Wheel of Retailing Theory application (Essay Sample)

Wheel of Retailing Theory (Your Name) (Instructor) (course unit) (Date) 1. Apply the wheel of retailing theory to your local community. What changes seem likely? Will established retailers see the need for change, or will entirely new firms have to develop? The Wheel of Retailing Theory (WOR) refers to the theory propounded by Professor Malcolm P. McNair in 1958 explaining the evolution phenomenon of brands in the retail industry mainly in western industrialized economies in Europe and the US (Massad et al, 2011). According to the theory, changes in a retail institution assume a cyclical manner. There are three phases which revolve like a wheel i.e. Entry phase, Trade up phase, and Vulnerability phase. In the entry phase retailers provide low cost products and accept low margins for the various products they offer since it is the only way to acquire most customers. Since they are new in the market, they tend to offer only a limited product range and also offer low services. They are characterized by new and (often poor) facilities and low market penetration. At this phase they are trying to get a foothold in the new market that they have ventured into and hence are quite innovative. After gaining a foothold in the market, the retailer moves to the Trade up phase. In this phase the retailer embarks on a more elaborate expansion of both facilities and product range/offerings. The retailer also offers higher priced products that return high margins to the retailer. In this phase, the retailer is a well established traditional brand with a formidable customer base in the market. The third phase-Vulnerability phase- is characterized by reduction or slowing down of return on investment, conservatism and a top-heavy organizational structure. The phase’s typical characteristics are those of a mature retailer in a market. By virtue of the fact that return on investment has reduced, the retailer has to go back to the drawing board and embark on innovation in order to survive and thrive again in the market. The wheel of retailing theory is very much applicable in my community. A few years ago Spear Supermarket was the dominant retail store. It had began as a low-cost budget store that had its first store in the poorest parts of the town, and its pricing regime was quite customer friendly. The retailer became so popular with the generally poor and low middle income customers who found the prices of the various products so low. So popular was Spear Supermarket that analysts described the mass appeal phenonomenon as ‘the cult of Spear Supermarket’. The store had significantly eaten into the market shares of the traditionally dominant retailers. Other retailers started accusing Spear Supermarket of unfriendly business practices, but there was no substance to the allegations. Having gained a formidable market share, the retailer soon started venturing into its non traditional locations. It opened branches in the up market sections of the town where the upper middle class and the wealthier lived. These branches stocked high end goods which the market adopted very well.Soon, Spear Supermarket started gaining traction with the upper middle class for its trendy offerings. The returns from the high margin offerings were alluring and soon it became apparent that the management was now focusing more on the stores in the affluent areas. It soon began phasing out low margin products even in her retail stores located in the poor neighborhoods. It was now quite clear that the store was branding itself as a high cost retail store dedicated to serving the wealthy customers as the repertoire of its offerings were now highly priced and out of reach to the low income earners. The retail store instead grew quite popular with the affluent customers as it gradually increased luxury offerings to meet their tastes. This shift of market focus by the dominant retailer no doubt left out a segment of the market unserved: the low class and lower middle class. Budget Supermarket, a nondescript store came to fill the market vacuum. It set up a few small stores in the refurbished garages in the poor neighbourhoods.It offered a narrow range of consumer products with low prices which appealed to the market. It was quite innovative that it even stocked lowest quantity products ‘mini products’ which gained traction with the poor. Budget Supermarket gradually gained a formidable market share, and even began to make inroads into the market share of Spear Supermarket by establishing exploratory stores in the affluent neighborhoods and stocking premium products. It projected itself as a ‘compassionate’ retailer ready to listen to the needs of the customer more. It also introduced the concept of mobile supermarket where Budget trucks loaded with different products stacked in designer shelves inside the trucks would drive into the inner reaches of the ghettos and even the poor customers would have the thrill and experience of shopping in the Budget Supermarket. Having consolidated its market share in the low income market segment, it began to ven...