Wednesday, May 04, 2011

Is Retail Strategy different from other strategy?

When I do public strategic planning programs for a broad audience, I am sometimes asked “Is strategic planning for a retail business different from strategic planning for a different kind of business, such as a manufacturer?” The answer, not surprisingly, is “yes AND no”. The differences and similarities may surprise you.

To begin with, the “product” of a retail store is different from most product and service creating businesses in that it is not part of a discrete transaction conducted with the customer – that is, as a retailer, you do not get a separate payment from your customer for the value you produce. Instead, you always (or almost always) make money on payments from your customers for goods and/or services produced by others. Of course, there are exceptions – for example, if you do food preparation on your premises, you are getting paid directly for that value – but in most cases, retailers make their money on the markup on the goods and/or services they are selling.

To put a finer point on this distinction, as a retailer you get some compensation from customers – largely for the experience you generate around their purchase – and some compensation from suppliers – largely for the infrastructure you provide for their distribution. How much compensation comes from either source is a tangled topic we can address elsewhere, but the point is, you make your money as a retailer by providing infrastructure and experience.

And here is one place where strategic planning for retailers is just like strategy done for anyone else: as a rule, the more easily a service/product can be measured and duplicated, the harder it is to sell it as a specialty. In retail, the value of infrastructure is exactly that – something that is easily measured and duplicated. This is not always so – a huge distribution network like Wal-Mart’s is hard to duplicate, and so is a highly specialized semi-monopoly network like Duty Free America. Still, for most suppliers, access to customers through one infrastructure network is pretty much the same as the others. For customers, however, the differences can be notable and – in the eye of the customer – worth quite a bit.

If you run a retail business, where do your stores stand? Do you sell an experience or infrastructure? How does your strategic competency add to your uniqueness and the value you create for your customers?