Retailing can be distinguished in various ways from other businesses such as manufacturing. Retailing differs from manufacturing in the following ways:
- There is direct end-user interaction in retailing.
- In is the only point in the value chain to provide a platform for promotions.
- Sales at the retail level are generally in smaller unit sizes.
- Location is a critical factor in retail business.
- In most retail businesses services are as important as core products.
- There are a larger number of retail units compared to other members of the value chain. This occurs primarily to meet the requirements of geographical coverage and population density.
Direct Interaction with Customers
Retail businesses have a direct interaction with end-users of goods or services in the value chain. They act as intermediaries between end-users and suppliers such as wholesalers or manufacturers. Therefore, they are in a position to effectively communicate the response and changing preferences of the consumers to the suppliers or sales persons of the company. This helps the manufacturers and markets to redefine their product and change the components of its marketing strategy accordingly. Manufacturers require a strong retail network both for reach of the product and to obtain a powerful platform for promotions and point-of-purchase advertising. Realizing the importance of retailing in the entire value chain, many manufacturers have entered into retail business by setting up exclusive stores for their brands. This has not only provided direct contact with customers, but has also acted as advertisement for the companies and has provided the manufacturers with bargaining power with respect to other retailers who stocked their product. Retailing provides extensive sales people support for products which are information intensive, such as in the case or consumer durables.
Lower Average Amount of Sales Transaction
The average amount of sales transaction at retail point is much less in comparison to the other partners in the value chain. Many consumers buy products in small quantities for household consumption. Due to lower disposable incomes, some consumer segments in India even buy grocery items on a daily basis rather than a weekly or a monthly basis. Inventory management becomes a challenge for retailers as a result of the many minor transactions with a large number of customers. Hence, retailers must take care of determining average levels of stock, order levels and the retailer has to keep a tight control on costs associated with each transaction in the selling process. Credit verification, employment of personnel, value-added activities like bagging, gift-wrapping and promotional incentives all add up to the costs. One way to resolve this is for the retail outlets to be able to attract the maximum possible number of shoppers.
Point-of-purchase Display and Promotions
A significant relevant chunk of retail sales comes from unplanned or impulse purchases. Studies have shown that shoppers often do not carry a fixed shopping list and pick up merchandise based on impulsive or situational appeal. Many do not look at ads before shopping. Since a lot of retail products are low involvement in nature, impulse purchases of the shopper is a vital area that every retailer must tap into. Therefore, display, point-of-purchase merchandise, store layout and catalogs become important. Impulse goods like chocolates, snack foods and magazines can sell much more quickly if they are placed in a high visibility and high traffic location.
Larger Number of Retail Business Units
Location of retail store plays an important role compared to other business units. Manufacturers decide the location on the basis of availability of factors of productions and market. Similarly, retailers consider factors like potential demand, supply of merchandise and store image-related factors in locating the retail outlet. The number of operation units in retail is the highest compared to other constituents of the value chain, primarily to meet the needs for geographic reach and customer accessibility.