=en). It offers many genres of music CDs and DVDs, movies, books, games, sheet music, and more—and even ships to the United States.

Source: Jules Selmes/Pearson Education Ltd. Reprinted by permission.

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Channel relations tend to be smoothest with exclusive distribution, whereby suppliers make agreements with one or a few retailers that designate the latter as the only ones in specified geo- graphic areas to carry certain brands or products. This stimulates both parties to work together to maintain an image, assign shelf space, allot profits and costs, and advertise. It also usually requires that retailers limit their brand selection in the specified product lines; they might have to decline to handle other suppliers’ brands. From the manufacturers’ perspective, exclusive distribution may limit their long-run total sales.

Channel relations tend to be most volatile with intensive distribution, whereby suppliers sell through as many retailers as possible. This often maximizes suppliers’ sales and lets retailers offer many brands and product versions. Competition among retailers selling the same items is high; retailers may use tactics not beneficial to individual suppliers, because they are more concerned about their own results. Retailers may assign little space to specific brands, set very high prices on them, and not advertise them.

With selective distribution, suppliers sell through a moderate number of retailers. This com- bines aspects of exclusive and intensive distribution. Suppliers have higher sales than in exclusive distribution, and retailers carry some competing brands. It encourages suppliers to provide some marketing support and retailers to give adequate shelf space. See Figure 1-7.

The Special Characteristics of Retailing Three factors that most differentiate retailing from other types of business are noted in Figure 1-8 and discussed here. Each factor imposes unique requirements on retail firms.

The average amount of a sales transaction for retailers is much less than for manufacturers. The average sales per customer transaction in retailing is low. The average supermarket transaction is about $30.00.8 In comparison, Home Depot’s average sales transaction in 2015 was $58.55.9 The average sales transaction per shopping trip is well under $100 for department stores and specialty stores. This low amount creates a need to tightly control the costs associated with each transaction (such as credit verification, sales personnel, and bagging); to maximize the number of customers drawn to the retailer, which may place more emphasis on ads and special promotions; and to increase impulse sales by more aggressive selling. However, cost control can be tough. For instance, inventory management is often expensive due to the many small transactions to a large number of customers. A typical supermarket has several thousand customer transactions per week, which makes it harder to find the proper in-stock level and product selection. Thus, retailers are expanding their use of computerized inventory systems.

FIGURE 1-7 Comparing Exclusive, Intensive, and Selective Distribution

Number of retailers

Lowest

Medium

Highest

Exclusive Distribution

Intensive Distribution

Selective Distribution

Potential for conflict

Support from supplier (retailer)

Supplier’s sales

Retailer’s brand selection

Product (retailer) image

Competition among retailers

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Final consumers make many unplanned or impulse purchases. Surveys show that a large percentage of consumers do not look at ads before shopping, do not prepare shopping lists (or do deviate from the lists once in stores), and make fully unplanned purchases. This behavior indicates the value of in-store displays, attractive store layouts, and well-organized stores, catalogs, and Web sites. Candy, cosmetics, snack foods, magazines, and other items are sold as impulse goods when placed in visible, high-traffic areas in a store, catalog, or Web site. Because so many purchases are unplanned, the retailer’s ability to forecast, budget, order merchandise, and have sufficient personnel on the selling floor is more difficult.

Despite the inroads made by nonstore retailers, most retail transactions (more than 90 percent) are still conducted in stores—and will continue to be in the future. Many people like to shop in person; want to touch, smell, and/or try on products; enjoy browsing for unplanned purchases; feel more comfortable taking a purchase home with them than waiting for a delivery; and desire privacy while at home. This store-based shopping orientation has implications for retailers; they must work to attract shoppers to stores and consider such factors as store location, transportation, store hours, proximity of competitors, product selection, parking, and ads.

THE IMPORTANCE OF DEVELOPING AND APPLYING A RETAIL STRATEGY A retail strategy is the overall plan guiding a retail firm. It influences the firm’s business activities and its response to market forces, such as competition and the economy. Any retailer, regardless of size or type, should utilize these six steps in strategic planning:

1. Define the type of business in terms of the goods or service category and the company’s specific orientation (such as full service or “no frills”).

2. Set long-run and short-run objectives for sales and profit, market share, image, and so on.

FIGURE 1-8 Special Characteristics Affecting Retailers

Small average sale Impulse purchases

Popularity of stores

Retailer’s strategy

Macy’s (www.macys .com) has a Web site to accompany its traditional stores and catalogs.

UK-based Debenhams has 248 department stores in 28 coun- tries. It is actively looking to expand its overseas business to around 30 percent of its total business. It is achieving this through a combination of franchise expansion, enhanced distribution, and online sales. Debenhams opened its largest global franchise store in Abu Dhabi and its largest-ever store in Moscow. In 2016, Debenhams focused on the Australian and

Vietnamese markets. In Australia, they partnered with Pepkor and in Vietnam with VinDS. Debenhams is targeting key markets in Northern Europe, Central Europe, the Middle East, and the Far East.

Identify examples of large or emerging markets in your region that are either weak or under-represented in terms of department stores. Identify likely franchise partners.

RETAIlIng ARound THE woRld

Debenhams Goes East: The Continuing Expansion of the UK Department Store Retailer

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CHAPTER 1 • An InTRoduCTIon To RETAIlIng 31

3. Determine the customer market to target on the basis of its characteristics (such as gender and income level) and needs (such as product and brand preferences).

4. Devise an overall, long-run plan that gives general direction to the firm and its employees. 5. Implement an integrated strategy that combines such factors as store location, product assort-

ment, pricing, and advertising and displays to achieve objectives. 6. Regularly evaluate performance and correct weaknesses or problems when observed.

To illustrate these points, the background and strategy of the Home Depot Corporation—one of the world’s foremost retailers—are presented. Then the retailing concept is explained and applied.

The Home Depot Corporation: Successfully Navigating the Omnichannel Landscape10

COMPANY BACKGROUND Home Depot is the world’s largest home improvement retail chain and the ninth largest retailer globally in terms of revenues. It was established in 1978 by Bernie Marcus (a pharmacist by training), Arthur Blank (educated as an accountant), Ken Langone (an investment banker), and Pat Farrah (who had a merchandising background). The first two Home Depot stores opened on June 22, 1979, in Atlanta, Georgia, with the vision of “one-stop shopping for the do-it-yourselfer.” Today, Home Depot operates nearly 2,275 stores with over 370,000 employees in the United States, Canada, Mexico, Puerto Rico, Virgin Islands, and Guam—as well as an online business.

Home Depot targets the do-it-yourself (DIY) and professional contractor markets with its selection of 40,000 to 600,000 SKUs (stock-keeping units, or machine-readable barcodes), includ- ing lumber, flooring, plumbing supplies, garden products, tools, paint, and appliances. Home Depot also offers installation services for carpeting, cabinetry, and other products. The Home Depot went public in 1981, experienced tremendous growth in the 1980s and 1990s, and celebrated the opening of its 100th store in 1989. One-third of Home Depot’s total sales in FY 2016 came from California, Florida, New York, and Texas.

Home Depot seeks to provide excellent customer service through consistent high-quality products, customer service, and competitive pricing. Accordingly, every customer has a bill of rights at Home Depot, and this entitles the customer to the right assortment, quantities, and prices, along with trained associates on the sales floor who want to take care of customers. Home Depot’s vision is driven by a set of eight core values: excellent customer service, building strong relation- ships, taking care of its employees, giving back, doing the “right” thing, creating shareholder value, respecting all people, and exhibiting entrepreneurial spirit.

THE HOME DEPOT CORPORATION’S STRATEGY: KEYS TO SUCCESS Throughout its existence, Home Depot has adhered to a consistent, far-sighted, customer-oriented strategy—one that has paved the way for its long-term achievements.

GROWTH STRATEGY Home Depot’s current strategy of product authority (continually analyzing customer data to better understand consumer preferences), providing a seamless and friction-free experience no matter where customers shop, and investing to build a best-in-class supply chain network support its dominant position in its industry. Disciplined capital allocation, continuous optimization of productivity, and efficient operations allow Home Depot to lower its operating costs and increase shareholder wealth.

Although the company operates in markets that are highly competitive in terms of customer service, store location, price, and quality, Home Depot has the resources to compete on the basis of price, service, and product variety. Competitors include major chains such as Lowe’s, Menard, True Value, Ace Hardware, and numerous local retailers. It also faces competition from pure- online retailers—for example, Amazon—as it moves into adjacent product categories in its quest for growth.

TARGETED APPEAL TO MULTIPLE SEGMENTS Home Depot serves three major market segments:

1. Do-it-yourself customers are mostly homeowners and end-users who purchase products to complete their projects and repairs by themselves.

2. Do-it-for-me customers are homeowners who purchase their products and hire a third party to complete their repairs and projects. To these customers, Home Depot is able to offer installa- tion programs and design services on carpets, countertops, home appliances, and many others.

See the target marketing approach of Home Depot (www.homedepot.com).

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32 PART 1 • An ovERvIEw of sTRATEgIC RETAIl mAnAgEmEnT

3. Professional customers are general contractors, repair people, and small business owners. To these customers, Home Depot offers value-added services such as dedicated staff, des- ignated parking, and bulk pricing. This segment accounts for one-third of sales revenues and represents a more recurring and larger sales opportunity compared to the first two retail customer segments.

DISTINCTIVE COMPANY IMAGE Home Depot communicates its vision and image as a one-stop shopping experience for the do-it-yourselfer through the extensive width and depth of its product portfolio and its store size. Its first stores in Atlanta, Georgia, at around 60,000 square feet each, were cavernous warehouses that dwarfed the competition and stocked 25,000 SKUs (much more than the average hardware store at that time). Empty boxes piled high on the shelves gave the illusion of even more depth in inventory. Although Home Depot still leverages its store size as a competitive advantage, it is losing its importance in the omnichannel marketplace. Stores of various sizes are continuously redesigned to allow customers to interact more with products and to allow the chain to more efficiently stock products.

“Big Orange” is the nickname by which Home Depot is known all over the world. The bright orange logo was inspired by crates used to transport freight, keeping in line with the “depot” theme. Stamped at an upright angle to symbolize success and in bright orange to help simulate activity, the logo appears on signs, equipment, and employee aprons. The Home Depot introduced the slogan “More saving. More doing” in the March 18, 2009, circular, replacing “You can do it. We can help” which had been used since 2003. Another slogan used in the past 25 years is “The Home Depot, Low prices are just the beginning” in the early 1990s. The company advertises through TV, flyers, radio, online, and social and mobile media.

STRONG CUSTOMER SERVICE FOR ITS RETAIL CATEGORY Home Depot’s philosophy of customer service—“whatever it takes”—means cultivating a relationship with customers rather than merely completing a transaction. The founders define themselves to be “in the people business.” From the start, associates offered excellent customer service, guiding customers through projects. After undergoing rigorous product knowledge training, store associates began offering clinics so cus- tomers could learn how to do it themselves. The Home Depot revolutionized the home improve- ment industry by bringing the know-how and the tools to the consumer, thus empowering them and saving them money.

MULTIPLE POINTS OF CONTACT Home Depot reaches its customers through extensive advertis- ing, stores in 49 states, a toll-free telephone service center (open 7 days a week, 17 hours a day), a Web site, and the use of Facebook, Twitter, LinkedIn, Pinterest, and other social-media sites. The retailer has applied the same customer service philosophy to its multichannel initiatives. The E-commerce channel is an increasingly vital sales driver for Home Depot, accounting for nearly 7.2 percent of overall sales revenues. Despite the many advantages of Web-only sales, Home Depot was early in recognizing that brick-and-mortar stores play a vital role in driving conver- sion rates. Stores often double as fulfillment centers. About 40 percent of Web site (homedepot .com) orders are fulfilled through its stores. Millions of deliveries are made from stores each year.

Three multichannel programs enable Home Depot to effectively leverage its store network: buy online, ship to store (BOSS); buy online, pick up in store (BOPIS); and buy online, return in store (BORIS). These omnichannel initiatives enable quicker order pickups and returns, reduce customer time, and save on storage and costs. Its fastest growing E-commerce channel is BOPIS. E-commerce sales also have a higher average ticket size than the average $55 to $65 in-store pur- chases, and a higher percentage of BOPIS sales also tends to improve store productivity metrics. Orders placed online and delivered to a purchaser’s home have the largest average ticket size because these orders typically consist of bulkier items that cannot be picked up in the store and are far more costly than smaller items typically purchased in a store.

EMPLOYEE RELATIONS Home Depot employed 385,000 associates as of the beginning of 2016. Employees are expected to share the same vision as Home Depot. Employees are provided with many in-house workshops, such as “customers-first” training program and company-sponsored programs, to give associates a better understanding of their products and services. Home Depot believes its employees are satisfied with the compensation and offers employees the opportunity to purchase stock options at a discounted price. Employees are also eligible for medical, dental, vision, and life insurance—depending on their status and tenure at the company.

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INNOVATION The home improvement industry experiences continuous innovation. Home Depot introduces new products and services, such as 3D printing, thus allowing it to adapt to the change in equipment and consumer preferences. Home Depot’s focus on solving customer problems has been a source of innovation and strategic movement into adjacent markets for services by provid- ing design and installation services for its products as well as third-party resellers, equipment rental (e.g., carpet cleaning, small trucks to transport equipment), and home inspection products (water, air quality and radiation).

Home Depot collaborates with new and existing manufacturers to enable it to be a one- stop-shopping destination for home improvement products. It recently broadened the number of brands it offers in its appliances department by including Whirlpool, Frigidaire, and Electrolux. Additionally, it also introduced innovative new products to its DIY and professional customers in most of its departments.

COMMITMENT TO TECHNOLOGY Home Depot has consistently invested in backend, as well as customer-interactive, technologies. It currently operates 18 remote distribution centers in the United States, and 33 bulk distribution centers within the United States, Canada, and Mexico. The company continuously updates its distribution centers through building logistic competencies and improving its inventory management system. Over the past few years, Home Depot has centralized its inventory planning and implemented new forecasting technology. Currently, 91 percent of its U.S. store products are ordered through a central replenishment system and it hopes to increase the number in the coming years.

Home Depot is successfully implementing three multiyear internal initiatives: (1)  ProjectSync—a major supply chain synchronization to reduce average lead time from supplier to shelf; (2) COM— Home Depot’s order management platform, which provides greater visibility into and improved execution of special orders for a more seamless and friction-free experience for customers; and (3) FIRST phones—in-store mobile enablement for inventory management, product look-up, and business analytics. It even offers line-busting features to speed up checkout for associates and customers.

COMMUNITY INVOLVEMENT Home Depot believes in creating shareholder value while being responsible and balancing the needs of its communities. Through The Home Depot Foundation, community impact grants, and associates’ volunteer time, the retailer strives to have a positive impact on communities in the United States, Canada, and Mexico. It invites community partici- pation in practical and educational programs in stores that benefit children and adults. The com- mitment to environmental sustainability is demonstrated through its sale of energy-efficient and sustainable products, recycling practices, and business principles. Home Depot promotes an envi- ronmentally friendly atmosphere by protecting its employees’ health and safety requirements. It has also created a supplier social responsibility program intended to ensure that suppliers observe a high standard of social responsibility.

ADAPTATION TO A GLOBAL, OMNICHANNEL WORLD Due to the difficult economic, political, and social conditions in recent years, even outstanding retailers, such as Home Depot, have been affected. In 2012, Home Depot closed all seven of its stores in China.

The company outsources some of its products from third-party manufacturers in third-world countries with unstable political environments. It may be exposed to trade embargos, increases in tariff rates, different tax regulations, and double taxation by the countries that do not have respec- tive treaties in place to avoid double taxes. Yet, many governments in these countries may have incentive programs applicable for Home Depot as an employer of local labor.

Home Depot has capitalized on the digitization in retailing by enabling a secure multichannel shopping experience—mobile, in-store, at home, or even on the job site. Its global sales revenues have grown substantially to almost $89 billion in fiscal 2016, and its operating income increased by 12 percent from the prior year to reach $11.8 billion. Home Depot’s performance was boosted by the demand for home improvement products, a better housing market, and rising consumer employment.

Growth in the number of big-ticket transactions boosted sales. The company’s multiyear productivity enhancement plan also provided some profitability upside. The Home Depot has been one of the best-performing stocks in the consumer discretionary sector and the Dow Jones Indus- trial Average over the past five years. The stock returned an annualized average of 28.5 percent— almost three times that provided by the S&P 500 Index’s 9.6 percent over the same period.

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Although the strong U.S. dollar affected Home Depot’s sales growth in the Canadian and Mexican markets, they account for 10 percent of overall sales and are less significant. CEO Craig Menear has ambitious goals for FY 2018; his target is $101 billion in sales, with a 14.5 percent operating margin and a 35 percent return on invested capital. In 2015, Home Depot acquired Inter- line Brands, whose product portfolio of home repair and maintenance products is complementary to Home Depot’s offerings in home remodeling products and is largely viewed as a good strate- gic fit. Home Depot expects additional revenue from existing customers’ purchase of repair and maintenance products, which are recurring purchases, and a sales upside from Interline Brands’ customer base, which will get a tremendous boost from Home Depot’s E-commerce capabilities.

The Retailing Concept As just described, Home Depot has a sincere long-term desire to please customers. It uses a customer-centered, chainwide approach to strategy development and implementation, is value- driven, and has clear goals. Together, these four principles form the retailing concept (depicted in Figure 1-9), which should be understood and applied by all retailers:

1. Customer orientation. The retailer determines the attributes and needs of its customers and endeavors to satisfy these needs to the fullest.

2. Coordinated effort. The retailer integrates all plans and activities to maximize efficiency. 3. Value driven. The retailer offers good value to customers, whether it be upscale or discount.

This means having prices appropriate for the level of products and customer service. 4. Goal orientation. The retailer sets goals and then uses its strategy to attain them.

Unfortunately, this concept is not grasped by every retailer. Some are indifferent to customer needs, plan haphazardly, have prices that do not reflect the value offered, and have unclear goals. Some are not receptive to change, or they blindly follow strategies enacted by competitors. Some do not get feedback from customers; they rely on supplier reports or their own past sales trends.

FIGURE 1-9 Applying the Retailing Concept

Customer orientation

Coordinated e�ort

Goal orientation

Retailing concept

Retail strategy

Value-driven

Suppose a large supermarket chain is revising its approach regarding environmental sustainability. Hallmarks of the new strategy are to encourage customers to purchase reusable plastic shopping bags (available at cost at all registers); to use high-efficiency lighting, heating, and air-conditioning systems; and to reformulate its private-label products to have minimal negative environmental impact (such as selling grains and nuts via bins instead of prepackaged bottles). The chain plans to heavily promote this strategy via in-store displays, through its

Web site, and in its freestanding inserts that are distributed by local newspapers.

Aside from the positive societal impact, the store sees sev- eral advantages to this strategy. One, it will appeal to shoppers concerned with environmental responsibility. Two, this environ- mental strategy can position the store favorably with respect to competition. And three, the societal strategy is an excellent way to reposition its private-label products versus national brands.

Discuss additional pros and cons of this strategy.

ETHICs In RETAIlIng Environmental Sustainability

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The retailing concept is straightforward. It means communicating with shoppers and view- ing their desires as critical to the firm’s success; having a consistent strategy (such as offering designer brands, plentiful sales personnel, attractive displays, and above-average prices in an upscale store); offering prices perceived as “fair” (a good value for the money) by customers; and working to achieve meaningful, specific, and reachable goals. However, the retailing concept is only a strategic guide. It does not deal with a firm’s internal capabilities or competitive advantages but offers a broad planning framework.

Let’s look at three issues that relate to a retailer’s performance in terms of the retailing con- cept: the total retail experience, customer service, and relationship retailing.

THE TOTAL RETAIL EXPERIENCE The rapid adoption of E-commerce and the proliferation of smart mobile devices makes it seem possible to purchase anything, anytime, and have it delivered anywhere. Such thinking has fundamentally changed consumers’ shopping habits and expecta- tions. Almost every customer encounters a total retail experience in his or her retail journey. Imagine using a mobile app to purchase a refrigerator while attending a ball game. By the time you get home, the refrigerator has been scheduled for delivery. Everything, from the activation of the mobile app to receiving the purchase at home, plays a role in the customer’s total retail experience.

Most retailers are aware that price has been, and always will be, a key motivator in shopping behavior. It is important for retailers to remember, however, that they must provide an appropriate customer experience at every touchpoint with the customer to sustain her or his continued loyalty. More than ever, shopping is about how to “engage” the customer and how the shopping experience makes the customer feel. It is also about driving customer engagement in new and different ways to deliver relevant experiences that customers can share with others on social media. The shift in consumer expectations is compelling retailers to look at aspects of “who” as opposed to “what” they want to be—the competition is now for share of lifetime spending, as opposed to share of wallet.11 Retailers with genuine character and interest in listening to and solving their customers’ needs, core values, and concern for community are likely to profit the most.

The total retail experience includes all the elements in a retail offering that encourage or inhibit consumers during their contact or journey with a retailer. See Figure 1-10. Many ele- ments, such as the number of salespeople, displays, prices, brand names, mobile app or Web page design, accurate product and pricing information, and inventory on hand, are controllable by a retailer. Others, such as the adequacy of parking, the speed of a consumer’s Internet con- nection, and sales taxes, are not. If some part of the total retail experience is unsatisfactory,

FIGURE 1-10 Creating a Unique Shopping Experience At this Hong Kong shopping center, an exciting and distinctive customer experience was formed by featuring an enormous dinosaur skeleton in the middle of the shopping center.

Source: Cheuk-king Lo/ Pearson Education Ltd. Reprinted by permission.

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36 PART 1 • An ovERvIEw of sTRATEgIC RETAIl mAnAgEmEnT

consumers may be “turned off” and not make a purchase—they may even decide not to patron- ize a retailer again if they attribute the failure to be controllable by the retailer. Given the widespread use of mobile devices in-store and the propensity to share information, one bad retail experience can be quickly shared with many other current and potential consumers via social media.

In planning its strategy, a retailer must be sure that all strategic elements are in place. For the shopper segment to which it appeals, the total retail experience must be aimed at fulfilling that segment’s expectations. A discounter should have ample stock on hand when it runs sales but not plush carpeting; a full-service store should have superior personnel but not personnel who are perceived as haughty by customers. Various retailers have not learned this lesson, which is why some theme restaurants are in trouble. The novelty has worn off, and many people believe the food is only fair while prices are high.

A big challenge for retailers is generating customer “excitement” because many people are bored with shopping or have little time for it. For example, Build-A-Bear Workshop is the leading and only global company that offers an interactive make-your-own stuffed animal retail- entertainment experience. The company currently operates more than 400 Build-A-Bear Workshop stores worldwide, including company-owned stores in the United States, Puerto Rico, Canada, Great Britain, and Ireland, and franchise stores in Europe, Asia, Australia, Africa, Mexico, and the Middle East.

Since 2007, the interactive experience has been enhanced—all the way to CyBEAR® space— with the launch of Bearville.com, its entertainment destination and virtual world. In September 2015, Build-A-Bear Workshop launched a new store format and brand refresh as a “multigenera- tional” brand for millennial parents who first engaged with Build-A-Bear Workshop when they were children.

Guests who visit a Build-A-Bear Workshop store still enter a recognizable and distinctive teddy-bear–themed environment consisting of eight stuffed animal-making stations: Choose Me, Hear Me, Stuff Me, Stitch Me, Fluff Me, Dress Me, Name Me, and Take Me Home. Store associ- ates, known as Master Bear Builder associates, can share the experience with guests at each phase of the bear-making process or they can do it for the guests.12 In addition, guests can enjoy the brand’s “play beyond the plush” with entertainment offerings such as the Bearville Alive YouTube channel, which features original video content and the launch of mobile apps tied to complemen- tary products (an enterprise-selling solution), and creates the memories with their friends and family that they can share through social media.13

CUSTOMER SERVICE Customer service refers to the identifiable, but sometimes intangible, activi- ties undertaken by a retailer in conjunction with the basic goods and services it sells. It has a strong impact on the total retail experience. Among the factors comprising a customer service strategy are store hours, parking, shopper-friendly store layout, credit acceptance, helpful salespeople, ameni- ties such as gift wrapping, clean restrooms, reasonable delivery policies, the time shoppers spend in checkout lines, and customer follow-up. This list is not all-inclusive, and it differs in terms of the retail strategy undertaken. Customer service is discussed further in Chapter 2.

Satisfaction with customer service is affected by expectations (based on the type of retailer) and past experience. People’s assessment of customer service depends on their perceptions—not necessarily reality; different people may evaluate the same service quite differently. The same person may even rate a firm’s customer service differently over time due to its intangibility, although the service stays constant. Interestingly, despite a desire to provide excellent customer service, a number of outstanding retailers now wonder if “the customer is always right.” Are there limits?

RELATIONSHIP RETAILING The best retailers know it is in their interest to engage in relationship retailing, whereby they seek to establish and maintain long-term bonds with customers, rather than act as if each sales transaction is a completely new encounter. This means concentrating on the total retail experience, monitoring satisfaction with customer service, and staying in touch with customers. Figure 1-11 shows a customer respect checklist that retailers could use to assess their relationship efforts.

To be effective in relationship retailing, a firm should keep two points in mind. First, it is harder to lure new customers than to make existing ones happy; a “win–win” approach is critical. For a retailer to “win” in the long run (attract shoppers, make sales, earn profits), the customer

Build-A-Bear Workshop (www.buildabear.com) even offers a great online shopping experience.

At Lands’ End (www .landsend.com), customer service means “Guaranteed. Period.”

As do the retailers profiled in this book, we want to engage in relationship retailing. So please visit our blog (www.bermanevansretail .com).

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FIGURE 1-11 A Customer Respect Checklist

When interacting with customers, do employees always say “How may I help you,” “Please,” and “Thank you”?

Are employees properly trained to service the retailer’s customers?

Do employees listen carefully when customers state their preferences and not push goods and services that are beyond the shoppers’ interest or budget?

Are employees patient and not condescending when talking to customers?

Is the customer’s time valued?

Do the hours that the retailer is open correspond with the hours sought by customers?

Do the retailer and its employees honor all promises that are made to customers—and strive not to mislead shoppers?

Do employees avoid being confrontational with customers if the latter make a complaint about merchandise or service?

Are customer phone calls, E-mails, and other contacts with the retailer directed to the right employees and handled promptly?

For a retailer that operates both store and online businesses, are policies clearly stated and distinctions between the two formats with regard to purchase, shipping, and return policies noted in the store and online?

Does the retailer monitor online customer reviews and social media discussions and work to resolve any problems that are noted there?

Does the retailer treat every customer respectfully, regardless of age, gender, race, ethnicity, and other factors?

Does the retailer recognize and reward its most loyal customers?

Does the retailer’s employee review process include how well the employees are rated by customers?

must also “win” in the short run (receive good value, be treated with respect, feel welcome by the firm). Otherwise, that retailer loses (shoppers patronize competitors) and those customers lose (by spending time and money to learn about other retailers). Second, due to advances in computer technology, it is now much easier to develop a customer database with information on people’s attributes and past shopping behavior. Ongoing customer contact can be better, more frequent, and more focused. This topic is covered further in Chapter 2.

Newer technologies such as GPS navigation, Global System for Mobiles (GSM), Bluetooth, and RFID tracking now enable retailers to track the exact location of a customer. “Geofencing” technol- ogy works outside the store, whereas “iBeacons” allow retailers to target a customer within a store.

The various advantages to a retailer that uses these technolo- gies are plentiful. From a promotional perspective, a retailer can send a mobile coupon valid for three hours to a lapsed customer

who had not purchased an item within 30 days. With iBeacons, customers receive targeted information based on their aisle posi- tion in a store. Thus, a shopper could receive a mobile coupon for a cereal brand when in the cereal aisle. Unlike traditional coupons that must be clipped and returned; mobile coupons can be scanned from smartphones.

Discuss three other retailer uses of location-sensitive technology-based promotions.

Generating Location-Sensitive OffersTECHnologY In RETAIlIng

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38 PART 1 • An ovERvIEw of sTRATEgIC RETAIl mAnAgEmEnT

THE FOCUS AND FORMAT OF THE TEXT There are various approaches to the study of retailing: an institutional approach, which describes the types of retailers and their development; a functional approach, which concentrates on the activities that retailers perform (such as buying, pricing, and personnel practices); and a strate- gic approach, which centers on defining the retail business, setting objectives, appealing to an appropriate customer market, developing an overall plan, implementing an integrated strategy, and regularly reviewing operations.

We will study retailing from each perspective but will focus on a strategic approach. Our basic premise is that the retailer has to plan for and adapt to a complex, changing environment. Opportunities as well as threats must be considered. By engaging in strategic retail management, the retailer is encouraged to study competitors, suppliers, economic factors, consumer changes, marketplace trends, legal restrictions, and other issues. A firm prospers if its competitive strengths match the opportunities in the environment, weaknesses are eliminated or minimized, and plans look to the future (as well as the past). Refer to the appendix at the end of this chapter; it examines the impact of the current economic situation on retailers and consumers alike.

Retail Management: A Strategic Approach is divided into eight parts. The rest of Part One looks at building relationships and strategic planning in retailing. Part Two examines retailing institutions on the basis of their ownership; store-based strategy mix; and Web, nonstore- based, and other nontraditional retailing formats. Part Three deals with consumer behavior and information gathering in retailing. Parts Four through Seven discuss the specific elements of a retailing strategy: planning the store location; managing a retail business; planning, handling, and pricing merchandise; and communicating with the customer. Part Eight shows how a retailing strategy may be integrated, analyzed, and improved. These topics have special end-of-chapter appendices: the impact of the economy (Chapter 1), service retailing (Chapter 2), global retailing (Chapter 3), franchising (Chapter 4), and multichannel retailing (Chapter 6). There is also an end- of-text appendix on retailing careers and a glossary.

To underscore retailing’s exciting nature, four real-world boxes appear in each chapter: “Careers in Retailing,” “Ethics in Retailing,” “Retailing Around the World,” and “Technology in Retailing.”

In this and every chapter, the summary is related to the objectives stated at the beginning of the chapter.

1. To define retailing, consider it from various perspec- tives, demonstrate its impact, and note its special char- acteristics. Retailing comprises the business activities involved in selling goods and services to consumers for personal, family, or household use. It is the last stage in the distribution process. Today, retailing is at a complex crossroad, with many challenges ahead.

Retailing may be viewed from multiple perspectives. It includes tangible and intangible items, does not have to involve a store, and can be done by manufacturers and others—as well as retailers.

Annual U.S. store sales are approaching $5 trillion, with other forms of retailing accounting for hundreds of billions of dollars more. The world’s 250 largest retailers account for more than $4.6 trillion in yearly revenues. About 15 million people in the United States work for retailers (including food and beverage service

firms), which understates the number of those actually employed in a retailing capacity. Retail firms receive up to 40 cents or more of every sales dollar as compensa- tion for operating costs, the functions performed, and the profits earned.

Retailing encompasses all of the businesses and people involved in physically moving and transfer- ring ownership of goods and services from producer to consumer. In a distribution channel, retailers perform valuable functions as the contact for manufacturers, wholesalers, and final consumers. They collect assort- ments from various suppliers and offer them to custom- ers. Retailers also communicate with both customers and other channel members. They may ship, store, mark, advertise, and pre-pay for items. In addition, they complete transactions with customers and often provide customer services. They may also offer multiple formats (multichannel retailing) to facilitate shopping.

Retailers and their suppliers have complex relationships because retailers serve in two capacities. They are part of

Chapter Summary

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CHAPTER 1 • An InTRoduCTIon To RETAIlIng 39

a distribution channel aimed at the final consumer, and they are major customers for suppliers. Channel relations are smoothest with exclusive distribution; they are most volatile with intensive distribution. Selective distribution is a way to balance sales goals and channel cooperation.

Retailing has several special characteristics. The aver- age sales transaction is small, consumers make many unplanned purchases, and most customers visit a store location.

2. To introduce the concept of strategic planning and apply it. A retail strategy is the overall plan guiding the firm. It has six basic steps: defining the business, set- ting objectives, defining the customer market, develop- ing an overall plan, enacting an integrated strategy, and evaluating performance and making modifications. For example, Home Depot’s strategy has been particularly well designed and enacted, even though it has been affected by the tough economy in recent years.

3. To show why the retailing concept is the foundation of a successful business, with an emphasis on the total retail experience, customer service, and relationship retailing.

The retailing concept should be understood and used by all retailers. It requires a firm to have a customer orienta- tion, use a coordinated effort, and be value driven and goal oriented. Despite its straightforward nature, many firms do not adhere to one or more elements of the retailing concept.

The total retail experience consists of all elements in a retail offering that encourage or inhibit consumers during their contact with a retailer. Some elements are control- lable by the retailer; others are not. Customer service includes identifiable, but sometimes intangible, activi- ties undertaken by a retailer in association with the basic goods and services sold. It has an effect on the total retail experience. In relationship retailing, a firm seeks long- term bonds with customers rather than acting as if each sales transaction is a totally new encounter with them.

4. To indicate the focus and format of the text. Retail- ing may be studied by using an institutional approach, a functional approach, and/or a strategic approach. Although all three approaches are covered in this text- book, our focus is on the strategic approach. The under- lying principle is that a retail firm needs to plan for and adapt to a complex, changing environment.

Key Terms retailing (p. 23) channel of distribution (p. 27) sorting process (p. 27) omnichannel retailing (p. 27)

exclusive distribution (p. 29) intensive distribution (p. 29) selective distribution (p. 29) retail strategy (p. 30)

retailing concept (p. 34) total retail experience (p. 35) customer service (p. 36) relationship retailing (p. 36)

Questions for Discussion 1. What is the average amount that you spend in a retail

store per transaction? What factors are likely to influ- ence your supermarket transaction spend compared to other retailing spending?

2. Why might a supplier opt for exclusive channel distribu- tion with retailers?

3. Why might a new manufacturer want their products to be sold in the maximum number of retail outlets? Is this a good idea?

4. One retailer wants to be part of a selective distribution channel. Another wants to be part of an exclusive distribu- tion channel. What might be the reasons for these choices?

5. Describe how the special characteristics of retailing offer unique opportunities and problems for local gift shops.

6. What is the purpose of developing a formal retail strategy? How could a strategic plan be used by a restaurant chain?

7. What are the six key steps of strategic planning that should be used by a retailer?

8. Explain the retailing concept. Apply it to your school’s bookstore.

9. Define the term total retail experience. Then describe a recent retail situation in which your expectations were surpassed, and state why.

10. Do you believe that customer service in retailing is improving or declining? Why?

11. How could a small Web-only retailer engage in relation- ship retailing?

12. What checklist item(s) in Figure 1-11 do you think would be most difficult for Home Depot, the global home improvement retailer, to address? Why?

Web-Based Exercise Visit the website of Global Retailing (http://globalretailmag .com/). Describe the elements of the site and give several examples of what you could learn there.

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40 PART 1 • An ovERvIEw of sTRATEgIC RETAIl mAnAgEmEnT

Understanding the Recent Economic Environment in the United States and Around the Globe

In this appendix, we present a brief overview of the U.S. and global economic climate. We then discuss some of the strategic options that retailers are pursuing and should pursue to sustain their business amid the current economic conditions.

The Current Economic Situation in the United States In 2016, the Census Bureau reported that the average U.S. family’s income was $57,243.When adjusted for inflation, the median income level was 1.3 percent lower than its high in January 2008, but well above its low in August 2011.1 Median income has climbed since the August 2011 low point. A significant factor in the increase in real income is low prices for energy, gasoline, and heat.

The percentage of Americans living in poverty is about 15 percent of the population as of 2014, nearly 1 million Americans.2 Especially noteworthy has been the growing gap between the “best-off” and “worst-off” Americans. The Pew Research Center found that the percentage of adults in the highest-income groups grew from 14 percent in 1971 to 21 percent in 2015. During the same time, the percentage of households in the lowest two categories increased from 25 to 29 percent. And middle-income households as a percentage of all households declined from 61  percent to 50 percent over the same time interval.3

One widely accepted measure of income inequality is the Gini index, which ranges from zero (if all households have the same earnings) to 100 (when all income goes to one person). The U.S. Gini index is 45.0, which is in the same range as Jamaica (45.5), Peru (45.3), and Cameroon (44.6).4 Countries with a more equal distribution of income as shown by their Gini indices include Sweden (24.9), Denmark (24.8), Ukraine (24.6), and Slovenia (23.7). The distribution of wealth in the United States is even more unequal. An Organization for Economic Co-operation and Devel- opment (OECD) report study found that the wealthiest 10 percent of all U.S. households account for 76 percent of all the wealth in the country.5

As of 2016, the U.S. unemployment rate was 4.9 percent. This rate is low, but it must be tempered with some additional insights. First, only 63 percent of adult Americans are in the labor force. This low labor force participation rate is due to large numbers of Baby Boomers who have retired, younger residents attending college or graduate school, and people giving up on finding work. Second, long-term unemployment is high, as 2.1 million U.S. residents have been unem- ployed for over 6 months.6 And third, the 4.9 percent unemployment rate does not reflect those who are no longer seeking employment or those underemployed (such as being in a part-time job).

The personal savings rate, the percent of each paycheck that is not spent, was at 5.4 percent as of the end of April 2016. Because consumer spending constituted 68.5 percent of the U.S. economy in the fourth quarter of 2015 (up from 65.3 percent at the end of 2000), this is an important number to monitor.7 Historically, the savings rate has varied from 4.6 percent as of the end of January 2013 to 5.9 percent as of the end of March 2016. At the end of December 2012, the savings rate was 6.5 percent.8 The low savings rate highlights the role of the consumer as an important factor in economic growth.

As of May 2016, consumer confidence, measured by the University of Michigan’s Index of Consumer Sentiment was 94.7. There were only four months since its January 2007 peak in which this number was higher. One reason for the higher consumer optimism is the continuing anticipation of low inflation due to low interest rates.9 Better consumer confidence is generally associated with greater amounts of consumer spending as consumers feel good about their job prospects and job security.

With some exceptions, the housing market is showing signs of improvement. A 2016 study showed that 1 in every 122 housing units had at least one foreclosure filing (such as a default

APPEndIX

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CHAPTER 1 • An InTRoduCTIon To RETAIlIng 41

notice, scheduled auction, or bank repossession) in 2015. This was the second year in a row where the foreclosure rate was less than 1 percent of all U.S. housing units. The improvement in foreclosure rates was not uniform across the country, however. States with high foreclosure rates in 2015 were New Jersey, Florida, Maryland, Nevada, and Illinois.10

The Impact of the Downturn on Economies Around the World The worldwide economic climate is not as strong as in the United States. Growth in emerging and developing economies has declined for the fifth year in a row. These economies still make up 70 percent of total global economic growth.11 According to the International Monetary Fund, three factors continue to affect the global economy: a slowdown in China’s economy, lower prices for oil and other commodities, and a possible tightening of the monetary policy in the United States.12

In mid-2016, another factor could be added to the preceding list: the decision of Great Britain to exit the European Union (also referred to as Brexit, meaning “British exit”). This decision will have a significant impact on European economies for several years, and have a smaller effect on the United States and Asia. In addition, the Euro-zone financial crises in Greece, Belgium, Italy, Ireland, and Spain—due to large national debt—affect businesses and consumers there and elsewhere.

The Effect of the Current Economic Climate on Retailing The data on income and wealth disparity present two distinct market segments: the affluent and the “getting by” groups. Affluent groups are attracted to high-quality specialty retailers, fashion designers, and designer brands. In contrast, the getting-by segment may purchase less expensive products, try and use private-label brands, and postpone purchases. Both groups have become more value-conscious as a result of the “Great Recession.” Among the retailers that are doing well in this economic climate are deep-discount retailers with their low prices, specialty retailers of food products, retailers that attract customers with fresh merchandise in a treasure-hunt experi- ence, and retailers that use opportunistic purchasing of closeouts.

Off-price apparel chains, such as Marshalls, Burlington Coat Factory (now called simply “Burlington”), and T. J. Maxx, have drawn new shoppers because more people have become value-driven. In addition, these off-price chains have had significant buying opportunities due to overstocked channel members and cancellations of purchases from bankrupt retailers. In an effort to increase sales, traditional department stores have developed their off-price outlets, such as Saks Fifth Avenue’s Off Saks, Nordstrom’s The Rack, and Macy’s Backstage. These outlets receive goods from two sources: closeout and less-than-full merchandise cartons from their own stores, and merchandise specially purchased for sales at these outlets.

Since 2008, a number of large retailers have declared bankruptcy. These include American Apparel (2015), Circuit City (2008), Linens-N-Things (2008), A&P (2015), Radio Shack (2015), Blockbuster (2010), Borders (2011), Sbarro (2011 and again in 2014), Friedman’s (2008), Brookstone (2014), and Quiksilver (2015). Numerous other retailers have suffered losses and had to run frequent sales to generate business or to close unprofitable stores.

Prior to 2005, U.S. firms had an unlimited amount of time to file a restructuring plan after filing for bankruptcy. Since then, these filings have had to be submitted within 18 months. Under earlier laws, retailers had 2 years or more (via extensions) to determine which store locations to keep. Today, retailers in bankruptcy protection must make store-closing decisions within 210 days. Retailers in bankruptcy now are required to pay suppliers and utilities during their bankruptcies. Under the older laws, suppliers and utilities had to wait until a company emerged from bankruptcy before being paid. Also, due to concerns from lenders who were burnt with mortgage-backed securities, troubled retailers have found it much more difficult to get financing. As a result of these factors, many retailers that entered bankruptcy over the past decade were unable to restructure and were therefore forced to close. A study by AlixPartners found that only 49 of 93 retailers were able to emerge from a Chapter 11 bankruptcy as a going concern.13

Great Atlantic & Pacific Tea (A&P) filed for Chapter 11 bankruptcy two times in a 5-year time period: December 2010 and July 2015. As a result of its first bankruptcy, A&P became a privately held company after obtaining financing from Goldman Sachs and others. In addition to the stores operating under its A&P name, the firm operated supermarkets under the Best Cellars,

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42 PART 1 • An ovERvIEw of sTRATEgIC RETAIl mAnAgEmEnT

Waldbaum’s, Food Emporium, Super Fresh, Food Basics, and Pathmark brands in six Northeast states. Some analysts attributed the chain’s problems to the loss of sales to supercenters such as Walmart, membership clubs like Costco, and higher-end retailers such as Whole Foods. Others cited problems such as A&P’s high debt, low-profit margins, and inability to finance store renova- tions for its dated store fixtures and interiors.14 A&P sold off all its stores, remaining merchandise, and fixtures as of late 2015, and went out of business.

Some analysts believe that retailers that are not leaders in their respective industry segments remain at least somewhat vulnerable to bankruptcy or liquidation. This is especially the case for retailers that used heavy debt to fund their expansion during the period when interest rates were low and credit availability was high—a temporary occurrence.

Strategic Options for Retailers Let’s look at several strategic options that are available to retailers to increase their performance during these economic times:

▶▶ Rethink existing store formats. A 2015 Nielsen study found that over 18,000 new retail stores opened in the United States. Of this number, 88 percent were small-format stores: dollar, convenience, and drug.15 These smaller stores have lower inventory requirements due to a more limited selection and lower rents, and they are more adaptable to urban locations.

▶▶ Close unprofitable stores. Online sales (especially by Amazon), as well as their own poor sales performance, have forced many retailers to close unprofitable stores. As of January 2016, Sears had just over 700 stores, down from 866 in 2006. Kmart was at 952 stores versus over 1,400 stores in 2006. Other major retailers that have been closing stores include Macy’s, J. C. Penney, Walmart, and Target.16 The store closings of anchor tenants (such as department stores) can have a major impact on adjacent retailers, especially when the closed store was a major source of customer traffic.

▶▶ Reexamine the role of price. Value-oriented shoppers (particularly the “worst-off” Ameri- cans) have become more price-conscious. The greater concern for price is due to a number of factors: increased price transparency (due to the ease of checking prices via the Web); the absence of sales tax when consumers purchase goods from some out-of-state retailers; and the popularity of off-price chains, factory outlets, and sites such as eBay. Traditional retailers can respond by price-matching selected competitors (currently done by Best Buy, Target, Home Depot, Walmart, and other retailers) and by unbundling prices (offering separate prices for the product, delivery, and installation). Some retailers also offer price guarantees in which they will reimburse consumers if the price of an item is reduced within a certain number of days after purchase.

▶▶ Increase promotional coupons. The number of print and/or digital coupon users have remained steady over the past 4 years, but the digital paperless coupon user base has grown 27 percent since 2012 to 68.4 million users in 2015. The print coupon user base at 116.3  million still dominates.17 NCH Marketing Services reports that free-standing inserts (FSI) account for 92 percent of coupons distributed and represent nearly 50 percent of coupons redeemed, whereas digital coupons account for less than 1 percent of distribu- tion but represent nearly 12 percent of redemptions.18 Annually, marketers distribute about 320  billion coupons. More than 62 percent of coupons are for nonfood items. Less than 1 percent (2.84 billion) of the coupons are redeemed, mostly for food.19 According to NCH Marketing Services, more than three-quarters of U.S. consumers regularly use coupons. The use of mobile phones for in-store coupons is spurring a push toward retailer app- based digital couponing platforms, such as Target’s Cartwheel, CVS’s Pharmacy App, and Walmart’s Savings Catcher.20

▶▶ Begin the holiday season earlier. One estimate is that stores typically place orders up to 4 to 7 months in advance. Thus, due to the combined effects of a recession, poor credit availabil- ity, and/or an atmosphere of consumer caution, stores may acquire 15 to 20 percent or more excess holiday inventory. As a result, many retailers promote major holidays well ahead of time and conduct special sales events even before a holiday season begins. Many retailers now reduce prices on Christmas items before Thanksgiving.

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CHAPTER 1 • An InTRoduCTIon To RETAIlIng 43

▶▶ Re-introduce layaway plans. The concept of layaways started during the Great Depression as a way of enabling customers to purchase items without using a credit card. Through a layaway plan, a customer pays the product’s total cost (plus a small fee) in installments before being allowed to take the item home. In a traditional layaway program, a customer has 30 days to pay for an item after making an initial payment. Although layaway programs deny instant gratification to the purchaser, the customer receives the attraction of credit cards (being able to purchase an item without paying the full price up front), but with- out the risk of overextending his or her credit. Until the 2008–2009 economic downturn, Kmart was the only major U.S. retailer with a layaway program. Now, Sears, T. J. Maxx, Marshalls, Burlington, Toys “R” Us, and Walmart—along with many regional chains and local stores—offer layaway programs.

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44

2 Building and Sustaining Relationships in Retailing

Chapter Objectives

1. To explain what value really means and highlight its pivotal role in retailers’ building and sustaining relationships

2. To describe how both customer relationships and channel relationships may be nurtured in today’s highly competitive marketplace

3. To examine the differences in relationship building between goods and service retailers

4. To discuss the impact of technology on relationships in retailing

5. To consider the interplay between retailers’ ethical performance and relationships in retailing

In this chapter, we emphasize the importance of value and relationships for retailers. Retailers focus on providing a great customer experience through all touchpoints–in-store, online, mobile, and customer call centers to create a superior experiential value—the intangible psychological and emotional value that attracts new customers and retains existing ones to stay competitive in the industry. Research shows that creating experiential value leads to long- term relationships and higher spending with a retailer in the future.1

Retailers face considerable challenges in maintaining long-term customer relationships when consumers expect retailers to “know” what customers have done online and respond to their individual demands with personalized assistance and tailored in-store experiences! According to TimeTrade’s “Annual State of Retail” survey (http://timetrade.com)2 based on input from 5,000 consumers and 100 senior retail executives, 59 percent of respondents want store associates to know the items in their online shopping carts!3 However, just 24 percent of retailers currently have that ability—and only 12 percent are looking to implement it within the next 18 months.

Source: Allies Interactive/ Shutterstock. Reprinted by permission.

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CHAPTER 2 • Building And SuSTAining RElATionSHiPS in RETAiling 45

Some retailers are trying to distinguish themselves from competitors by deploying technology that positions them as collaborators in the consumer’s retail choice. These retailers focus on ensuring seamless connections between digital and traditional channels to delivering prompt, personalized in-store service. For example:

EyeQ uses a combination of in-store digital signage, advanced facial recognition software, and the capabilities of Watson, IBM’s cognitive computing system. When a shopper stops to look at an EyeQ digital sign, the sign uses sophisticated facial recognition software, and based on facial features and appearance, tailors its product recommendations to the viewer’s age and gender. If the shopper gives the system her or his Twitter username, Watson can capture the shopper’s most recent 200 tweets, run them through its natural language processing capabilities, and slot the customer into a basic personality type. Based on that data, not only can the system change the products being recommended, but it can also alter the whole experience—background colors, video, music, and so on. Personalization does not require the customer to identify himself or herself. The system, even without a consumer opting in or providing personal information, can identify a repeat visitor by the unique media access control address his or her mobile device sends out to find available Wi-Fi. Every time the shopper visits the store, the system learns more about her or him, updates parameters, and provides relevant recommendations.4

When shopping in-store, consumers most highly value “prompt service” (54 percent), “a personalized experience” (30 percent), and “smart recommendations” (30 percent). The lack of prompt assistance will drive most consumers (85 percent) to leave a dressing room—and the store—and abandon intended purchases. In sum, customers want to have access to retailers on a 24-hour-a-day basis through multiple media platforms—and to be able to offer comments, feedback, questions, complaints, and praise that will get prompt and helpful responses from retailers.5

overview To prosper, a retailer must properly apply the concepts of value and relationship so (1) customers strongly believe the firm offers a good value for the money and (2) both customers and channel members want to do business with that retailer. Some firms grasp this well. Others still have some work to do. Consider GameStop Corp., a global family of specialty retail brands that make the most popular technologies affordable through retail stores and repair centers.

As the world’s largest videogame retailer, GameStop Corp. sells new and pre-owned video- game hardware, physical and digital videogame software, and videogame accessories, as well as new and pre-owned mobile and consumer electronics products and other merchandise at its Game- Stop, EB Games, and Micromania stores. Buying customers’ unwanted games and consoles, irrespective of where they were initially purchased, and selling them as “pre-owned” after repair- ing and certifying them, creates value for the selling customer and the purchasing customer (by reducing the cost associated with used goods), as well as being environmentally friendly due to its recycling efforts. As of June 2016, GameStop operated about 7,100 stores in the United States, Australia, Canada, and Europe, primarily located in shopping malls and strip centers. In July 2015, the company acquired Geeknet, Inc. (www.thinkgeek.com),which specializes in selling collect- ibles, apparel, gadgets, electronics, toys, and other products for technology enthusiasts, general consumers, and wholesale customers. Geeknet’s network includes www.kongregate.com, a browser-based game site; Game Informer magazine, the world’s leading print and digital video- game publication; and iOS and Android mobile applications.6

As discussed at the beginning of the chapter, consumers expect more for less, especially from their stores than from their online or mobile shopping experience.7 Time- and budget-constrained consumers will spend less time shopping, make fewer trips, visit fewer stores, and shop more purposefully. Different strokes will satisfy different folks. Consumers will shop for different for- mats for a variety of needs. Specifically, they will split the commodity shopping trip from the value-added shopping trip. Consumers are becoming more skeptical of pricing and advertising

GameStop (www .gamestop.com) is— first and foremost—a customer-driven retailer.

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46 PART 1 • An oVERViEW oF STRATEgiC RETAil MAnAgEMEnT

tactics and more concerned about the environmental impact of their consumption. Under the bar- rage of sales, price has lost its meaning and gimmicks have lost their appeal. To regain consumer confidence, pricing by retailers and manufacturers alike will become transparent, more sensible, and more sophisticated. See Figure 2-1.

This chapter looks at value and the value chain, relationship retailing with regard to customers and channel partners, the differences in relationship building between goods and service retailers, technology and relationships, and ethics and relationships. An appendix on service retailing is found at the end of this chapter.

VALUE AND THE VALUE CHAIN A channel of distribution involves multiple parties: manufacturer, wholesaler, retailer, and cus- tomer. These parties are most apt to be satisfied with their interactions when they have similar beliefs about the value provided and received, and they agree on the appropriate payment for that level of value.

From the perspective of the manufacturer, wholesaler, and retailer, value is embodied by a series of activities and processes—a value chain—that provides a 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 its niche (such as discount versus upscale). Firms may differ in rewarding the value each provides and in allocating the activities undertaken.

From the customer’s perspective, value is the perception a shopper has of a value chain. It is the customer’s view of all benefits from a purchase (formed by the total retail experience). Value is based on perceived benefits received versus the price paid. It varies by type of shopper. For example, price-oriented shoppers want low prices, 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?

▶▶ Customers must always believe they get their money’s worth, whether the retailer sells $45,000 Patek Phillipe watches or $40 Casio watches.

▶▶ 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 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.

FIGURE 2-1 The Key to Long- Term Customer Satisfaction: Meeting Expectations In today’s highly competitive retailing enviornment, companies must do everything they can to generate and maintain a distinctive edge. To attract customers and gain their loyalty, it is no longer enough to “satisfy” them; they need to be “wowed.” This requires (a) an in-depth understanding of target shoppers’ desires; (b) the proper mix of merchandise, customer service, and prices for those shoppers; and (c) supportive, ongoing customer interaction. These are not easy tasks.

Source: iQoncept/ Shutterstock.com. Reprinted by permission.

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CHAPTER 2 • Building And SuSTAining RElATionSHiPS in RETAiling 47

▶▶ A specific value/price level must be set. A retailer can offer $100 worth of benefits for a $100 item or $125 worth of benefits (through better ambience and customer service) for the same item with a $125 price. Either approach can work if properly enacted and marketed.

A retail value chain represents the total bundle of benefits offered to consumers through a channel of distribution. It comprises shopping location and parking, retailer ambience, the level of customer service, the products/brands carried, product quality, the retailer’s in-stock position, shipping, prices, the retailer’s image, and other elements. As a rule, consumers are concerned with the results of a value chain, not the process. Food shoppers who buy online via Peapod care only that they receive the goods ordered at the promised time, not about the steps needed for the home delivery of food at the neighborhood level.

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 warehouses, and many merchandising decisions. In the latter case, various cues are surrogates for value: upscale store ambience and plentiful sales personnel for high-end retailers; shopping carts and self-service for discounters.

There are three aspects of a value-oriented retail strategy: expected, augmented, and poten- tial. An expected retail strategy represents the minimum value chain elements a given customer segment (e.g., young women) expects from a type of retailer (e.g., a mid-priced apparel retailer). In most cases, the following are expected value chain elements: store cleanliness, convenient hours, well-informed employees, timely service, popular products in stock, parking, and return privileges. If applied poorly, expected elements cause customer dissatisfaction and relate to why shoppers avoid certain retailers.

An augmented retail strategy includes the extra elements in a value chain that differentiate one retailer from another. As an example, how is Saks different from Sears? The following are often augmented elements: exclusive brands, superior salespeople, loyalty programs, delivery, personal shoppers and other special services, and valet parking. Augmented features complement expected value chain elements, and they are the key to continued customer patronage with a par- ticular retailer.

A potential retail strategy comprises value chain elements not yet perfected by a competing firm in the retailer’s category. For example, what customer services could a new upscale apparel chain offer that no other chain offers? In many situations, the following are potential value chain elements: 24/7 store hours (an augmented strategy for supermarkets), unlimited customer return privileges, full-scale product customization, instant fulfillment of rain checks through in-store orders accompanied by free delivery, in-mall trams to make it easier for shoppers to move through enormous regional shopping centers, and a doorman. The first firms to capitalize on potential features typically gain a head start over their adversaries. Barnes & Noble and Borders accom- plished this by opening the first book superstores, and Amazon.com became a major player by opening the first online bookstore. Yet, even as pioneers, firms must excel at meeting customers’ basic expectations and offering differentiated features from competitors if they are to grow, which is why Borders eventually had to close all its stores—it did not adapt fast enough.

Peapod (www.peapod .com) offers a unique value chain with its home delivery service.

Compare T. J. Maxx (www.tjmaxx.com) and Lord & Taylor (www .lordandtaylor.com).

Today, Barnes & Noble (www.bn.com) relies on its stores and its Web site for revenues.

Buyers are often contrasted with category managers. Buyers usu- ally evaluate suppliers, negotiate purchases, and match inventory levels with sales prospects. They need to understand and properly respond to sales trends, seasonality, fashion influences, and price concerns among shoppers.

Whereas a buyer may be responsible for a range of prod- ucts for a supermarket such as prepackaged lettuce, spinach, and carrots; a category manager’s responsibility can extend

to all produce. Category managers also have greater sales and marketing responsibilities. This includes space allocation, assortment planning, display planning, and discussing joint promotions with key suppliers. A good category manager for a supermarket should think in terms of meal solutions versus frozen foods.

Discuss the differences between the meal solutions versus frozen foods orientation.

CAREERS in RETAiling Category Managers

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48 PART 1 • An oVERViEW oF STRATEgiC RETAil MAnAgEMEnT

There are five potential pitfalls to avoid in planning a value-oriented retail strategy:

▶▶ Planning value with just a price perspective. Value is tied to two factors: benefits and prices. All major discounters now accept credit cards because shoppers want to purchase with them.

▶▶ Providing value-enhancing services that customers do not want or will not pay extra for. Ikea knows most of its customers want to save money by assembling furniture themselves.

▶▶ Competing in the wrong value/price segment. Neighborhood retailers generally have a tough time competing in the low-price part of the market. They are better off providing augmented benefits and charging somewhat more than large chains.

▶▶ Believing augmented elements alone create value. Many retailers think that if they offer a benefit not available from competitors that they will automatically prosper. Yet, they must never lose sight of the importance of expected benefits. A movie theater with limited parking will have problems even if it features first-run movies.

▶▶ Paying lip service to customer service. Most firms say, and even believe, customers are always right. Yet, they may act contrary to this philosophy—by having a high turnover of salespeople, charging restocking fees for returned goods that have been opened, and not giving rain checks for out-of-stock items.

To sidestep these pitfalls, a retailer could use the checklist in Figure 2-2, which poses a num- ber of questions that must be addressed. The checklist can be answered by an owner/corporate president, a team of executives, or an independent consultant. It should be reviewed yearly or more often if a major development, such as the emergence of a strong competitor, occurs.

RETAILER RELATIONSHIPS In Chapter 1, we introduced the concept of relationship retailing, whereby retailers seek to form and maintain long-term bonds with customers, rather than act as if each sales transaction is a new encounter with them. For relationship retailing to work, enduring value-driven relationships are needed with other channel members, as well as with customers. Both jobs are challenging. See Figure 2-3. Visit our blog for posts related to relationship retailing issues (www.bermanevansretail .com).

FIGURE 2-2 A Value-Oriented Retailing Checklist Answer yes or no to each question.

Is value defined from a consumer perspective?

Does the retailer have a clear value/price point?

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 elements?

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 consistent?

Is the retailer’s value-oriented approach e�ectively communicated to the target market?

Can the target market clearly identify the retailer’s positioning strategy?

Does the retailer’s positioning strategy consider trade-o�s in sales versus profits?

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?

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CHAPTER 2 • Building And SuSTAining RElATionSHiPS in RETAiling 49

Customer Relationships Loyal customers are the backbone of a business. Thus, it is important that retailers retain their loyal customers through repeated sales in a trusting relationship. Loyalty has two unique dimensions— attitudinal and behavioral—and each contributes differently to retailers’ revenues, profits, and market share.8 Customers who are attitudinally loyal will have a higher tendency to spread positive word-of-mouth recommendations to friends and family on social media, have a higher commit- ment to the retailer, and not be reluctant to pay more for products at a particular retailer.

Customers who are behaviorally loyal will have a higher tendency to continue purchasing from a particular retailer. Behavioral loyalty may also be a manifestation of inertia (or inertial loyalty) due to high switching costs associated with changing retailers. Although both attitudinal and behavioral loyalty are important to achieve business goals and to sustain the position in the marketplace, a retailer’s positioning strategy (discussed in Chapter 3) will influence which dimen- sion needs to be strategically managed. Attitudinal loyalty should be emphasized if the objective is to charge higher prices, whereas behavioral loyalty should be more important if the objective is to increase market share or profits.9

In a competitive industry such as retailing, many consumers show divided behavioral loyalty to more than one retailer for a single category need. Here’s why: You have satisfied customers. “That’s good, right? Well, yes for the short term the customer[s] will continue purchasing. While a loyal customer is a satisfied customer, the converse is not necessarily true. Real loyalty [or attitudinal loyalty]—much harder to earn than mere satisfaction—tells you that your customer wants to stick with you over the long haul and will share that feeling with others.”10 Retailers need to develop and strategically manage loyalty programs to cultivate behavioral loyalty (discussed later in this chapter). But in the long term, it’s not necessarily enough. Customers who spend a lot can defect to the retailer providing lower prices or better service and enroll in multiple loyalty programs. Attitudinal loyalty derives not from hum-drum “good” transactions but from exceed- ing customer expectations on a repeated basis and delightful experiences that make shoppers so emotionally devoted that they want to share their experience by telling others.

In relationship retailing, there are four factors to keep in mind: the customer base, customer service, customer satisfaction, and loyalty programs and defection rates. Let’s explore these next.

THE CUSTOMER BASE Retailers must regularly analyze their customer base in terms of popula- tion and lifestyle trends, attitudes toward and reasons for shopping, the level of loyalty, and the mix of new versus loyal customers.

FIGURE 2-3 The Many Relationships in Retailing In most instances, the retail supply chain is quite complex. It requires that the many relationships be satisfying to all parties, including both various channel members and customers.

Source: johnkworks/ Shutterstock. Reprinted by permission.

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50 PART 1 • An oVERViEW oF STRATEgiC RETAil MAnAgEMEnT

As reported by the Census Bureau, the U.S. population is aging. One-fourth of households consist of only one person, one-seventh of people move annually, most people live in urban and suburban areas, middle-class income has been rising very slowly, and African American, Hispanic American, and Asian American segments are expanding. Thus, gender roles are changing, shop- pers demand more, consumers are more diverse, there is less interest in shopping, and time-saving goods and services are desired.

Future retail trends will be driven by the Millennials (Generation Y), who have surpassed Baby Boomers as the largest generation. According to the Pew Research Center, there are about 75 million Americans born between the early 1980s and the late 1990s; and they defy easy cat- egorization, for they are the most racially diverse generation the United States has experienced.11 Millennials have an elevated sense of idealism and are concerned how brands and retailers perform on social responsibility, sustainability, gender equality, and fair trade.

In their quest for growth in market share and sales revenue, many retailers typically focus on one side of customer value—delivering value. The customer is king (or queen) and every- thing must be done to deliver superior value and to delight him (or her). Astute retailers balance this view with the other side of customer value—receiving value. This is achieved by attracting and retaining those customers who provide value in the form of profits to the firm through their transactions.

It is worth more to nurture relationships with some shoppers than with others. These are the retailer’s core customers—its best customers—loyal, satisfied customers who get high value from the retailer and generate high profits for the retailer. These core customers are the most desirable, are resistant to competitors’ enticements of better deals, and deliver long-term profits. At the other extreme are the “lost causes” who don’t value the retailer’s goods or services and are not profitable.12 They cost the retailer more than they are worth because they frequently complain and return products, spread bad word of mouth, misuse promotions, and lower staff morale through their interactions. It does not make economic sense for the retailer to acquire them in the first place. Losing these customers may reduce market share but lead to improved profitability and higher levels of retailer performance. “Free-riders” (customers who are highly satisfied with the company but not highly profitable) and vulnerable customers (profitable but not satisfied with the retailer) can be managed through customer relationship management strate- gies. Charging higher prices and reducing services for free-riders can increase profitability. It is important for retailers to identify unmet needs of vulnerable customers and consider whether it will be profitable to satisfy them; otherwise, competitors will poach them away.

Retailers need to identify their best customers and see what characteristics differentiate these profitable customers from all the rest. Next, the retailer should determine whether it makes economic sense to pursue a differentiated offering to free-riders and vulnerable cus- tomers and to fine-tune strategies for the consumers who are most likely to yield profitable customers.

A retailer’s desired mix of new versus loyal customers depends on that firm’s stage in its life cycle, goals, and resources, as well as competitors’ actions. A mature firm is more apt to rely on core customers and supplement its revenues with new shoppers. A new firm faces the dual tasks of attracting shoppers and building a loyal following; it cannot do the latter without the former. If goals are growth-oriented, the customer base must be expanded by adding stores, increasing advertising, and so on; the challenge is to do this in a way that does not deflect attention from core customers. Although it is more costly to attract new customers than to serve existing ones, core customers are not cost-free; they must be service properly. If competitors try to take away a retailer’s existing customers with price cuts and special promotions, that retailer might pursue the competitors’ customers in the same way. Again, regardless of what action is taken, all retailers must be careful not to alienate core customers.

CUSTOMER SERVICE As described in Chapter 1, customer service refers to the identifiable, but sometimes intangible, activities undertaken by a retailer in conjunction with the goods and ser- vices it sells. It has an impact on the total retail experience. Consistent with a value chain philoso- phy, retailers must apply two elements of customer service. Expected customer service is the service level that customers want to receive from any retailer, such as basic employee courtesy. Augmented customer service includes the activities that enhance the shopping experience and give retailers a competitive advantage.

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CHAPTER 2 • Building And SuSTAining RElATionSHiPS in RETAiling 51

The attributes of personnel who interact with customers (such as politeness and knowledge), as well as the number and variety of customer services offered, have a strong effect on the rela- tionship created. Although planning a superior customer service strategy can be complex, a well- executed strategy can pay off in a big way.

Some retailers realize customer service is better if they utilize employee empowerment, whereby workers have the discretion to do what they believe is necessary—within reason—to satisfy the customer, even if this means bending the rules. The founders of Home Depot made a strategic decision to train employees to form enduring customer relationships rather than push for incremental sales gains. As a result, the retailer grew very quickly because of its outstanding customer service. Home Depot’s core value, “Taking care of our people,” states that the company encourages associ- ates to speak up and take risks, recognizes and rewards good work performance, and leads and develops employees so that they may grow. Home Depot believes that the key to its success and its competitive advantage in the marketplace is treating people well—starting with employees, who in turn ensure that customers are treated well. However, Home Depot’s American Customer Satisfac- tion Index rating tumbled to the bottom in the home-improvement category when it faced a high- profile credit-card security breach in the fall of 2014.13 That rating has risen since then.

To apply customer service effectively, a firm must first develop an overall service strategy and then plan individual services. Figure 2-4 shows one way a retailer may view the customer services it offers.

DEVELOPING A CUSTOMER SERVICE STRATEGY. A retailer must make the following vital decisions. What customer services are expected and what customer services are augmented for a particular

retailer? Examples of expected customer services are credit for a furniture retailer, new-car preparation for an auto dealer, and a liberal return policy for a gift shop. Those retailers could not stay in business without these services. Because augmented customer services are extra elements, a firm could serve its target market without such services, but using them will enhance its competitive standing. Examples are home delivery for a supermarket within a 1-hour window, an extended warranty for a used auto dealer, and free gift wrapping for a toy store. Each firm needs to learn which customer services are expected and which are augmented for its situation. Services that are viewed as expected customer services for one retailer, such as delivery, may be viewed as augmented for another. See Figure 2-5.

What level of customer service is proper to complement a firm’s image? An upscale retailer would offer more customer services than a discounter because people expect the upscale firm to have a wider range of customer services as part of its basic strategy. Performance would also be different. Customers of an upscale retailer may expect elaborate gift wrapping, valet parking, an in-store restaurant, and a ladies’ room attendant, whereas discount shoppers may expect cardboard gift boxes, self-service parking, a lunch counter, and an unattended ladies’ room. Customer service categories are the same; performance is not.

Should there be a choice of customer services? Some firms let customers select from various levels of customer service; others provide only one level. A retailer may honor several credit cards or only its own. Trade-ins may be allowed on some items or all. Warranties may have optional extensions or fixed lengths. A firm may offer 1-, 3-, and 6-month payment plans or insist on immediate payment.

AutoZone (www .autozone.com) has a unique style of customer service.

Nordstrom (www .nordstrom.com) strongly believes in empowering its employees to better serve customers.

FIGURE 2-4 Classifying Customer Services

Examples: Employees to answer questions; nearby parking; ease of shopping

Examples: Returns accepted after expiration date; free delivery; empowered employees

Examples: Multiple payment options; self- service checkout option; electronic coupons

Basic

Type of Services O�ered Extended

Above and

Beyond

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52 PART 1 • An oVERViEW oF STRATEgiC RETAil MAnAgEMEnT

Should customer services be free? Two factors cause retailers to charge for some customer services: First, delivery, gift wrapping, and some other customer services are labor intensive, and second, people are more apt to be home for a delivery or service call if a fee is imposed. Without a fee, a retailer may have to attempt a delivery twice. In settling on a free or fee-based strategy, a firm should (1) determine which customer services are expected (these are often free) and which are augmented (these may be offered for a fee); (2) monitor competitors and profit margins; and (3) study the target market. In setting fees, a retailer must also decide if its goal is to break even or to make a profit on certain customer services.

How can a retailer measure the benefits of providing customer services against the cost of the services? The aim of customer services is to enhance the shopping experience in a way that attracts and retains shoppers—while maximizing sales and profits. Thus, augmented services should not be offered unless they increase total sales and profits. A retailer should plan augmented customer services based on its experience, competitors’ actions, and customer comments; when the costs of providing these customer services increase, higher prices should be passed on to the consumers.

How can customer services be terminated? When a customer service strategy is set, shoppers are apt to react negatively to any customer service reduction. Yet, some costly augmented customer services may have to be dropped. In that case, the best approach is to be forthright by explaining why the customer services are being terminated and how customers will benefit via lower prices. Sometimes a firm may use a middle ground, charging for previously free customer services (such as clothing alterations) to allow those who want the services to still receive them.

PLANNING INDIVIDUAL CUSTOMER SERVICES. After a broad customer service plan is outlined, indi- vidual customer services need to be planned. A department store may offer credit, layaway, gift wrapping, a bridal registry, free parking, a restaurant, a beauty salon, carpet installation, dressing rooms, clothing alterations, restrooms and sitting areas, the use of baby strollers, home delivery, and fur storage. See Table 2-1 for a range of typical customer services.

Most retailers let customers make credit purchases; and many firms accept personal checks with proper identification. Consumers’ use of credit rises as the purchase amount goes up. Retailer- sponsored credit cards have three key advantages: (1) The retailer saves the fee it would pay for outside card sales, (2) people are encouraged to shop with a given retailer because its card is usu- ally not accepted elsewhere, and (3) contact can be maintained with customers and information learned about them. There are also disadvantages to retailer cards: Startup costs are high, the firm must worry about unpaid bills and slow cash flow, credit checks and follow-up tasks must be

Amazon.com (www .amazon.com) offers free 2-day delivery to its Prime customers.

FIGURE 2-5 Providing Extra Value for Customers Retailers that offer extra services to customers often stand out in the marketplace. For example, a given retailer could offer free repairs on the products it sells (a) and also allow consumers to tag QR codes via their smartphones so they can learn more about products within the store (b).

Sources: (a) Lena Pan/Shutterstock. Reprinted by permission. (b) rangizzz/Shutterstock. Reprinted by permission.

(a) (b)

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CHAPTER 2 • Building And SuSTAining RElATionSHiPS in RETAiling 53

performed, and customers without the firm’s card may be discouraged from shopping at that par- ticular retail store. Bank and other commercial credit cards enable small and medium retailers to offer credit, generate added business for all types of retailers, appeal to mobile shoppers, provide advertising support from the sponsor, reduce bad debts, eliminate startup costs for the retailer, and provide data. Yet, the cards charge a transaction fee and do not yield loyalty to a retailer.

Most bank cards and retailer cards involve a revolving credit account, whereby a customer charges items and is billed monthly on the basis of the outstanding cumulative balance. An option credit account is a form of revolving account; no interest is assessed if a person pays a bill in full when it is due. When a person makes a partial payment, he or she is assessed interest monthly on the unpaid balance. Some credit card firms (such as American Express) and some retailers offer an open credit account, whereby a consumer must pay the bill in full when it is due. Partial, revolving payments are not permitted. A person with an open account also has a credit limit (although it may be more flexible).

For a retailer that offers delivery, there are three decisions: the transportation method, equip- ment ownership versus rental, and timing. The transportation method can be car, van, truck, rail, mail, and so forth. The costs and appropriateness of the methods depend on the products. Regarding transportation equipment ownership, large retailers often find it economical to own their delivery vehicles. This also lets them advertise the company name, have control over schedules, and use their employees for deliveries. Small retailers serving limited trading areas may use personal vehicles. Many small, medium, and even large retailers use shippers such as UPS if consumers live away from a delivery area and shipments are not otherwise efficient. And finally, for the timing of delivery, the retailer must decide how quickly to process orders and how often to deliver to different locales.

For some firms, alterations and installations are expected services—although more retailers now charge fees. However, many discounters have stopped offering alterations of clothing and installations of appliances on both a free and a fee basis. They feel the services are too ancillary to their business and not worth the effort. Other retailers offer only basic alterations: shortening pants, taking in the waist, and lengthening jacket sleeves. They do not adjust jacket shoulders or width. Some appliance retailers may hook up washing machines but not do plumbing work.

Within a store, packaging (gift wrapping)—as well as complaints and returns handling—can be centrally located or decentralized. Centralized packaging counters and complaints and returns areas have advantages: They may be located in otherwise dead spaces, the main selling areas are not cluttered, specialized personnel can be used, and there is a common policy. The advantages of decentralization are that shoppers are not inconvenienced, they are kept in the selling area (where a salesperson may resolve a problem or offer different merchandise), and extra personnel are not required. In either case, clear guidelines as to the handling of complaints and returns are needed.

TABLE 2-1 Typical Customer Services

Typical Miscellaneous

• Credit • Bridal registry • Rest rooms

• Delivery • Interior designers • Restaurant

• Alterations and installations • Personal shoppers • Babysitting

• Packaging (gift wrapping) • Ticket outlets • Fitting rooms

• Complaints and returns handling • Parking • Beauty salon

 
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