Know Your Eco-system
If you are a retailer, or belong to any part of the retail buisness, regardless of the country you are operating in, whether in your own country or a new country you need to go to, there are some basics you need to get your head around in order to be able to find out what impact its going to have with the sort of business you want to run there. Prakash Menon details the five metrics of business
First and foremost, you need to understand what the economy is like: is it growing or is it stable? If theres growth happening, whats driving that growth? Whats the GDP per capita; is it a wealthy country or is it a poor country?
You need to understand the spread of wealth. Is that wealth in that country held by a dozen families or is it spread relatively evenly across the population? How big is the population? How many people are you going to have as your potential customers in that market and where do they spread? Is it a large country with a relatively low population, like Australia, or is it a small country with a large population, like a lot of the European countries?
Factor in the transient population, as well. If you look at a country like Singapore, if they would rely just on their own population, they would have a totally different market than the one they actually have.
You need to understand the retail markets there: how are they growing, what is the structure in those retail markets? Plus, you certainly need to understand the regulatory requirements – what you are allowed to do by law and what you are not allowed to do. Its very easy to come up with a plan and then find out that: Oh, thats actually illegal in the country we want to operate in.
The Retail Market
The first step was to understand the country in which you are operating in, but you also need to understand the retail market. You need to understand how big it is, whats the total retail turnover in that area, how is it growing? Is it really growing? Where is it in terms of life cycles? Is it a mature market, is it a growing market or is it a declining market? You need to understand whats driving that change. What sort of factors, like health and education, are having an impact on the retail market that youre looking at? What are the conditions within that market? What are the regulations within that market?
What kind of social and cultural mores will you deal with? Are there social mores that you need to be aware of and that could trip you up if you werent aware of them? Are there regional differences? In a large country like Australia, youve got massive regional differences simply in terms of climate, from the north of Australia to the south of Australia. But you also have cultural differences from the east coast to the west coast. In a lot of other countries you have those significant regional differences.
In a country like China, there are regional differences involving language and culture, as well as climate. You need to look at things like consumption by household. Understand the nature of the retail market: are there shopping malls, are there convenience stores, are there wet markets and traditional formats like that? Are people open to franchise arrangements? Whats the status, what are the trends that occur within the structure of that retail market?
Last, but not the least culture – thats the one thing we usually take for granted. I cannot emphasize enough the importance of understanding the language and the culture along with the regional differences; and how much of an impact can they make for a retailer.
A finer and finer level of detail is to understand the consumers within the retail market. You need to understand their lifestyle and the consumer profile: what sort of products do they like to buy, what are their trends? What are their aspirations, what are their needs and expectations from the retailer? How satisfied are they with the level of retail market at this moment? What are their current shopping habits? Where do they shop, how do they shop?
Whats the GDP per capita threshold? How much potentially theyve got to spend? How intensively concentrated are your targeted customers? Are they all located in a particular area? What are their purchase habits? Whats their loyalty to the current retailers like? Where do they get their information from? Are they attracted to specific store types? Are they attracted to specific brands?
You need to have an avatar, you should be able to know exactly who your customer is. The simplest way to do it is by going around and asking questions. There are 4 distinct customer profiles that we are going to aim for in the business were developing.
Once you have identified who your customers are, the next step is to identify who youre competing with to reach those customers. Its important that you are aware of the fact that the people you are going after, particularly if youre going into a new market, they already shop somewhere. They already have a degree of loyalty that theyve developed to an existing retailer.
You need to find out as much as possible about those retailers, if youre going to take the customers from them. You need to understand the market and how big your competitors are in this market. You need to have a clear understanding of their customer offer, including the reason why customers shop from them. You need to understand how strong their brand is. Understand what their operational strengths and weaknesses are. Understand what the economic strengths and weaknesses are, and how that might be able to leverage for your advantage.
Additionally, you need to have a look at how many of them are part of a globalized retailer structure – are there overseas retailers that are already competing in the market youre looking at? Whats the expansion status? How quickly are they spreading? Do they have a manufacturing base, either in the country in which you are operating or elsewhere? How many stores do they have? Whats their turnover? Whats the value proposition? Understand how well-organized they are and who owns them. Whats the ownership of the retail market like in the country in which youre looking at expanding?
Its important to recognize how fragmented the market is before you start analyzing the strength of various competitors. India is a very fragmented country, China is very similar – again, lots of mom-and-pop operators – and so, a retailer with a 3% market share in China is going to be a very dominant player, whereas in a more concentrated market, like Australia or US or Britain, a player with 3% market share would be seen as relatively insignificant.
The Social Milieu
The retailers have to take into account the fact that the society in which they are operating is shifting dramatically and very quickly. Things like the size of families, the age at which people get married, the level of education those people have had, the amount of travel those people experienced, all of these things have significantly shifted within the last generation. If retailers dont recognize this change within the society, then theyll be aiming products to customers who just arent here in the volume that they used to be in the past.
For the western world, in particular, one of the major areas where this is happening is in the aging population. Customers that are getting older have different needs than younger customers. Something as simple as vitamin supplements is an area where the aging population is doing a lot of purchase. Its not the usual Executive B Stress Formula vitamins anymore – what youve got its a whole lot of variety of joint pain vitamins and more.
Apple products are one of the best illustrations for a shifting society – how Steve Jobs predicted the new product that the consumers were looking for, because this product never existed before. But he came up with the product as a solution to the desires of the consumers. Therefore, based on what was mentioned before, based on the society becoming more savvy and being able to articulate, in a lot of ways, what they want, it is the job of retailers to come up with those innovative ideas and thus come up with a solution for them.
But dont come up with a fad. Remember how the scooter came in as a fad once upon a time? That wasnt a need; it was more of a fad. It didnt solve the problem the society had, it created a degree of entertainment and a degree of mobility for young people, for whom it was easier than riding a bike, but thats probably about it.
Hence, the recommendation for retailers is to actually take some time out and map the above five metrics, so that the business can run seamlessly.