Wheel of Retailing

Wheel of Retailing Retail Evolution Marketing Strategy Pricing Strategy Retail Industry Dynamics Discount Retailers Full-Line Department Stores
The Wheel of Retailing is a retail marketing process through which original low-price discounters upgrade their services and gradually increase prices. This evolution into full-line department stores creates an opportunity for new low-price discounters to enter the market, perpetuating a continuous cycle.
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Definition

Wheel of Retailing is a theory and process in retail marketing where initial low-priced discount retailers progressively enhance their range of services and facilities, resulting in increased prices. As these retailers evolve into more traditional full-line department stores, this opens up a competitive void that fosters the emergence of new low-price discounters, thereby propagating a continual cycle.

Examples

  1. Walmart: Originally started as a low-price discount store and has since evolved to offer a wide array of services, including banking, pharmacy, and online shopping, often at higher prices than the original discount model.

  2. Target: Initially positioned as a discount retailer, Target has progressively upgraded its stores, introduced exclusive product lines, and enhanced customer service, leading to higher average prices.

  3. Dollar General: Continues the cycle by targeting the low-price, low-service niche initially occupied by retailers like Walmart before their evolution.

Frequently Asked Questions

Q: What triggers the Wheel of Retailing process?

A: The process is often initiated by low-price retailers looking to increase market share by initially offering low prices. Eventually, competitive pressures and the desire for increased profitability drive them to upgrade their services and facilities.

Q: Does the Wheel of Retailing affect all retail sectors equally?

A: No, the impact varies across different sectors. It is most apparent in industries with high competition and low entry barriers, such as discount retail.

Q: Can the Wheel of Retailing process lead to the failure of original discount retailers?

A: Yes, if the original discount retailers fail to manage their transition effectively, they risk losing their price-sensitive customer base without attracting enough higher-income customers to offset the loss.

  1. Scrambled Merchandising: A retail strategy where a retailer increases the range of different types of products it sells to boost sales.

  2. Retail Life Cycle: The lifecycle stages a retail organization goes through, from introduction and growth to maturity and decline.

  3. Product Line Extension: Adding new product ranges to an existing product category to broaden the company’s offerings.

  4. Market Cannibalization: A scenario where a new product line takes away sales from the existing product lines of the same company.

Online References

  1. Investopedia on Wheel of Retailing
  2. Wikipedia - Retailing Industry
  3. Retail Theory: Wheel of Retailing explained

Suggested Books

  1. Retail Management: A Strategic Approach by Barry Berman and Joel R. Evans
  2. The New Rules of Retail: Competing in the World’s Toughest Marketplace by Robin Lewis and Michael Dart
  3. Retail Marketing Management by David Gilbert

Fundamentals of Wheel of Retailing: Retail Marketing Basics Quiz

### What initiates the Wheel of Retailing process? - [x] Low-price retailers seeking to increase market share through competitive pricing. - [ ] High-price retailers reducing their prices. - [ ] Mergers and acquisitions in the retail industry. - [ ] Government incentives for retailers. > **Explanation:** The Wheel of Retailing begins with low-price retailers entering the market to increase market share via competitive pricing and gradually upgrading their services over time. --- ### How do original low-price discounters evolve according to the Wheel of Retailing theory? - [ ] By maintaining low prices and increasing sales volumes. - [ ] By upgrading their services and increasing prices. - [x] By both upgrading their services and increasing prices. - [ ] By expanding internationally without changing their price strategy. > **Explanation:** In the Wheel of Retailing, initial low-price discounters evolve by improving services and facilities, leading to increased prices. --- ### What creates an opportunity for new low-price discounters in the Wheel of Retailing cycle? - [ ] Market saturation of high-end products. - [ ] High operational costs of established retailers. - [x] The original discounters upgrading and increasing their prices. - [ ] Government policies favoring new businesses. > **Explanation:** The transition of original discounters to higher prices and enhanced services creates a market gap for new low-price discounters to enter. --- ### What critical challenge might original low-price discounters face during their evolution? - [ ] An excess of low-priced products. - [x] Losing their original price-sensitive customer base. - [ ] Overexpansion into global markets. - [ ] Insufficient marketing efforts. > **Explanation:** As original low-price discounters increase prices to upgrade services, they risk losing their core price-sensitive customers without sufficiently attracting higher-income customers. --- ### Which term describes the addition of different product types within a retail space to boost sales? - [ ] Market Cannibalization - [ ] Upselling - [x] Scrambled Merchandising - [ ] Product Life Cycle > **Explanation:** Scrambled Merchandising refers to a retail strategy where a variety of new product types are added to the sales mix to increase sales volume. --- ### According to the Wheel of Retailing theory, why do retailers increase prices over time? - [ ] To reduce operational complexity. - [x] To increase profitability and market appeal. - [ ] To focus on a narrower customer segment. - [ ] To limit the number of customer transactions. > **Explanation:** Retailers increase prices over time in order to boost profitability and improve their market proposition by offering higher-quality services. --- ### Full-line department stores often emerge from what type of retailers? - [ ] High-end Boutiques - [ ] Specialized Retailers - [ ] Online-only Stores - [x] Low-price discounters > **Explanation:** According to the Wheel of Retailing, full-line department stores evolve from original low-price discounters that have progressively enhanced their service offerings and pricing structures. --- ### What typically fills the market gap left by original low-price discounters? - [ ] High-end luxury brands - [x] New low-price discounters - [ ] Online marketplaces - [ ] Wholesale suppliers > **Explanation:** As original low-price discounters evolve and increase prices, new low-price discounters often enter the market to fill the void left for price-sensitive customers. --- ### In the Retail Life Cycle, which stage are evolving discounters likely progressing towards? - [ ] Introduction - [ ] Growth - [x] Maturity - [ ] Decline > **Explanation:** Evolving discounters upgrading services and increasing prices are likely moving from the growth stage towards maturity in the Retail Life Cycle. --- ### What is a principal driver behind the evolution of discounters into full-line department stores? - [ ] Technological advances - [ ] Government regulations - [ ] Real estate market trends - [x] Competitive pressures and market demands > **Explanation:** The transformation of low-price discounters into full-line department stores is primarily driven by competitive pressures and evolving market demands. ---

Thank you for exploring the fascinating dynamics of the Wheel of Retailing with our detailed content and quizzes. Keep enhancing your knowledge in retail marketing and retail industry strategies!

Wednesday, August 7, 2024
When Issued
Wetlands
Leader Pricing January 1, 1

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