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
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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.
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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.
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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.
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Scrambled Merchandising: A retail strategy where a retailer increases the range of different types of products it sells to boost sales.
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Retail Life Cycle: The lifecycle stages a retail organization goes through, from introduction and growth to maturity and decline.
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Product Line Extension: Adding new product ranges to an existing product category to broaden the company’s offerings.
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Market Cannibalization: A scenario where a new product line takes away sales from the existing product lines of the same company.
Online References
- Investopedia on Wheel of Retailing
- Wikipedia - Retailing Industry
- Retail Theory: Wheel of Retailing explained
Suggested Books
- Retail Management: A Strategic Approach by Barry Berman and Joel R. Evans
- The New Rules of Retail: Competing in the World’s Toughest Marketplace by Robin Lewis and Michael Dart
- 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.
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### 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.
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### 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.
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### 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.
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### 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.
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### 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.
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### 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.
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### 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.
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### 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.
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### 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.
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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!