Wheel
of retailing
Wheel
of retailing is the theory that new retailers often enter the market-place with
low prices, margins and status, and eventually emerge at the high end of the
price/cost/services scales, competing with newer discount retailers. It is the
retail marketing process whereby original low-price discounters upgrade their
services and gradually increase prices. As they evolve into full-line
department stores, a competitive opportunity develops for new low-price
discounters to develop, and the process continues with the next generation. It
is a theory of retail
institutional change that explains retail evolution with an institutional life
cycle concept.
“Retail
innovators often first appear as low – price operators with a lowest structure
and low profit margin requirements. Over time, these innovators upgrade the
products. They carry and improve there facilities and customer service ( by
adding better quality items; locating in higher-rent sites, accepting exchanges
and allowing refunds, providing credit and delivery and so on) and prices rise.
As innovators mature they become vulnerable to new discounts with lower cost
structures, hence the wheel of retailing.”
It
suggests that established firms should vary in adding services converting their
strategy from low end to high end. Because price – conscious shoppers are not
loyal to stores. Also retailers may eliminate the competitive advantage that
has led to profitability. It focuses on strategic orientation in terms of
product quality, prices and customer services.
It is
grounded on the four basic premises:-
1.
There are many price sensitive shoppers willing
to trade customer services, wide selection, and convenient location for lower
prices.
2.
Price sensitive shoppers are often not loyal and
are willing to switch to retailers with lower prices. Other prestige sensitive
customers like shopping at retailers with high end strategies.
3.
New institutions are frequently able to have
lower operating costs than existing institutions.
4.
As retailers move up the wheel, they typically
do so to increase sales, broaden the target market and improve store image.
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