Wheel of Retailing Theory
Wheel of retailing theory is a process that is used in retail marketing in scenarios whereby a discount store improves it services and products with the aim of boosting prices once it has established itself. As it rotates around the wheel of retailing, a discount retail business might be able to enhance itself to a larger departmental store, leaving the former niche to be occupied by new discount establishments entering the market.
The hypothesis of wheel retailing describes the approach that retailers apply in order to capture market share, while creating brand value. It offered an explanation of how retailers usually start at the bottom of the wheel with limited prices, profits and prestige and the work their way up gradually to better prices, profits and prestigious placement in the market. It should be noted that the wheel of retailing theory is basically a hypothesis and may not be applied in all retailing situations. However, it can be useful in explaining various retailing trends in most countries.
Today, many companies are looking for options of pursuing the avenue that is represented by the wheel of retailing theory. However, it has not been very easy for many retailers that are newly established to venture into the high end markets. The main goal for most businesses is starting at the bottom and working their way to success. As a result of this, the theory is less substantive as some people may tend to imagine, considering that the final stages of the wheel of retail are that businesses work their way out of the low to mid-price market upon which they are replaced by new competitors in the market offering low prices.
An ideal example of how the theory of wheel of retailing has been successfully applied is the Korean automobile manufacturer Hyundai. Founded in 1947 as a construction company, Hyundai eventually expanded to become Korea’s largest automobile manufacturer. The conglomerate that founded the Hyundai Motor Company, The Hyundai Group ventured into the highly competitive automotive market of the United States in 1986. During this time, it offered mostly low-end cars that were affordable to the majority of the population.
As Hyundai established itself in the US market, it rapidly introduced higher-end cars that remained economically competitive. Today, it has grown to become one of the mainstream automobile companies with major presence in the America. Similar transitions were also made by Japanese automobile manufacturers in the American market; however, theirs were under circumstances that were slightly different.
Even though this theory might seem to be a lucrative avenue than can enhance the growth of retail businesses, it may not work for all firms. In fact, there are quite a number of retail stores that have not been able to successfully implement. An example is K-Mart that has made several attempts to break out of its reputation as a low-end chain store through marketing more upscale line of clothing. The choice of applying the wheel retailing theory is normally motivated and influenced by the desires of consumers and need to enhance consumer satisfaction and profits.
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