VALUE AND THE VALUE CHAIN IN RETAILING

In many channels of distribution, there are several parties: manufacturer, wholesaler, retailer, and customer. These parties are most apt to be satisfied with their interactions when they have similar beliefs about the value provided and received and agree on the payment for 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 vs. upscale). Where firms may differ is in rewarding the value each provides and in allocating the activities undertaken.

From the customer’s perspective, value is the perception the shopper has of a value chain. It is the customer’s view of all the benefits from a purchase (formed by the total retail experience). Value is based on the perceived benefits received versus the price paid. It varies by type of shopper. 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.

A retail value chain represents the total bundle of benefits offered to consumers through a channel of distribution. It comprises store 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 Grocery Gateway care only that they receive the brands ordered when desired, not about the stops needed for home delivery at the neighbourhood 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 stores, shopping carts and self-service for discounters.
 

There are three aspects of a value-oriented retail strategy: expected, augmented, and potential. 

 

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 midpriced apparel retailer). In most cases, these 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.These are often augmented elements: exclusive brands, superior salespeople, loyalty pro- grams, delivery, personal shoppers and other special services, and valet parking. AugmentedFeatures complement expected value chain elements, and they are the key to continued customer patronage.
 

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, these 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, and in-mall trams to make it easier for shoppers to move through enormous regional shopping centres. The first firms to capitalize on potential features gain a head start over their adversaries. Chapters accomplished this by opening the first book superstores, and Amazon.com has become 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.