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Course Title: Retailing Management Unit-1 The World of Retailing Introduction to the world of Retailing Store-based Retailing Electronic and non-store Retailing The Retail customer Customer buying behavior Unit-2 Retailing Strategy Retail market strategy Financial strategy Retail locations Site selection Organization structure and human resource management Information Systems and supply chain management Unit-3 Merchandise Management-I Planning Merchandise Assortments Buying systems Buying merchandise Unit-4 Merchandise Management-II Pricing Retail Communication Mix Unit-5 Store Management Managing the store Store layout, design and visual merchandising Customer serviceReference book: Retailing Management By Michael Levy & Barton A. Weitz,Tata McGraw Hill Publication, Fourth Edition

Lecture1,Introduction to world of retailing:

Lecture1,Introduction to world of retailing Retailing is set of business activities that adds value to the products and services sold to consumers for their personal or family use. Retailers attempt to satisfy customer needs by having the right merchandise at the right price, at the right place, when the consumer wants it.

A Retailers Role in a distributor’s Channel:

A Retailers Role in a distributor’s Channel The distribution channel consists of Manufacturing to Wholesaling to Retailing to consumers Vertical Integration Vertical Integration means that a firm performs more than one set of activities in the channel such as investment by retailers in wholesaling and retailing activities Like Safeway, walmart , and Office Depot

Functions performed by Retailers:

Functions performed by Retailers Providing an assortment of product and services- This helps customers to choose from a wide selection of brands, designs, sizes, colors and prices in one location Breaking bulk-Providing the products(transported in bulk) in smaller quantities tailored to individual consumer’s consumption pattern Holding inventory-to help consumers keep smaller inventories at home especially to perishable products. Providing services-services to make it easier for customers to buy and use products. Multichannel retailers offer the flexibility of buying any time day or night. Examples like home delivery


Retailers add value to products and services-Discuss with examples (Exercise) Type of non store Retail Sales-Apart from store and retail sales there are non retail sales like internet sales to consumers, TV Home shopping, and sales of services like such as movie tickets, hotel rooms and legal assistance. Top 25 global Retailers-page 11 Wal-Mart, Carrefour, Kroger, Metro, K-mart, Sears , target ,Tesco, J.C. penny

Career Opportunities in Retailing:

Career Opportunities in Retailing Management Opportunities Retailers raise capital from financial institutions , purchase goods and services, develop accounting and management information systems to control operations, manage ware houses and distribution systems and design and develop new products as well as undertake marketing activities such as advertising, promotions, sales force management and market research . Career opportunities as such exist in areas of finance, accounting , HRM, logistics systems and marketing. Store management(sales planning and goal setting , overall store image and merchandise presentation, budgets and expense control, customer service and sales supervision , personnel administration and development and community relations. Merchandise management-requires people with strong analytical capabilities, an ability to predict what merchandise will appeal to their target markets and a skill to negotiate .BUYING AND PLANNING Corporate staff: computer systems-data capture and applications


continued Computer systems- contd - quick response inventory systems to minimize inventory costs and ensure product availability, expedient point of sale systems and EDI Operations and distribution-overseeing movement of merchandise in an accurate, efficient and timely manner, for operating and maintaining the store’s physical plant, for providing various customer services, for the receipt, warehousing and distribution of store’s inventory and for buying and maintaining store supplies and operating equipment. Promotion and advertising-encouraging people to buy new merchandise Loss prevention-developing loss prevention system and controlling internal and external theft. Finance/control-preparing financial reports,long range forecasting and planning, economic trend analysis and budgeting,financial soundness Real Estate-for selecting locations for stores, negotiating lease and purchase Store design-providing clearly defined comfortable and visually pleasing stores, easy to shop, easy to maintain and flexible store layouts,requires creativity in business , art, architecture for store design HRM-for effective selection, training, placement, advancement and welfare of employees

Lecture 2,Store based Retailing:

Lecture 2,Store based Retailing Two types of Retailing Store based Retailing Non Store based Retailing Retailers differ in terms of type of merchandise and services they offer to customers, the nature of retail mixes used to satisfy customer needs, the degree to which their offerings emphasize services versus merchandize and the ownership of the firm


Trends in the retail industry Growing diversity of Retail formats right from traditional discount stores to open super centers( Wal -mart), Internet,E -Bay, Tesco’s development of new food formats in U.K. Tesco express(Combination of Gasoline and convenience stores) Big Bazar combines discount and super store food retailer in one Ware-house like building Increasing industry concentration . Wal - Mart,K -Mart and target accunt for over 85 per cent of the sales in full line discount stores,walgreens,CVS ,Rite-Aid and J.C. Penny represent 53 per cent of the drug store sales , Wal -MART, carrefour through efficient distribution system and communication systems., Mcdonald and KFC Sweden’s IKEA furniture stores chain In India, future Group, Mark and Spencer, Shopper’s stop etc Maturation of domestic markets Skills and systems Lowering of Trade Barriers - Steps taken by WTO, EU, ASEAN( South east asian countries)

Retailer mix:

Retailer mix Customer service Store design and display Communication mix Location Merchandizing pricing

Retailer characteristics:

Retailer characteristics Most basic characteristics of a retailer is its Retail mix. Retailers can be classified through 4 elements of Retail Mix The type of merchandise sold-six digit North American Industry classification system ( NAICS)codes representing like sectors, subsectors,Industry group etc The variety and assortment of merchandise of merchandises sold- Variety (number of merchandise categories)is referred as breadth of merchandise . Assortment is the number of different items in a merchandise category calling each as SKU The level of customer service – Adjustments , repair, selecting the appropriate item Price of the merchandise- Departmental stores appeal to consumers looking for fashionable apparel and home furnishings compensating price by service, location while discount stores appeal to customers looking for lower price less interested in service , variety, brands and colors

Decision process of Retailing :

Decision process of Retailing Step-1-Getting an Understanding of the world of retailing. Retailers need to understand the environment and competition which is retailer’s micro environment while understanding macro-environment includes technological, social, ethical,legal,political factors. Types of retailing Multichannel retailing Customer buyer behaviour

Retailer’s strategy:

Retailer’s strategy Retail Marketing strategy Financial strategy Retail Locations Site locations Organization structure and HRM Information systems and SCM CRM

Merchandize management:

Merchandize management Planning merchandize assortments Buying systems Buying merchandize Pricing Retail Communication mix

Store management:

Store management Managing the store Store layout, design and visual merchandizing Customer service

Types of stores retailing:

Types of stores retailing Food Retailers- WalMart ( ist ), Kmart, Target are all foodretailers in addition to Kroger(2 nd ), Albertson (5 th )and Carrefour (3 rd ),Royal Ahold (4 th ). In addition to food they have pharmacies, photo processing centers , banks and cafes Conventional Supermarkets-is a self service food store offering groceries, meat and produce with limited sales of non-food items such as health and beauty aids and general merchandise.Many adopt(EDLP) Everyday low pricing policy Big Box food Retailers- like super centers,hypermarkets , and warehouse Super Centers clubs.Super centers spread in areas of 150000 to 220000 sq. ft stores offering wide variety of food and non-food merchandise. Super centers stock between 100000 and 150000 SKUs. Hyper-markets- Hyper market typically stock less than Super centers between 40000 and 60000 items ranging from groceries, hardware, sports equipments, furniture, computers and electronics


contd Warehouse club- A warehouse club offers limited assortment of food and general merchandise with littele service at low price .Aisles are wide so forklift can pick up pallets of merchandise and arrange them on selling floor. Examples are Costco club and Sam’s club.Merchandise in warehouse clubs is half food and half general merchandise. Convenience stores- Provide a limited variety and assortment of merchandise at a convenient location in a 2000 to 3000 Sq Ft store with speedy checkout. They are the modern version of Pop AND Mom stores. In addition to selling milk,eggs and bread they sell gasoline accounting to 55 per cent sale, They charge higher price than super market. General merchandize retailers like discount stores, specialty stores, category specialists, department stores, home improvement centers, off-price retailers and value retailers


Types of General Merchandise Retailers. Discount stores –Retailer which offers a broad variety of merchandise ,limited service and low prices, like Wal - mart,K -Mart and Target. Wal -mart pioneered concept of every day low price9improved supply chain).Target has opted for quality and style and is trendy Specialty stores- concentrates on limited number of complementary merchandise categories and provides high level of service in area of typically 8000 sq.ft.Zara ( spain ) and H&M( sweden ) Respond to fashion on demand. Category specialist- These are basically discount specialty stores offering narrow variety but with deep assortment of merchandise. Home improvement centers-A category specialist offering ‘do it yourselfer.’ and contracters to make home improvements. Department stores-are retailers that carry a broad variety and deep assortment,offer some customer service and are organized in separate departments for displaying merchandize. E.g. sears ,JC Penny ,federated department Stores and the May Company . Department stores is like collection of specialty shops


Drug-stores- are specialty stores that concentrate on health and personal grooming merchandiseThey use computer systems to allow pharmacist time to provide personalized service like home delivery,automatic phone calls to pick up etc. Off-price stores- - Low priced inconsistant assortment of brand name and even designer level merchandize at low rices due to their unique buying and merchandize practices.This involves opportunistic buying like excess inventory at end of the season . Merchandize might be in odd sizes or unpopular color or styles or with minor mistakes in construction Value retailers- (Good Value) Customers cater to low income group. These consumers though demad well known national brands but they can’t afford to buy large-size packages. Few just sell merchandize for a dollar. Dollar Generalhas a price of 1 Dollar.Prices at family Dollar go up to 20 Dollar.


NON STORE RETAIL FORMATS Electronic Retailers , catalog and direct mail retailers, direct selling, television home shopping and vending machines Electronic Retailing- (internet retailing) is a retail format in which the retailers communicate with customers and offers products and services for sale over the internet. Amazon.com, E-bay, priceline.com, Barnes & Nobles .com Books , CDs , DVD , Videos ,apparel, computer software and toys are best selling merchandize on-line. Traditional retailers have incorporated an internet channel into a multichannel offering that provides more value to customers. Electronic retail innovators may have superior skills in using the new technology but they lack retailing expertise and a deeper understanding of customer needs.

Catalog and direct Mail Retailing:

Catalog and direct Mail Retailing In CATALOG RETAILING, RETAIL OFFERING IS COMMUNICATED TO CUSTOMER THROUGH A CATALOG whereas Direct Mail Retailers communicate with their customers using letters and brochures Two types General merchandize catalog retailer Specialty catalog retailers Direct selling-A highly interactive form of selling. Here a Salesman contacts a customer directly in a convenient location, either at customer’s home or at work and demonstrates merchandize benefits, takes an order and delivers the merchandize to customer. This is however costly due to due to high level of info including extensive demos. Television shopping- Here customer watch a TV Program demonstrating merchandize and then places order by telephone. Here customer can actually see the product. Vending Machine retailing- Here merchandize or service are stored in a machine and dispensed to customers when they deposit cash or use a credit card. Vending machines are placed AT CONVENIENT , HIGH TRAFFIC LOCATIONS AND PRIMARILY CONTAIN SNACKS AND DRINKS.

Service retailing:

Service retailing Like health services in Gym,laundries,hairdressing , film develoment Banks,hospitals,health spas,legal clinics,entertainment firms are adopting retailing principles Service retailing are distinguished by 1.Intangibility2.simultemeous production and consumption(eating in restaurant )3.perishibility(after the take off of airline the sale is lost)4. inconsistency in offering to customers(waiter’s service may vary depending on his mood or tax consultant van offer different services.

Customer buying behavior:

Customer buying behavior Understanding customer needs and buying behavior is critical for effective retail decision making The buying process begins when customers recognize an unsatisfied need and then they seek information on how to satisfy need. What products might be useful and how they can be bought. There are three types of customer decision making process as under 1.Extended problem solving- here customers devote a considerable time to analyze alternatives and the purchase decisions involve lot of risk and uncertainty 2.Limited Problem solving- This involves moderate amount of effort and time. In this type of buying process they have some prior experience with the product or service and their risk is moderate. Majority of customer’s buying involves limited problem solving. One common type of limited problem solving is impulse buying


3. Habitual decision making-is a purchase decision process involving little or no conscious efforts. This process is used when decisions are not very important to customers and involve familiar merchandise they have used in the past. Brand loyalty and habitual and store loyalty are examples of habitual decision making. Store loyalty can be increased by selecting a convenient location, offering complete assortments and reducing the number of stock-outs., rewarding customer for frequent purchases and providing good customer service. Brand loyalty creates both opportunities and problems for retailers. Customers are attracted to stores carrying popular brands. Since retailers must carry the high loyalty brands, they may not be able to negotiate favorable terms with the supplier of the popular national brands.

Buying process :

Buying process There are various stages in buying process such as Need Recognition Information search Evaluation Choice Visit Loyalty

Need Recognition :

Need Recognition The buying process is triggered when people recognize they have an unsatisfied need. An unsatisfied need arises when a customer’s desired level of satisfaction differs from his present level of satisfaction. Two types of needs are there. Functional needs-needs directly related to performance of the product like hair dryer for styling the hair . The purchase is based on the expectation that hair dryer will assist the customer in styling hair. Psychological needs-are associated with the personal gratification customers get from shopping or from purchasing an downing a product. for eg Tommy Hilfiger shirt may not be better than a knit shirt from K-Mart but Hilfiger’s shirt may help to satisfy the customer’s need to be perceived as a fashionable dresser. In satisfying psychological needs, the product’s functional characteristics are less important. Many products satisfy both functional and psychological needs. Functional needs are often referred to as rational while psychological needs are called emotional. Successful retailers attempt to satisfy both the functional and psychological needs of their customers. Psychological needs that can be satisfied through shopping and purchasing merchandise include stimulation, social experience, learning new trends, status and power and self reward.


Stimulation-through background music , visual displays, scents and demos in stores and malls to create a carnival like stimulating experience for their customers. They also attempt to stimulate customers with exciting graphics and photography on their websites and catalogs. Social Experience-Malls try to satisfy this need by creating food courts , Barnes and Noble book stores have cafes where customers can discuss novels while sipping a latte. Learning new trends-By visiting retailers people learn about new trends and ideas. For e.g. record stores use displays to show shoppers what new trends and artists are emerging. Status and Power-A store is one of the few places where they get attention and respect. stores provide aristocratic gentility and good life in refurbished mansion in new Yorkcity . Cocktails are served in the evening Self Reward- Customers frequently purchase merchandise to reward themselves when they have accomplished something or want to dispel depression.


Information search- Once customer identifies the need, This can involve seeking more info about product and retailers like collecting a lot of info. ,visiting several retailers and deliberating long time before making a purchase.


Cross shopping- pattern of buying both premium and low priced merchandise or patronizing expensive , status oriented retailers and price oriented retailers is called cross shopping

Evaluation of Alternatives-Multi-Attribute model:

Evaluation of Alternatives-Multi-Attribute model The model provides a useful way for summarizing in a tabular for how customers use the info. They have about alternative products, evaluate the alternatives and select what best satisfies their needs. The model predicts customer’s evaluation of the product or the retailer based on 1. Its performance on relevant attributes 2. Importance of these attributes to customers

Information about stores selling groceries:

Information about stores selling groceries Stores characteristics Super center Super market Internet grocer Grocery prices 20% below avg Average 1o% above avg Delivery cost($) 0 0 10 Total travel time (min.) 30 15 0 Typical check out time 30 5 2 No ofproducts , brands,sizes 20000 15000 5000 Fresh produce Yes Yes yes Fresh fish yes yes NO. EASE of finding products difficult Esay Easy Ease of collecting nutritional info difficult Difficult Esay

Belief about stores performance benefits:

Belief about stores performance benefits Performance benefits Super center super market Internet grocer Economy 10 8 6 Convenience 3 5 10 Assortment 9 7 5 Availability of 4 4 8 Product info.

Important weights:

Important weights Important weights Performance belief Characteristics Young single woman parent with 4 children super centre super mkt internet Economy 4 10 10 8 6 Convenience 10 4 3 5 10 Assortment 5 8 9 7 5 Availability of product 9 2 4 4 8 Info OVERALL EVALUATION Young single woman 151 153 221 Parent with 4 children 192 164 156 For e.g 151= 4*10 + 10*3 + 5*9 + 9*4

Selection in buying a suit:

Selection in buying a suit Beliefs about performance Benefits provided by suit Important weights suit A Suit B Suit C Economy 6 6 5 5 Quality 6 10 7 8 Conservative look 8 6 6 10 Complement to wardrobe 8 7 6 9 Fashion 4 7 10 5 Fit 10 ? ? 8 Overall evaluation 330


Changing performance beliefs for e.g supermarket in above example 1 could improve its rating on economy by lowering prices and could improve its rating on assortment by stocking more gourmet and ethnic food , genetically modified items etc Changing important weights- A retailer would want to increase the importance customers place on benefits for which its performance is superior and decrease the importance of benefits for which it has inferior performance.

Purchasing merchandise:

Purchasing merchandise Don’t stock out of popular merchandise. Have a complete assortment of sizes and colors for customer to buy Reduce the risk of purchasing merchandise by offering liberal return policies and refunds if the same merchandise is available at a lower price from another retailer. Offer credit Make it easy to purchase merchandise by having convenient checkout terminals. Reduce the actual and perceived waiting time in lines at checkout terminals.

Social factors influencing buying decisions :

Social factors influencing buying decisions Family - Retailers must understand how families make purchase decisions and how various family members influence the decisions.-baby sitting , play-club at airports, malls etc Reference Groups- Friends ,peer-group Culture - Americans care for health and fitness, individualism while Chinese and J Japanese have family values and collectivism Values and beliefs

Market Segmentation:

Market Segmentation Market segmentation-A retail market segment is a group of customers whose needs are satisfied by the same retail mix because they have similar needs for e.g families traveling on business trip have different needs than families on vacation trip. Action ability- like physical size , customers wearing large size have different needs than customers wearing small. Accessibility Geographic segmentation-region, population density , climate Demographic-Age, gender, family life cycle, family income, occupation , education, religion ,race , nationality Psychosocial- social class, lifestyle, personality Feelings and behavior- Attitudes, benefit sought, stage in decision process, perceived risk, innovativeness, loyalty, usage rate, usage situation, user staus


A customer is the most important visitor on our premises, he is not dependent on us. We are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an outsider in our business. He is part of it. We are not doing him a favor by serving him. He is doing us a favor by giving us an opportunity to do so. Mahatma Gandhi - Customers - Improvement - Business - Work - Opportunities

Retail Market Strategy, the target market segment,retail format and sustainable competitive advantage:

Retail Market Strategy, the target market segment,retail format and sustainable competitive advantage A retail strategy involves The retailer’s target market.- which is the market segment towards which the retailer plans to focus its resources and retail mix The format retailer plans to use to satisfy the target market needs- retail format is the retailer’s mix(nature of merchandise and services offered, pricing policy, advertising and promotion program , approach to store design and visual merchandizing and typical location) The base upon which retailer plans to a sustainable competitive advantage. -competitive advantage that can be maintained over a long time

Target market and retail format:

Target market and retail format Retailing concept is a management orientation that focuses a retailer on determining the needs of a target market and satisfying those needs more effectively and efficiently than its competitors. Retail market-is not a specific place where buyers and sellers meet but group of consumers with similar needs and a group of retailers using a similar retail format to satisfy those consumer needs.

Building a sustainable competitive advantage (SCA):

Building a sustainable competitive advantage (SCA) Any business activity that a retailers engages in can be basis for a competitive advantage. There are Seven opportunities for retailers to develop SCA. Customer Loyalty Location HRM Distribution and information systems-has enable Wal -mart to become lowest cost provider of merchandise in every market it competes-merchandise sales info. Flows to procter and Gamble flows seamlessly to facilitate quick and efficient merchandise replenishment.Wal -MART has the largest data warehouse in the world enabling the company to finetune merchandise assortments on a store to store ,category by category basis Unique merchandize-development of store branded merchandise by developing private label brand(also called Stores brand) Vendors relations-Good relations with vendors can give exclusive rights to the Retailers Customer service

Methods of developing competitive advantage:

Methods of developing competitive advantage Source of advantage less sustainable More sustainable Customer loyalty Habitual repeat purchasing build brand image because of limited comptn . With emotional connection Location Convenient location HRM More employees committed,knowledgeable Employees Distribution and info.system bigger and automated Whouse shared systems with vendors Unique merchandize More merchandise Exclusive merchandise Vendor relations repeat purchase from vendors coordination of procurement ,ability due to limited alternatives to get scare merchandise Customer service Hours of operation Knowledgeable and helpful sales people


positioning A retailer builds customer loyalty by developing a clear ,distinctive image of its retail offering and consistently reinforcing that image through its merchandise and service. Positioning is the design and implementation of a retail mix to create an image of the retailer in customer’s mind relative to its competitors. Loyalty programs- part of CRM(Customer relationship management),use of data warehouses to locate lyalty


Location Three most important things in Retailing are location , location and location E.g. Starbucks . By concentrating its locations, starbucks creates a market presence that is difficult for competition to match. Multiple locations facilitate scale economies that enable frequent deliveries ensuring frsh merchandise.

Human Resource Management:

Human Resource Management A sustainable competitive advantage is created by developing programs to motivate and coordinate employee efforts by providing appropriate incentives by fostering a strong and positive organizational culture and environment and by managing diversity.

Distribution and information system:

Distribution and information system Walmart’s distribution and information system’s have enabled the retailer to be the lowest cost provider of merchandize in every market in which it competes.

Growth strategies:

Growth strategies 4 types of growth opportunities, which Retailers pursue. Market penetration , Market expansion, Retail format Development, Target Markets Existing New Existing new Market penetration Market expansion Format Development Diversification Unrelated/related Retail Format

Market penetration:

Market penetration A market penetration opportunity involves directing efforts towards existing customers by using the present retail format. Approaches include attracting consumers in its current target market by devising the strategies that include current customers to visit a store more often or to buy more merchandize on each visit. Increase impulse purchase and cross-selling(efforts of sales personnel by selling interdepartmental merchandize by add-ons)

Market Expansion:

Market Expansion A market expansion opportunity employs the existing retail format in new market segments. Like creating computers, mobile phones for kids

Retail format development:

Retail format development A retail format development opportunity involves offering a new retail format- a format with a different retail mix-to the same target market. Like Amazon started selling CDs, Videos, and electronics in addition to books.

Diversification :

Diversification A diversification strategy is when a retailer introduces a new retail format directed towards a market segment that is not currently served.

Entry Strategy:

Entry Strategy Direct investment Joint venture Strategic alliance Franchising- uk based mark & spencer has 136 franchised stores in 27 countries.

Strategic retail planning process.:

Strategic retail planning process. It is set of steps a retailer goes through to develop a strategic retail plan. Step-1 Define the business mission Step-2 Conduct a situation audit(SWOT)-Market attractiveness analysis, competitor analysis, self analysis Step-3 Identify strategic opportunities Step-4 Evaluate strategic alternatives Step-5 Establish specific objectives and allocate resources Step-6 Develop a retail mix to implement strategy Step 7 Evaluate performance and make adjustments


Ducks Quack, Eagles Soar No one can make you serve customers well. That's because great service is a choice. Harvey Mackay tells a wonderful story about a cab driver that proved this point. He was waiting in line for a ride at the airport. When a cab pulled up, the first thing Harvey noticed was that the taxi was polished to a bright shine. Smartly dressed in a white shirt, black tie, and freshly pressed black slacks , the cab driver jumped out and rounded the car to open the back passenger door for Harvey.He handed my friend a laminated card and said -'I'm Wally, your driver. While I'm loading your bags in the trunk I'd like you to read my mission statement.' Taken aback, Harvey read the card. It said, “Wally’s Mission Statement - To get my customers to their destination in the quickest, safest and cheapest way possible in a friendly environment." This blew Harvey away. Especially when he noticed that the inside of the cab matched the outside. Spotlessly clean! As he slid behind the wheel, Wally said, 'Would you like a cup of coffee? I have a thermos of regular and one of decaf.' My friend said jokingly, 'No, I'd prefer a soft drink.' Wally smiled and said, 'No problem. I have a cooler up front with regular and Diet Coke, water and orange juice.' Almost stuttering, Harvey said, 'I'll take a Diet Coke.' Handing him his drink, Wally said, 'If you'd like something to read, I have The Wall Street Journal, Time, Sports Illustrated and USA Today.'


As they were pulling away, Wally handed my friend another laminated card. 'These are the stations I get and the music they play, if you'd like to listen to the radio.' And as if that weren't enough, Wally told Harvey that he had the air-conditioning on and asked if the temperature was comfortable for him. Then he advised Harvey of the best route to his destination for that time of day. He also let him know that he'd be happy to chat and tell him about some of the sights or, if Harvey preferred, to leave him with his own thoughts. 'Tell me, Wally,' my amazed friend asked the driver, 'have you always served customers like this?' Wally smiled into the rear view mirror. 'No, not always. In fact, it's only been in the last two years. My first five years driving, I spent most of my time complaining like all the rest of the cabbies do. We @ www.albs.co.in too care for you Page 2 of 2 Then


Then I heard the personal growth guru, Wayne Dyer, on the radio one day. He had just written a book called 'You'll See It When You Believe It'. Dyer said that if you get up in the morning expecting to have a bad day, you'll rarely disappoint yourself. He said, 'Stop complaining! Differentiate yourself from your competition. Don't be a duck. Be an eagle. Ducks quack and complain. Eagles soar above the crowd.' 'That hit me right between the eyes,' said Wally. 'Dyer was really talking about me. I was always quacking and complaining, so I decided to change my attitude and become an eagle. I looked around at the other cabs and their drivers. The cabs were dirty, the drivers were unfriendly, and the customers were unhappy. So I decided to make some changes. I put in a few at a time. When my customers responded well, I did more.' 'I take it that has paid off for you,' Harvey said. 'It sure has,' Wally replied. 'My first year as an eagle, I doubled my income from the previous year. This year I'll probably quadruple it. You were lucky to get me today. I don't sit at cabstands anymore. My customers call me for appointments on my cell phone or leave a message on my answering machine. If I can't pick them up myself, I get a reliable cabbie friend to do it and I take a piece of the action.' Wally was phenomenal. He was running a limo service out of a Yellow Cab. I’ve probably told that story to more than fifty cab drivers over the years, and only two took the idea and ran with it. Whenever I go to their cities, I give them a call. The rest of the drivers quacked like ducks and told me all the reasons they couldn't do any of what I was suggesting. Wally the Cab Driver made a different choice. He decided to stop quacking like ducks and start soaring like eagles. How about us? Smile, and the whole world smiles with you. As they say 'The ball is in our hands'!!!!!! So do not sit and complain.....start to fly like an eagle.

Financial Strategy:

Financial Strategy Retailers have two paths available to achieve a high level of performance 1. Profit path 2. Turnover path Different retailers pursue different strategies, resulting in different types of finanacial performance. The two paths are combined to create ‘strategic profit model’. Retailers thus using very different strategies and finanacial performance characteristics can be financially successful.

Strategic profit model:

Strategic profit model One mportant financial goal is to achieve a high return on Assets. Xyz invests Rs 100000/- in setting a store and makes Rs 20000/-. Return on investments is 20000/100000=20 per cent. The ratio net profit /total assets is called Return on Assets. Return on assets can be divided in two paths: the profit path (measured by net profit margin)and the turnover path 9measured by asset turover Net profit * Asset turnover= Return on assets Net profit/net sales*net Sales/Total Assets = Net Profit/ Total Assets

Example of profit path and turnover path:

Example of profit path and turnover path Net profit Margin * Asset turnover = Return on Assets Bakery shop 1% 10 times 10 % Jewelry shop 10 % 1 time 10 % Bakery shop’s profit margin is low due to competitive nature of business but asset turnover is high as it does not have Accounts receivable ( no credit) Jewelry shop’s has higher net profit because it can afford to double the cost of jewelry though its operating expenses are much more than bakery shop in terms of expensive fixtures and precision manufacturing equipment . It offers liberal credit and has higher accounts receivable and has slow inventory turnover. Both though are different types of retailers but have exacly the same return on assets. BAKERY has a turnover path while Jewelry shop is having a profit path.

Discussions on three ratios of net profit, asset turnover , return on assets.:

Discussions on three ratios of net profit, asset turnover , return on assets . Profit path Net sales 219812 1607 Less cost of goods sold 171562 663 Gross margin 48250 944 Less: operating expenses 36173 634 Less interest expenses 1326 20 Total expenses 37499 653 Net profit before tax 10751 291 Less taxes 3897 116 Tax Rate 36.25% 39.79% Net Profit after tax 6854 175


Net sales=gross amount of sales – customer returns – customer allowances(discounts) Sales indicates activity level of merchandising function Gross margin(gross profit)= Net sales –cost of goods sold Walmart =48250/219812=21.95% Tiffany( jweler ) = 944 = 58.75%

Expenses :

Expenses Types of retail operating expenses. Selling expenses=sales staff salaries + commission+ benefits General expenses=rent+ utilities + miscellaneous expenses Administrative expenses= salaries of all employees other than sales people +operation of buying offices + other admin. Expenses Total expenses are expressed as percentage to net sales, total expenses/net sales ratio Wal - Mart: 37499/219812=17.06% Tiffany( jweler ): 643/1607=40.65%

Net profit:

Net profit Net profit= gross margin-expenses Net profit measures the profitability of entire firms whereas gross margin measures the profitability of merchandising activities Net profit margin is often expressed as a percentage of net sales. Net profit margin=Net profit/net sales FOR Wal MART it is 3.12 per cent and 10.89 per cent for Tiffany

Turnover path:

Turnover path Balnce sheet as on 31.1.2002 figures in dollars assets Current Assets Wal Mart Tiffany Accounts receivable 2000 99 Merchandise inventory 22614 612 Cash 2161 174 Other current assets 1471 71 Total current assets 28246 955 Fixed assets Building,equipment and other fixed assets less depreciation 55205 675 Total assets 83451 1630


Liabilities Current Liabilities 27282 341 Long term liabilities 18732 221 Other liabilities 2335 30 Total liabilities (a) 48349 593 Owner’s equity Common stock 1929 332 Retained earnings 33173+ 705+ Total owner’s equity (b) 35102 1037 Total liabilities and owners equity ( a+b ) 83451 1630

Accounts receivable:

Accounts receivable Accounts receivable are monies due to retailer from selling merchandise on credit Wal-Mart $2000 or 0.9 per cent of sales Tiffany $ 99 or 6.1 per cent of sales Paying credit is a service to customer but amounts to money locked.

Merchandise inventory:

Merchandise inventory Merchandise inventory is life blood which is Inventory /total assets Wal.mart:22614/83451=27.1% Tiffany= 612/1630= 37.53% Inventory turnover = Net Sales/ avg inventory Larger the inventory turnover better its. Inventory turnover is how many times on average the inventory cycles through the store during a specific period of time. Wal -mart 219/28974=7.59 Tiffany 1607/ 1484 = 1.08 why

Cash and other current assets,fixed assets, Asset turnover:

Cash and other current assets,fixed assets, Asset turnover Cash=monies on hand+ demand and saving accounts in bank to which retailer has immediate access+ marketable securities such as treasury bills Other current assets=prepaid expenses + supplies (outstanding payments) Fixed Assets ---- are assets that require more than a year to convert to cash. In retailing fixed assets= buildings+fixtures (such as display racks)+ long term investments sucha s real estate or stock in other firms. For wal -mart in the exercise it is 66.15% and 41.44% for Tiffany Fixed assets=asset cost-depreciation Asset turnover =net sales /total assets Tiffony say wants to purchase a new fixture for displaying dinner ware. Example say for tiffony choice between antique cabinet and plywood cabinet a combination of marketing and financial factors should be considered. Antique cabinet(asset turnover)= 50000/5000=10, Plywood cabinet=40000/500=80 Plyway ware is the way to go but it should weigh how much additional sales would result when making the asset purchase decision.

Liabilities and owners equity:

Liabilities and owners equity Accounts payable is amount of money owed to vendors for merchandise inventory is like short term financing(better terms of payment) Carrefour has about 42 days of inventory on hand and roughly 90 days in payable . 48 day float generates income that contributes as much as 25 to 35 per cent of Carrefour’s operating profit Note payable:under current liability section of balance sheet are the principal and the interest the retailer owes to Fis that are due and payable in less than a year Accrued Liability include taxes , salaries, rent, that have not been paid Long term liability: are debts that will be paid after one year

Owner’s equity and Retained earnings:

Owner’s equity and Retained earnings Owner’s equity also known as stockholder’s equity represents the amount of assets belonging to owners of the retailer after all obligations in terms of liabilities have been met. Owner’s equity=total assets-total liabilities For walmart it is 35102 million and for tiffony over 1037 million Retained earnings refers to portion of owner’s equity that has accumulated over time through profits but has not been paid out in dividends to owners.(depends upon growth opportunities for re-investments)


Strategic profit model is useful to retailers as it helps in decision making for Margin management And asset management This model uses return on asset as primary criteria for planning and evaluating firm’s financial performance.

Setting performance objectives:

Setting performance objectives Performance objectives should include 1.performance sough numerically 2. time frame within which goal is to be achieved. 3.Resources needed to achieve the objective. For e.g. ‘earning X amount in profit during calendar year 2005 on Y amount investments in inventory and building.

Top down versus bottoms up process:

Top down versus bottoms up process Top down planning requires that goals are set at the top of the organization and filter down through the operating levels.

Performance Measures:

Performance Measures There are three types of performance measures. 1. Output Measures- Assesses the results of a retailer’s investment decisions. For eg . Sales revenue results from decision , how many stores to build , how much inventory to have in the stores, how much to spend on advertising. Output measures are net sales, net profit, growth in Sales 2. Input Measures- assess the amount of resources used by retailer to achieve output for e.g. Like Sq. ft of store space, number of employees, Inventory , advertising expenses, cost of merchandise Productivity measures- are ratio of outputs to inputs, determines hoe effectively a retailer uses the resource. Examples are sales per square foot, sales per employee , return on assets , advertising as percentage of sales

Retail Location:

Retail Location Decisions about where to locate are critical to Retailer’s success Decision is important because of high cost and Long term commitments. Each site has its own set of advantages and disadvantages. For assessing the viability retailer must think of store’s target markets who will patronize that location.

Type of sites to choose:

Type of sites to choose Retailers have three basic types of locations City. Town Or a free standing location. The type of Shopping centers. Strip centers-(30000 TO 350,000) convenient locations and parking in front of stores Power centers-(250000 to )600000sq footage) shopping centers dominated by several large anchors like best buy, toys R Us

Shopping centers-contd.:

Shopping centers-contd. Shopping Malls, (regional, super-regional, life style, fashion/specialty , outlet, theme festival)- very large area 400000 TO 800000, Involving teenagers , families , older citizens combining shopping and entertainment. Mall management staff take care of common areas of external environment like security, elevators , lifts, parking etc. Rentals are however large


Regional- general merchandize , fashion, 400000-800000 Sq footage , trade area 5 to 15 miles. Super-regional, similar to regional but has more variety and assortment,800000sq footage , 5 to 25 miles Life style --higher end, fashion oriented Outlet-manufacturer out let stores. Theme/festival– leisure: tourist oriented. Merchandize kiosks- small selling spaces offering a limited merchandise assortment. Mixed use departments , airports , resorts, hospitals , stores within a store are other retail location opportunities.

Location and Retail strategy:

Location and Retail strategy Central business district and shopping centers- These draw large number of people of all demographics. People gather ,walk and simply hang out. They protect shoppers from weather Specialty Apparel stores- provide recreation and entertainment drawing large number of people. As alternatives of apparels are compared, hence several stores with same type of merchandise are located like The limited and Gap or in India like Mango and the Tommy Hilfiger Category specialist- like toys R Us or kitchen faucet. Here parking facility is crucial as purchases are large and difficult to carry. Merchandise , selection, presentation , pricing or other unique features are used to attract shoppers. Grocery stores- are price competitive and are located in strip centers. Items like milk and bread require convenience readily accessibility is a big criteria Optical boutique-high fashion eyewear , main street location is better.As the location may lack entertainment and recreation foud in shopping centers, retailers sponsor art and music festival.

Site selection:

Site selection Retailers should consider following criteria when assessing the attractiveness of area. Know about people living in the area, their life styles, how wealthy and large are households, does it have a favorable business climate, level of competition if your product is superior locate among the competition other-vise locate where the competition is less

Information systems and supply chain management:

Information systems and supply chain management When u buy an item at target store, the transaction triggers series of information flow resulting in merchandise replacement. Item(say Toaster from Black & Decker)) is scanned at point of Sale(POS) Info. Through black and white bar code (UPC or universal product code goes to Target’s regional distribution center as well as Toaster’s company’s computer as well. A replenishment order is automatically generated from POS data and is received at Target’s distribution center. There is a ‘loading dock’ assigned at a specified time waiting for the truck from Black& Decker to arrive. The black & Dock merchandise is unloaded , combined with the merchandise from other vendors and is immediately loaded to target’s truck going to store where stock out may happen. By sharing this info. Of what , when and where Target and Black & Decker have become partners in supply chain while Target having better merchandise availability and Black & Decker planning and distribution activities. Wal-mart,Carrefour,7-eleven(Japan), Home depot, Zarra and Kroger as Retailer have dominated the supply Chain


An efficient supply chain has two benefits for customers. 1. fewer stock-outs 2. improved product availability in terms of assortments of merchandise that customer wants and where they want translating into greater sales , higher inventory turns and lower markdowns for Retailers. Improved return on investment , net sales and return on assets

Flow of info. In retail environment involving EDI:

Flow of info. In retail environment involving EDI Sale person scans UPC tag on each item . A sales receipt is created. Purchase info. is recorded in POS terminal and sent to buyer/planner. Buyer/planner uses this info. To plan additional purchases and make markdown decisions. The P.O. is created through EDI The buyer/planner communicates with the vendor regarding the P.O. for the merchandise. Shipping dates and terms of purchase are negotiated. The buyer/ planner communicates with distribution center to coordinate deliveries and check inventory status. Stores Managers also communicates with distribution center to coordinate deliveries and check inventory sataus .

Data Warehousing:

Data Warehousing Purchase data collected at the point of Sale is collected in huge data base. The data can be accessed on several dimensions . On horizontal dimension, data can be accessed by level of merchandise aggregation-SKU , vendor, category, department or all merchandise, along vertical axis, data can be accessed by level of company –store , division or the total company. Finally along third dimension , data can be accessed by point in time- day,season or year. Dtat can ve accessed by CEO .buyer and the marketing people with their own relevant queries. (refer diagram on page 316 ). Intranet, extranet CPFR- (Collaboration , planning , forecasting and replenishment) is an inventory management system using EDI in which a retailer will send info. To a manufacturer and manufacturer will use data to construct a computer generated replenishment forecast that will be shared back with the retailer before its use.


Physical flow of merchandise Distribution center Management of inbound Transportation Receiving and checking Storing and cross-docking Cross docking distribution center- is one in which vendors ship merchandise prepackaged in the quantity required for each store. The merchandise contains the price tags and theft detection tags and in case of some apparels , it is on hangers . Since merchandise is ready for sale, it goes to a staging area rather than to a storage. As no storage is required, they are less costly than traditional distribution centers where are housing, order picking from racks and conveyer belts etc for material handling are involved. Getting Merchandise floor ready- Making price and identification labels and placing them on merchandise in distribution center rather than at Stores. Sometimes merchandise is shipped floor ready. Pick ticket- While shipping merchandise to stores, at the distribution center’s computer creates a ‘pick ticket’ a document that tells the order filler how much item to get from each storage area.Items which are out of stock are known to computer and computer as such does not print it on pick ticket.


Pull logistics strategy- orders for merchandise are generated at the store level on the basis of demand data captured by point of sale terminal. Push Logistics strategy- merchandise is allocated to stores on basis of historical demand, the inventory position at the distribution center, and the store’s need. Management of outbound transportation Quick response delivery systems- are inventory management systems designed to reduce the retailer’s lead time for receiving merchandise thereby lowering inventory investments, improving customer’s service levels and reducing logistics expenses . Benefits of QR System is in terms of reduction of lead time. Lead time is the amount of time between the recognition that an order needs to be placed and its arrival in the store ,ready for sale . Use of EDI in the QR System reduces lead time reducing the need for inventory as shorter is the lead time ,easier it is to forecast demand.Zara of spain reduces lead time by communicating electronically with the factory by using automated equipment by using assemblers who are in close proximity to the factory and by using premium transportation such as air freight to get merchandise to the Stores.

UNIT-3,Merchandise Management-I Planning Merchandise Assortments. Buying systems Buying merchandise,chapter 12,13 course book :

UNIT-3 , Merchandise Management-I Planning Merchandise Assortments. Buying systems Buying merchandise,chapter 12,13 course book Planning merchandise assortment Organize the buying process by categories Set Merchandize financial objectives. Develop an Assortment Plan

Organizing the buying process by categories:

Organizing the buying process by categories Category- Items are grouped into categories to make buying process easier like girl’s apparel, boy’s apparel, infant’s apparel. Categories have similar characteristics. Stores may define categories in terms of BRANDS like tommy hilfiger,polo /Ralph lauren or vendor Supply chain members must agree on the category definition so as to plan distribution and promotions in an easier manner. CATEGORY MANAGEMENT-The process of managing a retail business with the objective of maximizing the sales and profits of category. Buyer is responsible for developing the assortment plan for the entire category, working with vendors, selecting merchandise ,pricing merchandise, and coordinating promotions with advertising department and stores. The category manager is responsible for success or failure of the entire category. Through category management on gets a handle to deal with eventualities like goof up on festival season where the responsibilities can be defined if sales is low on that day in spite of the advertisement occurring in newspaper. Managing by category can help assure that the store’s assortment is represented by the best combination of sizes and vendors that will get the most profit from the allocated space.

The category captain:

The category captain Some retailers turn to one vendor to help them manage a particular category . Category captain forms an alliance with the retailer to help gain consumer insight , satisfy consumer needs and improve the performance and profit potential across the entire category. Category captain works with category manager To make decisions about product placement on shelves, promotions, and pricing of all the brands in the category.

The Buying organization:

The Buying organization Standard merchandise classification scheme and organization chart-refer page 368 Hierarchy is as under Chairman Merchandise Group-senior VPs (home furniture , women’s wear , men’s wear* etc) Department(*Div. Mgr men’s sports wear , men’s suits etc) Classification(buyer toddlers,buyer infants,buyer girls) Category( sprtswaer , dresses, swimwear, outerwear SKU(size 5 ,stonewashed)

Setting objectives for the merchandise plans:

Setting objectives for the merchandise plans Retailers set the direction of the company by 1.defining the target market 2.Establishing performance goals 3. Deciding on the basis of general trends in the marketplace , which merchandise classifications deserve more or less emphasis. While buyers and merchandise planners develop their taking a micro approach study categories past performance ,look at the trends in the market and try to project the assortments for their merchandise categories for the coming seasons. The merchandise plan tells the buyer and planner how much money to spend on a particular category of merchandise in each month so that sales forecast and other financial objectives are met. Once the merchandise plan is set, the buyers and planners develop the assortment plan. The buyers work with vendors choosing merchandise , negotiating prices, and developing promotions. The merchandise planners break down the overall financial plan into how many of each item to purchase and how they should be allotted to stores.

GMROI and inventory turnover:

GMROI and inventory turnover GMROI is a financial ratio useful for planning and measuring merchandising performance GMROI is similar to return on asset GMROI= Gross margin percentage*sales to stock ratio =gross margin/net sales * net sales/Average inventory= Gross margin /Average inventory Average inventory is measured at cost because a retailers investment in inventory is the cost of inventory and not its retail value. Inventory turnover =net sales/average inventory at retail Average inventory= month1+month2+……. number of months

Advantages and disadvantages of high inventory turnover:

Advantages and disadvantages of high inventory turnover Advantage of rapid inventory turnover are increased sales volume , less risk of obsolescence and markdowns, improved sales person morale, more money for market opportunities , decreased operating expenses and increased asset turnover Disadvantage of too high an inventory turnover is that one concentrates on limited products and wide assortment suffers Increased cost of goods sold and increased operating expenses are other disadvantages. Category life cycles involving introduction , growth, maturity and decline -to read from the book

Sales Forecasting:

Sales Forecasting Retailer needs to forecast sales to determine how much to buy. Category life cycle Retailers must be able to predict how well product categories will sell over time. Product categories typically follow a predictable Sales Pattern – Category product cycle involving sales start off low , increase , plateau and then ultimately decline vary from category to category and help buyers to forecast sales. Variations in the category life cycle are FAD,FASHION,STAPLE AND SEASONAL


Fad Fashion Staple Seasonal Sales over many seasons no yes yes yes Sales of a specific style over many seasons no no yes yes Sales vary dramatically from one season to no yes no yes Next Fad ( computer games etc) , fashion like double breasted suits for men Staple like hosiery or blue jeans Seasonal merchandise like wool sweaters and garden tools more popular in winter Forecasting and inventory management systems used for fads and fashion merchandise are very different from those used for staples. Skill, experience and creativity enable the buyer to select quantities for specific SKUs Developing a sales forecast A simple way is to adjust past sales to make projections in the future. Sources of information for category level forecasts which are previous sales volume,reading published sources, analyzing customer information, shopping at the competition, and utilizing vendors and buying offices.

Factors impacting Sales Forecasts:

Factors impacting Sales Forecasts Price- raising prices cause unit sales to decrease Promotion Store Location Customer demographics Product placement Seasonality Other factors like product life cycle , competitor price and promotional activity , business cycles, weather etc

CPFR(Collaboration ,planning ,forecasting, and replenishment):

CPFR(Collaboration ,planning ,forecasting, and replenishment) In CPFR Retailer shares information with vendors CPFR software generates computer generated replenishment forecast that is shared by vendor and retailer CPFR generates exception reports that spit out unusual sales pattern. When authorized by both vendor and retailer the computer makes automatic changes in the amount of merchandise going to stores or distribution center based on the changes in the forecasting plan. The data of CPFR can be accessed by multiple users I ncluding retailers transportation specialists, buyers ,merchandisers ,logistics specialists and store operations people


CPFR methodology was developed by voluntary inter-industry commerce standards (VICS) The methodology comprises a nine step process designed for planning ,forecasting and replenishment of retail inventory by enhancing coordination of all trading parties in a supply chain. It centers on sharing data like business plans , promotional plans, new product plans , inventory data, POS data ,production and capacity plans and lead time information. Because the forecast is more accurate , the fill rate ( the percentage of the order that is shipped by the vendor) increases. Benefits are reduced out of stocks, higher order fill, improved forecast accuracy , higher inventory turns and higher category turnover.


Assortment planning process- Strategic question for retailers is what type of retail format to maintain to achieve a sustainable competitive advantage,. Merchandise decisions are constrained by amount of money available for inventory and space available in store. Decisions as such about variety, assortment and product availability must be made . Trade off between these should be made by evolving the marketing strategy depending on Target market Nature of retail offerings what retailers want to make Bases upon which retailers will attempt to build a sustainable competitive advantage


Assortment Plan -- Retailer after determining the relative importance of variety , assortment and product availability , the retailer is ready to determine what merchandise to stock using an assortment plan. Merchandise planner uses the SALES, gmroi , AND TURNOVER FORECAST to generate the assortment plan. The assortment plan supplies the merchandise planner with general outline of what should be carried in a particular merchandise category.

Assortment Plan for Girl’s jean:

Assortment Plan for Girl’s jean Styles traditional traditional traditional Price levels 20 $ 35 $ 45 $ Fabric regular Denim stonewashed stonewashed Composition Colors Indigo black indigo Size(length) 30 26 34 A good assortment plan requires a good forecast for sales, GMROI, and inventory turnover along with a mix of subjective and experienced judgments

Chapter13,Unit 3:

Chapter13,Unit 3 Two types of buying systems 1Staple merchandise buying systems 2. Fashion Merchandise buying systems Staple merchandise systems contain number of program modules that show how much to order and when . These systems are used for buying merchandise that are used in food and discount stores in addition to merchandise like underwear, socks and house-wares. They use past history to predict sales for the future

What the staple merchandise buying systems do :

What the staple merchandise buying systems do Three main functions are done from the information provided by inventory management report. 1. Monitoring and measuring average current demand for items at SKU level. 2.Forecasting future SKU demand with allowances made for seasonal variations and changes in trend 3.Developing ordering decision rules for optimum stocking

Inventory management Report:

Inventory management Report Inventory management report provides information on Sales velocity , inventory availability , amount on order , inventory turnover, dales forecast, and quantity to order for each SQU Read Example 13-2, page 406

Merchandise budget plan for fashion Merchandise:

Merchandise budget plan for fashion Merchandise The plan specifies how much money should be spent each month to support sales and achieve turnover and GMROI objectives. This gives monthly sales percent distribution to season, monthly sales, monthly reductions percent distribution to season , monthly reduction, beginning of month stock to sales ratio, beginning of month stock , End of month stock , monthly additions to stock. Monthly addition to stock tells the buyer how much money to spend each month given the category’s sales forecast, GMROI, Inventory turnover, and monthly fluctuation in sales. Look at example , page 409 from book.

Evaluating merchandise budget plan :

Evaluating merchandise budget plan After the selling season buyer must determine how the category actually performed compared to the plan for control purposes. If actual GMROI ,turnover and forecast are greater than those of plan Why did performance exceed or fall short of plan Was deviation from plan was under buyer’s control? Did buyer react quickly to to change in demand by either purchasing more or having a sale,

Chapter,14,Branding strategies , Global sourcing decisions, connecting with vendors , negotiating with vendors, Establishing and maintaining strategic relationship with vendors:

Chapter,14,Branding strategies , Global sourcing decisions, connecting with vendors , negotiating with vendors, Establishing and maintaining strategic relationship with vendors Manufacturing brands versus Private brands. Manufacturing brands also known as national brands are products designed , produced and marketed by vendor. The manufacturer is responsible for developing the merchandise and establishing the image for the brand. Ten most valuable brands are Coca Cola , IBM, Nokia, Disney , McDonald’s , Microsoft , GE, Intel, Ford and AT&T

Relative advantage of manufacturer versus private brands.:

Relative advantage of manufacturer versus private brands. Private Label Brands Manufacturer brands help retailers for store image, traffic flow and selling /promotional expenses. Retailers buy from vendors of manufacturing brands because they have a customer following and loyal customers know what to expect from the product. Less money is required to sell manufacturers brand in terms in savings from promotional and selling expenses. Manufacturer brands typically have lower realized gross margins than private label brands. Stocking national brands may increase or decrease store loyalty (decrease when brands are available at competitor’s store) Manufacturer brands can limit the flexibility offered by the retailer. Vendors of strong brand can dictate how their products are displayed, advertised and priced . For E.g. Jockey underwear tells retailers exactly when and how its products should be advertised.

Private Label Brands:

Private Label Brands Private label brands also called store brands are products developed by retailer .Retailers are responsible for promoting the brand. Retailers like Gap and The Limited sell their own labels and comprise 25 percent of the purchase in U.S. and 45 per cent in Europe. Recently size of retail firms has increased thro’ consolidation . Earlier it had been hard for retailers to gain the economies of scale in design and production necessary to compete against manufacturing brands. Gross margins are higher for private label brands but disadvantage is that if private label merchandise does not sell, the retailer can’t return the merchandise to the vendor.


Private Label Options- Private brands can be categorized in four broad categories. Bargain branding- targets a price sensitive segment by offering a no-frills product at a discount price known as generic or house brands, unbranded unadvertised is found mainly in drug, grocery, and discount stores. Premium branding - offers the consumer a private label at a comparable manufacturer brand quality, usually with modest price savings. Copycat – imitates the manufacturer brand in appearance and packaging and is offered at lower price, risky as it violates patent laws Parallel Parellel branding is a leveraging strategy used to bolster a retailer’s private brand sales. The closer the two products are in form,logo,labeling and packaging, the more they are perceived as substitutes. Parallel brands attempt to produce a product and packaging so similar to the manufacturer brand that the only noticeable difference is the price. Parallel branding is a clear articulated ‘invitation to compare ‘ in its merchandising approach. Patent considerations can be an issue if appropriate discretion is not used.


International sourcing decisions Main driving reason to source globally is to save money. The cost issues are Country of origin effects -when making global sourcing decisions, retailers must consider country of origin effects like Switzerland famous for quality watches or Japan for automobiles and consumer electronics Foreign currency fluctuations- changes in the exchange rate will increase or reduce the cost the cost of merchandise. Tariffs-import duty . Import tariffs have been used to shield domestic manufacturer from foreign competition and to raise money for the government World trade organization- WTO has become the global watchdog of the trade. WTO replaced T in 1996 Free trade zones Retailers can lower import tariffs by using free trade zones . A free trade zone is a special area within the country that can be used for warehousing , packaging, inspection, labeling ,exhibition , assembly, fabrication or transshipment of imports without being subject to that country’s tariffs. Inventory carrying costs – Cost of carrying inventory is likely to be higher when purchasing from suppliers outside the U.S. than from domestic suppliers. Transportation costs- Farther the merchandise has to travel, the higher the transportation cost will be for any particular mode of transportation.

Managerial issues associated with Global sourcing decisions.:

Managerial issues associated with Global sourcing decisions . Quality control -When sourcing globally, it is harder to maintain and measure quality standards than when sourcing domestically. Building strategic partnerships-communication barriers,cultural differences , maintaining a supplier’s trust is more arduous in an international environment.

Connecting with vendors, how and where retailers connect with their vendors:

Connecting with vendors, how and where retailers connect with their vendors Retailers go to market to see the variety of available merchandise and to buy. A market from retailer buyer’s perspective is a concentration of vendors within a specific geographic location perhaps under one roof or over the internet. These markets may be internet exchanges , permanent wholesale market centers or temporary trade fair Buyers can use resident buying offices that prearrange opportunities for buyers to visit vendors in major market centers in India or abroad.

Internet Exchanges:

Internet Exchanges Retailers also use the internet for doing research for buying merchandise or services. Retail exchanges are electronic marketplace operated by organizations that facilitate the buying and selling of merchandise using the internet. Retail exchanges can increase the efficiency of the buying process by integrating systems such as EDI with the ability to view merchandise and negotiate prices on line. Prominent services of retail exchanges are Directory, selection( buyers can view individual SKU), pricing( Exchange act as broker between the vendor. Merchandise can be auctioned. In traditional auction like E-Bay, there is one seller and several buyer but in reverse auction adopted by retailers, there are several sellers and one buyer.


Collaboration with vendors at every stage of the production and distribution process is most important benefit of retail exchange aided by EDI, CPFR etc Content- Exchanges can also be excellent centers of general information providing latest industry news, trends and fashions.

Types Of Retail exchanges.:

Types Of Retail exchanges. Three basic types of exchanges. 1. Consortium Exchanges- A retail exchange owned by several firms within one industry like transora , www.transora.com,world wide retail exchnge , www.wwre.org and globalNetexchange , www.gnx.com Potential advantage is that retailers can pool their buying power to get better prices and `the fixed cost of developing the software and administering the exchange is shared across member firms. Private exchanges- are exchanges that are operated for the exclusive use of a single exchange like Wal -MART and Dell Independent Exchanges- is a retail exchange owned by a third party that provides electronic platform to perform the exchange functions. Private exchanges are also used for reverse auction and biddiong is carried out. `


Trade Shows- many wholesale market centers host trade shows also known as merchandise shows or market weeks . Permanent tenants of the wholesale of the wholesale market centers and vendors leasing temporary space participate . Retailers here place orders and at one place are able to get a concentrated view in the marketplace. Resident Buying Offices- are organizations located in major buying centers that provide services to help retailers buy merchandise.

Negotiating with vendors:

Negotiating with vendors Know more about the vendor(knowledge is power) Consider past history , performance Assess where things are today- some vendors share the losses of retailer in order to have long term perspective Set Goals-Additional mark up opportunities, terms of purchase, transportation, delivery ,communication and advertising allowances. Additional Markup opportunities-vendors may have excess stock or returned merchandise from retailer Terms of purchase-Buyers should ask best terms of purchase


Transportation- -who pays for for shipping merchandise from vendor to retailer can be a negotiating point Delivery and exclusivity- retailers can use new products only to themselves first as exclusive display Communication-vendors are excellent source of market info. Like what is selling and what is not selling Advertising allowances-retailer can share advt. expenses known as Co-op advertising Know the vendor’s goals and constraints-make it a win-win situation. Vendors are interested in providing a continuous relationship, testing new items, providing a showcase to feature their merchandise. A continuous Relationship-Vendors want to make a long term investment with retailers. Testing new items-vendors put new product to test them. Show-case-Vendors use large stores to showcase their merchandise. Plan to have at least as many negotiators as the vendor Choose a good place to negotiate Be aware of Real Dead lines.

Guidelines for face to face communication including separating people from the problem , insisting on objective criteria, and inventing options for mutual gain:

Guidelines for face to face communication including separating people from the problem , insisting on objective criteria, and inventing options for mutual gain Separate people from problem Insist on objective criteria-long term profitable relationship Invent options for mutual gain Let them do the talking Know how far to go Don’t burn bridges Don’t assume

Establishing and maintaining strategic Relationship with vendors:

Establishing and maintaining strategic Relationship with vendors Win-Win relationships for both parties Strategic relationships are created to uncover and exploit joint opportunities Vendors and retailers have taken risks to expand the pie –to give relationship a strategic advantage over other companies. Maintaining strategic relationship Mutual trust Open communication Common goals like WALMART and P&G Credible commitments Development of strategic partnerships tend to go thro’ series of phases characterized by increasing level of commitments; 1.Awareness2. Exploration9testing market , joint promotions etc) 3. Expansion 4. Commitment(mutually beneficial)

Retail Communication mix,chapter16:

Retail Communication mix,chapter16 Objective is developing and implementing a communication program to build appealing brand images, attract customers to store and internet sites and encourage them to buy merchandize. Communication programs help the Retailers with variety of objectives for the retailers. Building a brand image of the retailer in the in the customer’s mind Increasing Sales and store traffic , providing info. About the retailers location and offering, and announcing special activities. Retailers communicate with customers through advertising, sales promotions, websites , store atmosphere, publicity, personal selling, E-Mail and word of mouth.


Long term objective of communication programs is to create and maintain a strong , differentiated image of the retailer and its store brands . This image develops customer loyalty and creates strategic advantage. Retailers as short term objective use communication programs to realize increasing sales during a specified time period.like grocery stores placing weekly ads with coupons. Brands are built by marketing communication program to ensure that customer’s expectations increase in terms of performance , quality and reliability.

Using communication programs to develop brands and build customer loyalty:

Using communication programs to develop brands and build customer loyalty A brand is a distinguishing name or symbol such as logo that identifies the product or service offered by a seller and differentiates those products and services from the offerings from the competitor. Value of Brand Image- Brands provide value to both customers and retailer as. Brands convey information to consumers about the nature of the shopping experience.-The retailer’s mix-they will encounter when patronizing aretailer The value that brand image offers retailers is BRAND EQUITY. Customer’s loyalty to brand arises from heightened awarae-ness of brand and the emotional tie with it. A strong brand image enables retailers to increase their margins. Retailers with strong brand names can leverage their brands to successfully introduce new retail concepts with only a limited amount of marketing offer. Strong brand names create a startegic advantage that is very difficult for competitors to duplicate.

Building brand Equity:

Building brand Equity Retailers require activities to build the brand equity for its firms/private label merchandise such as Create a high level of brand awareness Develop favorable association with the brand name. Consistently reinforce the image of the brand Brand awareness is the ability of a potential customer to recognize or recall that brand name is type of a retailer or product/ service. Brand awareness is the strength of the link between the brand name and type of merchandise in the mind of customers. Aided recall- when name is presented to consumer , they know the brand Top of mind awareness-Retailers build top of mind awareness by having memorable names, repeatedly exposing their names to customers thro’ advertising , locations, and sponsorships.


Associations- Brand associations are anything linked to or connected with the brand name in a consumer’s memory for e.g. when consumers think of fast food, hamburgers, french fries, they think of Mcdonald’s Common associations what Retailers develop are Merchandise category- OFFICE Depot is linked office supplies Price/quality – like Wal-Mart with low price, Specific attribute or benefit- such as convenience(7-Eleven) Life style or activity-like Nature company , a retailer offering books and equipment to study nature Brand image is a set of associations that are usually organized around some meaningful themes. Like Mcdonald’s association could be organized into groups such as kids , service and type of food.

Consistent Reinforcement:

Consistent Reinforcement To develop a strong set of associations and clearly defined image , retailers need to be consistent in portraying the same message to customers over time and across all of the elements of its retail mix. Retailers develop an integrated marketing communication program- a program that integrates all of the communication elements to deliver a comprehensive and consistent image.- like TV Program could build the image of exceptional customer service but firm’s sales promotion could emphasize on low prices.


EXTENDING THE BRAND NAME Retailers can leverage their brand names to support the growth strategy like reliance fresh or Bharti Retail Minimal communication expenses is an advantage in terms of customers quickly transferring the original brand’s awareness and association to new concepts however in some cases it could be a disadvantage in new territories where cultural differences exist Retailers communicate with customers through five vehicles. Advertising,sales,promotion,publicity,store atmosphere and visual merchandising

Methods of communicating with customers:

Methods of communicating with customers Paid Impersonal Communications- Examples are Advertising , Sales Promotion, Store atmosphere, and web sites. Advertising- is a form of paid communication to customers using impersonal mass media such as newspapers, TV, radio , direct mail and internet. Sales Promotion -offering extra value and incentives to customers to visit the store or purchase merchandise during a specific period of time. Sale, special events, in-store demo, coupons and contests. Contest- contests are promotional games of chance. Only few customers receive rewards Coupons- offer a discount on a specific item when they are purchased at Store. Store atmosphere- Retail store itself provides paid , impersonal communication s to its customers . Store atmosphere is combination of store’s physical characteristics such as architecture ‘ layout, signs and displays, colors, colors, lighting, temperature , sounds, and smells which together create an image in the customer’s mind Web-site- Retailers use their web sites to build brand image, inform customers about store’s location, special events, and availability of merchandise in local stores.


Paid Personal communication- Retail sales people are the primary vehicle for providing paid personal communication to customers . Personal selling is a communication process in which sales people assist customers in satisfying their needs thro’ face to face exchanges of information. E-Mail- is another paid communication vehicle that involves sending messages over the internet. Unpaid impersonal communication - Publicity is primary method of for generating unpaid personal communication . Favorable news story can motivate employees. News in print media or TV or radio are communication to employees and customers both. Unpaid Personal Communications- Like word of mouth. (communication between people about retailer.


Strength and weakness of Communication methods.- in terms of Control , flexibility, credibility and cost. Control - Retailers have more control in case of paid communication versus unpaid methods. While for advertising, sales promotion ,websites, e-mail, and store atmosphere they control the message content while for E-mail , sales promotion and advertising they control the time of delivery. Retailers have very little control over word of mouth and publicity like food poisoning or racial discrimination at hotel can result in adverse publicity Flexibility- personal selling and e-mail have flexibility to offer personalized communication while Ads deliver same message to all customer . Websites can be tailored to individual visitors. Credibility -Publicity and word of mouth have more credibility while Ads and Sales people claims are less credible. Cost- Publicity and word of mouth are unpaid methods but some costs are incurred . Paid impersonal communication are economical if costs of Ads etc are calculated per person.Personal selling is more costly.Website is costlier to maintain . E-Mails can be sent to customers at lower cost.


Effectiveness- Advertising in mass media advertising is most effective at building awareness .websites , direct mail, and newspaper advertising are effective for conveying information about a retail’s offerings and prices. Personal selling and sales promotion are most effective at persuading customers to purchase merchandise. Mass media and magazines advertising, publicity , websites and store’s atmosphere are most cst effective at building the retailer’s brand image and encouraging repeat purchases and store loyalty.

Planning the retail communication process:

Planning the retail communication process Retailers must set the objectives for communication programs to provide Guidelines and direction for people implementing the program. They should create a basis for evaluating its effectiveness. To effectively implement and evaluate a communication program, objectives must be clearly stated in quantitative terms. The target audience for the communication mix needs to be defined along with the degree of change expected and the time period over which the change will be realized.

Stages in developing of Retail communication programs:

Stages in developing of Retail communication programs Establish objectives Positioning Sales goals Communication objectives Determine budget Marginal analysis Objective and task Rules of thumb Allocate Budget Implement and evaluate program


Example is say to increase percentage of customers from 45 per cent to 55 per cent within three months within a five mile radius of store who have a favorable attitude towards the store.(clear and measurable objective) Stages in consumer’s decision making process are Awareness of store-knowledge of offering-favorable attitude-intend to visit-visit-regular shoppings

Setting the communication budget:

Setting the communication budget Marginal analysis method -Marginal analysis is based on economic principle that firms should increase communication expenditures so long as each additional dollar spent generates more than a dollar of additional contribution. Example on page 527,increase in communication expense from 15000 to 20000 increases cotribution to 10800(48400-37600) while increasing budget from 65000 to 70000 generates only an additional of Rs 4050.


Objective and task method- define objectice and tasks-see example page 529 Rule of thumb method- the method uses past sales and communication activity to determine the present communication budget. Afforable method- Retailers first forecast their sales and expenses excluding communication expenses during the budgeting period.the affordable method then sets the communication budget by determining what money is available after operating costs and profits are budgeted. Percentage of Sales method- sets the communication budget as a fixed percentage of forecast sales. Competition parity method-Take total of communication budget by all playrs vin the markt and then multiply with percentage of your own market share.

Allocation of promotional Budget:

Allocation of promotional Budget After determining the size of communication budget, the next step is allocating of budget Retailer can allocate the budget in areas like Specific communication elements Merchandise categories Geographic regions The retailer should allocate the budget to area that will yield greatest return like awareness lacking for e.g. men’s apparel.

Planning , implementing and evaluating communication programs.:

Planning , implementing and evaluating communication programs. Developing THE Message Selecting the media used for delivering the message Determining the timing and frequency for presenting the message. Finally evaluate the communication objectives like awareness, knowledge, attitude and visit The largest portion of retailers communication budget is spent on advertising and sales promotion . Mediums used for advertising have their pros and cons. Newspaper advertising is effective for announcing sales whereas TV Ads are useful for developing an image. Sales promotion are used for short term objectives like increasing store traffic over the weekend. Publicity and word of mouth are low cost communication but are difficult to control.


Pricing,chapter15 Pricing strategies In Retail Market, there two opposing pricing strategies prevail. 1.Everyday low pricing strategy (EDLP)-Wal-Mart, Home depot and Staples have adopted EDLP. Some retailers adopt low price guarantee policy where they guarantee lowest possible price 2.High Low Pricing strategy- Here retailers offer prices that are above competitor’s EDLP but they use advertising to promote frequent Sales.

Deciding which strategy is best:

Deciding which strategy is best Reduced price wars-An EDLP strategy enables retailers to withdraw from price wars . Also catalogs do not become obsolete. Reduced stock-outs and improved inventory management-An EDLP reduces large variations in demand caused by frequent Sales with large markdowns. Fewer stock out means more more satisfied customers, higher sales and fewer rain checks. (Rain Checks are given to customers when merchandise is out of stock: They are written promises to sell customers at the sale price when the merchandise arrives.)

Strength of High/low strategy:

Strength of High/low strategy The same merchandise appeals to multiple markets-Higher prices to customers who are not price sensitive and lower prices to price sensitive customers. Sales create excitement-sales draw crowds and excitement Sales move merchandise-Frequent sales enable retailer to move merchandise. Emphasis on quality- A high initial price sends a signal to customers that the merchandise is of high quality

Approaches for setting prices:

Approaches for setting prices THREE METHODS Cost oriented method- This method is quick, mechanical and relatively simple Demand oriented method – This method allows retailers to determine which price will give them the greatest profit but is hard to determine due to huge number of SKUs. Competition oriented method-What competitor is doing is important and should be accounted in pricing. Retailers need to start with a price based on costs and their profit goals, consider competition and then perform tests to dtermine whether it is most profitable.

Cost oriented method- :

Cost oriented method- Normally gross margin is net sales minus cost of goods sold. Retailers however use additional term called maintained mark up Initial mark up is = Retail selling price initially placed on the merchandise - cost of goods sold Maintained mark up is = The actual Sales you get for the merchandise – cost of goods sold. Workroom costs like alterations or putting a table together are extra costs incurred by retailer A number of reductions to the value of inventory occur during the time it is originally priced and when it is sold. Reductions include markdowns, discount to employees and customers and shrinkage due to shop lifting,breakage or loss. Initial mark up must be high enough so that after reductions are taken out, the maintained mark up is left. Retailers expect shrinkage and include this loss to the price the customer pays. The relationship between initial mark up and and maintained mark up is Initial mark up=( maintained mark up+ reductions ) / Net Sales + Reductions


Demand oriented Pricing In demand oriented pricing approach, experiments are conducted to get most profitable pricing where prices are changed systematically to observe changes in purchases. If customers are very sensitive to reduction in price, profits can occur with high volume and low margin approach due to increase in demand while if customers are insensitive to price , raising price can boost profits.


Competition oriented pricing- Market leaders can not ignore smaller competitors and adjustments should be made . Same way smaller players may have to augment their service and pick those items which are very visible to customers. Most large retailers routinely collect competitor’s data from top competitors to see where they have room to raise margins and also where margins need to be lowered to maintain a desired market position. Retailers can develop some of the branding strategies for example they can develop lines of premium private label merchandise.

Calculating Breakeven for a new product:

Calculating Breakeven for a new product BEP Quantity= Fixed Cost/(unit price – unit variable cost) Fixed cost is cost of developing say for a shirt for e.g. 300000$ Unit price is selling price say 12 dollar Variable cost is the cost say cost of shirt is 5 dollar Then BEP Quantity= 300000/(12-5)=42857 units that means that Retailer must sell 42857 shirts to recover all the fixed cost or break even. Further if he wishes to make a profit of 100000$ then BEP Quantity =300000+100000/(10-5)=57143 units If it decides to reduce the selling price to 10 dollar from 12 dollar Then BEP Quantity=300000+100000/(10-5)= 80000 units Breakeven Sales = 80000*10=$800000

Price adjustments:

Price adjustments Retailers promote adjustments to the initial retail price with the hope of generating Sales. Price adjustments are in the form of Markdowns- Markdowns are reductions in in the initial retail price. They are done for clearance or are promotional in nature. Markdown also generates cash flow for buying new merchandise. Merchandize optimization software monitors merchandise sales , promotions , competitor actions and other factors to determine the optimal price. The software works by constantly refining its pricing forecast on the basis of actual Sales throughput the season .I t can make good markdown decisions. Retailers can reduce the amount of markdowns by working closely with their vendors to time deliveries with demand. Merchandise ahead of the demand takes valuable selling space and may get worn/damaged . Quick reponse Inventory systems reduce the lead time for receiving merchandise so that retailers can more closely monitor changes in trends and customer demand and thus reducing markdowns. Liquidating Markdown Merchandise . Retailer can use one of the five strategies to liquidate the mrchandise Job out merchandise to another retailer, consolidate merchandise, place on internet auction, give it to charity or carry the merchandise to next season.


Coupons-offer discount on merchandise when they are purchased. Rebates- Is a portion of the purchase price returned to the buyer Price bundling- offering two or more products for sale at one price Multiple unit pricing - customer purchases more than the consumption for future if there is a cost saving Variable pricing- or zone pricing means charging different prices in different stores , markets or zones.

Using price to stimulate Retail sales:

Using price to stimulate Retail sales Leader Pricing- here certain items are priced lower than normal to increase customer’s traffic and boost sales of complementary products. Price Lining- in price lining retailers offer a limited number of pre-determined price points within a classification for e.g. a tire store ay offer prices like 29.99, 49.99, or 79.99 for low medium or high price. Odd Pricing- practice of using a price that ends in an odd number. Like bata pricing

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