Welcome to the the Ivey HBA Retail Marketing Management blog. Retail marketing is an exciting, dynamic, important, and very visible aspect of the overall field of marketing. Throughout the year, students will be posting comments regarding contemporary retailing issues. Although this is intended to be used by Bus 4411 students, industry marketing professionals are also invited to join in if they like.

Monday, March 23, 2009

Taking Down Giants: Capturing the Majority of the Minority

The modern retail environment is largely dominated by huge franchises and big box stores that are able to capitalize on economies of scale, which allow them to sell merchandise at highly discounted prices. The sheer size of these multi-million and billion dollar corporations allows for the leveraging of buying power that can result in the ability of these big stores, such as Wal-Mart, to sell inventories at prices that are often even below the wholesale costs that smaller retailers are forced to pay for the same products. This creates an obvious handicap for smaller and independent stores, as their inability to make large enough purchases to receive the discounts results in an inability to compete on price with larger stores. This handicap however, presents small and niche retailers with an opportunity that allows them not only to survive, but thrive. Through catering to customers’ needs and offering value added services that large franchises cannot profitably match, smaller retailers can capture a segment of the market that is often forgotten or neglected.

It is my belief that smaller retailers can profitably operate by capturing the ‘majority of the minority’ of customers. This means that opportunity lies in offering either products or services that cater to a smaller group of customers, which larger stores do not offer. If a small store can offer goods or services that are in demand by a small but specific group of customers, it can capture this group in its entirety. Larger stores, on the other hand, mainly compete with similar large stores based on price. They often all offer the same or similar products, because these are the products that are demanded by the majority of people. As a result, these stores are always fighting for a share of the market, and are only able to capture a fraction of the pie that is the total potential customer base. Although each large store likely only serves a small percentage of the total market, they can still earn large net revenues from sales of a specific product because the demand is so large that even when split, each store makes a large number of sales. It is therefore worthwhile for larger stores to pursue this strategy, however if a smaller store sold the same product, they too would be competing for a piece of the pie, but would not be able to capture a large enough portion to be profitable because they would be unable to match prices. If a small retailer caters to a niche market, however, they too can earn fairly large net revenue off of a single product as, although the demand may not be as large for the product offered, they can capture more of the smaller pie, as the majority of the customers who demand the product will be captured.

Jill Wilcox, of Jill’s Table, validates the idea that small businesses can succeed through catering to niche markets. Jill’s Table is a niche retailer that caters to a small segment of the kitchen furnishings and specialty foods market, and has become profitable through adding value for her customers and through attracting the neglected segments of the market. She explained that although she often has some products that are carried at big box stores, customers are often willing to buy from her for a premium, based on her and her staffs’ extensive knowledge, and the atmosphere created within her store. People are willing to spend more for quality and trustworthy service; the kind of service that cannot be found at big-box stores. She has also pursued other value adding strategies; including offering gifts with purchase or giving free samples to those who come into the store. Additionally, Jill explained that she carries products, such as the anchovy stuffed olives that she spoke of in class, that other stores do not carry. Offering products that larger stores don’t truly shows the power of marketing to the majority of the minority of customers. Any consumer who demands this product will have to shop at Jill’s Table, allowing her to capture the entire market for that product.

Offering product demanded by the minority ensures constant demand, however Jill must be dynamic in predicting the demands of the minority, as offering a product may only be a temporary advantage. If demand grows large enough, larger retailers will begin selling the product, likely at prices below Jill’s Table, due to their buying power. Jill explained that usually when she pursues a niche product, she has two to three good years with the product, then larger stores find a way to offer the product for cheaper, and sales at Jill’s Table diminish for that product. When the demand of the minority of customers becomes large enough for larger stores to see the product as worthwhile for sale, they will offer it as well. Jill relies on listening to the demands of the smaller segment of the market, which has proven to be successful, as these products have driven her sales throughout the life of her business.

The retail environment is a hostile one, especially for retailers that are unable to compete on price with large stores. An inability to compete on price, however, does not mean the downfall of a retail operation. It simply means that smaller retailers must be more aware of the direction of the market and the demands of customers who needs and desires aren’t being satisfied by the current large store formats. Jill’s Table has proven that profitability can be accomplished by capturing the ‘majority of the minority’ of customers, who demand product and services that are not offered at large and big-box stores.

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