often pay with a check, cash, or athird-party credit card.Four approaches that store-based retailers use to overcome this problem are: Asking for Identifying Information - Some retailers have their sales executives ask customers for identifying information, such as their phone number or name and address, when they process a sale. This information is then used to link all the transactions for the customer. However, some customers may be reluctant to provide the information because they feel it is violating their privacy. Using Biometrics - Rather than asking for identifying information, some retailers use biometrics to identify customers. Customers entering the store can have their finger scanned to receive a printout of their personalized product discounts. At checkout, customers can pay using the finger scan and automatically debit the amount from a checking account. This system eliminates all cards, completely and fully integrates customer data, and makes rewards easily available with the simple act of a fingerprint scan. Offering Frequent-Shopper Programs - Frequent-shopper programs or loyalty programs identify and provide rewards to customers who patronize a retailer. Some retailers issue customers a frequent-shopper card, whereas others use a private-label credit card a credit card that has the store’s name on it. In both cases, customer transaction data are automatically captured when the card is scanned at the point-of-sale terminal. In addition, when customers enrol in one of these programs, they provide some descriptive information about themselves and their household. Connecting Internet Purchasing Data withthe Stores - When customers use third-party credit cards to make a purchase in a store, the retailer cannot identify the purchase by the customer. However, if the customer used the same credit card while shopping at the retailer’s Web site and provide shipping information, the retailer could connect the credit card purchases through its store and electronic channels. 2. Analyzing Customer Data and Identifying Target Customers The next step is to analyze the customer database and convert the data into information that will help retailers developprograms for increasing the value to their best customers. Analyzing the customer database helps in (1) identifying patterns in the datathat can improve the effectiveness of retailing decisions such as forecasting salesand allocating merchandise to stores and (2) deciding where to place merchandisecategories in a store. Retail analytics are used these days to analyze customer data and make recommendations for improving theeffectiveness of retailers.These applications find patternsin customer purchase data such as the composition of the basket, or bundle of products purchased. The target customers are identified using the customer pyramid based on CLV. 3. Developing CRM Programs 101 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
The next step in the CRM process is to develop CRM programsfor the different customer segments. For example, the CRM programsdirected towardsPlatinum customers attemptto maintain loyalty, increase retention, and gain a greater share of wallet byproviding more value to them. The objective of CRMprograms directed toward customers of low-CLV or first-time customersis to convert them into repeatcustomers and eventually high-value customers. However, customers who have alow lifetime value, have not purchased, or are committed to another retailer are not worth pursuing. Therefore, retailers develop programs to (1) retain their best customers, (2) convert goodcustomers into high-value customers, and (3) get rid of unprofitable customers. Retaining best customers - Retailers use four approaches to retain and increase share of wallet from best customers are: Frequent-Shopper Programs – These programs encourage repeat purchase behaviour and retailer loyalty. However, rewards should be tiered according to the volume of purchase to motivate customers to increase the level of their purchases. Some programs combine both discounts and points for rewards. Not all customers value the same rewards. Thus, the most effective frequent-shopper programs offer customers choices. For example, Credit Cards offer a catalogue of rewards to their customers.Link the frequent- shopper program to charitable causes. Also, reward all purchases, not just purchases of selected merchandise. There should be transparency and simplicity in these programs so that customers are able to understand quickly and easily. Some companies mail a separate catalogue to customers that describe the reward levels and available prizes. This pushes customers to move to the next spending level to receive the desired prizes.However,frequent-shopper programs can be expensive as it includes store training, marketing, fulfilment support, and information technology and systems costs. It is difficult to make corrections or changes in programs and customers may react negatively to any such changes. Further, it is difficult to gain a competitive advantage based on a frequent-shopper program as they can be easily duplicated by competitors. Special Customer Services - Some retailers provide unusually high-qualitycustomer service to build and maintain the loyalty of their best customers. Personalization - An important limitation of CRM strategies, is that each segment particularly Platinum is composed of a large number of customers who are not identical. Thus, any offering which is appealing to one customer may not be appealing to others. They have to develop programs for small groups of customers and even specific individuals. Now with the availability of customer-level data and analysis tools, retailers can economically offer unique benefits and target messages to individual customers. Developing retail programs for small groups or individual customers is referred to as one- to-one retailing and Internet channel enables retailers to automate the practice. Community - A fourth approach for building customer retention is to develop a sense of community among customers. A retail brand community is a group of customers who are 102 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
bound together by their loyalty to a retailer and the activities in which the retailer engages. For example, The Nike stores host running groups that meet two times a week. Converting Good Customers into Best Customers This means converting iron and gold customersinto platinum customers. A way to achieve this is through add-onselling, which involves offering and selling more products and services to increase the retailer’s share of wallet with these customers.Many retailers use their data on customer’s shopping histories to suggest products, distribute coupons. Amazon.com generates high add-on sales through its recommendations. Dealing with Unprofitable Customers The bottom tier of customers actually has a negative CLV. Retailerslose money on every sale they make to these customers. For example, customers who make an excessive number of returns typically are unprofitable. This includes even customers who vanish and thenreturn to store months or years later as a new customer. The costs of their (re)acquisitionmake them unprofitable. Approaches for getting rid of these customers are (1) offering less costly services to satisfythe needs of lead customers and (2) charging customers for the services they are abusing. 4. Implementing CRM Programs Effective CRM strategies require more than appointing aCRM manager, installing a computer system to analyze a customer database. The effectiveimplementation of CRM programs requires the close coordination of activities bydifferent functions in a retail organization. The IT department needs to collectand analyze the relevant information and make it readily accessible to the frontline service providers, sales personnel and the marketers responsible for communicating with customers. Store operations andhuman resource management needs to hire, train, and motivate the employeeswho will be using the information to deliver personalized services. 5.6 SUMMARY Customer relationship management is a business philosophy and set of strategies, programs, and systems that focuses on identifying and building loyalty with a retailer’s most valued customers. Loyal customers are committed to patronizing a retailer and are not prone to switch to a competitor. In addition to building loyalty through increasing customer value, CRM programs are designed to increase the share of wallet from the retailer’s best customers. Customer relationship management is an iterative process that turns customer data into customer loyalty through four activities: (1) collecting customer data, (2) analysing the customer data and identifying target customers, (3) developing CRM programs, and (4) implementing CRM programs. 103 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
Four approaches that retailers use to build loyalty and retain their best customers are (1) launching frequent-shopper programs, (2) offering special customer services, (3) personalizing the services they provide, and (4) building a sense of community. Unprofitable customers are dealt with by developing lower-cost approaches for serving them. Due to the inherent intangibility and inconsistency of services, providing high- quality customer service is challenging. However, customer service also provides an opportunityfor retailers to develop a strategic advantage. Retailers use two basic strategies for providing customer service: personalized service and standardized service. The personalized approach relies primarily on sales people. The standardized approach places more emphasis on developing appropriate rules, consistent procedures, and optimum store designs. Customers evaluate customer service by comparing their perceptions of the service delivered with their expectations. Thus, to improve service, retailers need to close the gaps between the service delivered and the customer’s expectations. 5.7 KEYWORDS Customer lifetime value (CLV) - The expected contribution from the customer to the retailer’s profits over his or her entire relationship with the retailer. Customer loyalty - Customers’ commitment to shopping at a store. Customer relationship management (CRM) - A business philosophy and set of strategies, programs, and systems that focuses on identifying and building loyalty with a retailer’s most valued customers. Customer service - The set of retail activities that increase the value customers receive when they shop and purchase merchandise. Customer database -It contains all of the data the firm has collected about its customers and is the foundation for subsequent CRM activities. Delivery gap - The difference between the retailer’s service standards and the actual service provided to customers. This factor is one of the four factors identified by the Gaps modelfor improving service quality. Employment empowerment- The process of managers sharing power and decision- making authority with employees. Frequent-shopper program - A reward and communication program used by a retailer to encourage continued purchases from the retailer’s best customers. Gaps model - A conceptual model that indicates what retailers need to do to reduce the service gap—the difference between customers’ expectations and perceptions of customer service to improve customers’ satisfaction with their service. 104 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
loyalty program - A program set up to reward customers with incentives such as discounts on purchases, free food, gifts, or even cruises or trips in return for their repeated business. 5.8 LEARNING ACTIVITY 1. Go to the home page of aretailer that you frequent and review its privacy policy. ___________________________________________________________________________ _______________________________________________________________________ 2. Develop a CRM program for a local store that sellsapparel and gifts. ___________________________________________________________________________ _______________________________________________________________________ 5.9 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is the connection between customer service and employee empowerment 2. What is customer pyramid? 3. What do you mean by customer life time value (CLV)? 4. Explain the importance of customer retention in Buyer Behaviour. 5. What are the various aspects a retailer should consider to maximise the customer satisfaction? 6. What are the problems encountered by a sales manager in marketing of services? Long Questions 1. What is a customer relationship management (CRM) program? Describe CRM program process. 2. Why do retailers want to determine the lifetime value of their customers? How does past customer behaviour help retailers anticipate future customer retention? 3. What are the different approaches retailers can use to identify customers by their transactions? 4. How could a small Web-based retailer engage in relationship retailing? 5. Explain briefly about service quality gap model. B. Multiple Choice Questions 1. Which types of service can be used by a retailer to differentiate itself from competition? a. Expected customer service b. Augmented customer service c. Peripheral customer service 105 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
d. Core customer service 2. A customer loyalty program should be designed to appeal to what types of customers? a. Dissatisfied customers b. Satisfied customers c. Customers who have recently defected d. A retailer's best customers 3. Channel members collaborate to maximize product category performance by offering product assortments and prices that better address consumer needs in _________ a. customer loyalty programs. b. SERVQUAL. c. a value delivery system d. Customer satisfaction. 4. From the customer's perspective, value is the _____ analyzing shopper has of a value chai a. measure b. actualization c. realization d. perception 5.Which strategy is an important part of customer service? a. Employee empowerment b. Retail research c. Organization mission d. Cost consciousness Answers 1-b, 2-d, 3-c. 4-d, 5-a 5.10 REFERENCES References book Levy, M. and Weitz, B., (2012). Retailing management. Boston: McGraw-Hill Irwin. New York. 106 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
Berman, Barry; Evans, Joel R.; and Chatterjee, Patrali, \"Retail Management: A Strategic Approach\" (2018). New Delhi: Pearson India Textbook references Anand Thakur, (2002). RETAIL MANAGEMENT (Ed), EXCEL BOOKS PRIVATE LIMITED, New Delhi. 107 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
UNIT 6:MERCHANDISE MANAGEMENT PROCESS PART-1 STRUCTURE 6.0 Learning Objectives 6.1 Introduction 6.2 Merchandise Management Process 6.3 Forecasting Sales 6.4 Merchandise Budget 6.5 Evaluating Merchandise Management Performance 6.6 Summary 6.7 Keywords 6.8 Learning Activity 6.9 Unit End Questions 6.10 Reference 6.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Define merchandise and merchandising State the importance merchandise management Discuss the steps involved in merchandise management process Identify the sales forecasting techniques and merchandise budget Analyse the performance of merchandise management process 6.1 INTRODUCTION The efficiency of a retail store is based on the retailer’s ability to provide the right merchandise at the right price, in the right quantity, at the right place and at the right time. The entire process of retailing depends on efficient merchandise management.Merchandising is the practice and process of displaying and selling products to customers. Whether digital or in-store, retailers use merchandising to influence customer intent and reach their sales goals.Merchandising consists of the activities involved in acquiring particular goods and services and making them available at the places, times, and prices and in the quantity that enable a retailer to reach its goals. This encompasses every product decision, from what product lines to carry, to the shelf space allotted, to different products, to inventory turnover, 108 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
to pricing. All of the merchandise comes in a variety of sizes, colors, makes and models. Bringing it all together requires the successful coordination of numerous individuals and divisions, including buyers, warehouse employees, financial staff, store operations, etc. The merchandise management process allows the retail buyer to forecast with some degree of accuracy what to purchase and when to have it delivered. This will greatly assist the company in attaining its sales and gross margin goals. Thus, merchandising decisions can dramatically affect performance. 6.1.1 Merchandise: Meaning The merchandise word has been coined from the old French word, ‘merchant’whichmeans goods. Merchandising means the buying and selling of goods with a motive toearn profit. The Oxford Advanced Learner’s Dictionary defines the word‘merchandise’ as goods bought and sold or trade goods.This is an activity of displaying and promoting products/services for retail sale in both brick and mortar and digital stores. It focuses mainly on the buying, presenting, and selling of merchandise and includes all related activities such as advertising, display, and promotion ofmerchandise involving the retail customers. According to American Marketing Association, “merchandising is the planning involved in marketing the rightmerchandise at the right place at the right time in the right quantities at theright price.Many Retailers would vouch for achieving the perfect balance among the rightmerchandise, right place, right time, right quantity, and right price as a great challenge.Merchandising can be defined as “Planning, Buying, Assorting, Promoting Placing, Setting and Replenishing the Goods”. Grace Kunz has tried to capture the essence of merchandizing when he defines, “merchandising as the planning, developing, and presenting of product lines foridentified target markets with regard to pricing, assorting, styling, and timing”. In fact, Merchandising is the art of marketing the rightmerchandise at the right place at the right time in the right quantity at the right price.The success of the merchandising lies in these five ‘Rights’. Merchandise management is the process by which a retailer attempts to offer the right quantity of the right merchandise in the right place at the right time and meet the company’s financial goals. Buyers need to be in touch with and anticipate what customers buy. The ability to sense market trends to manage inventory and the ability to analyze sales data to make appropriate adjustments in prices and inventory levels is important. 6.1.2 Importance of Merchandising First of all, a good merchandising strategy helps in selling more items to the customer. Secondly, merchandising offers more variety in the same product from different manufacturers. As a result, the customer feels comfortable to choose from the available items. Lastly, the placement of “sale” items will improve the chances of customers buying other items around these items. 109 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
6.1.3 Merchandising Philosophy A merchandising philosophy sets the guiding principles for all the merchandise decisions. A retail merchandising philosophy can be product-based and/or consumer-focused. Product- focused merchandising involves analyzing SKU-level sales performance to find and invest in the most profitable products based on store size, volume, and sell-through for each category. Consumer-focused merchandising involves creating product assortments based on customer insights, their preferences, and their path to purchase based on an analysis of loyalty data, social network signals, shopping patterns, and other sources. To capitalize on opportunities, more retailers now use micro-merchandising and cross- merchandising. With micro-merchandising, a retailer adjusts shelf-space allocations to respond to customer and other differences among local markets.It is easier today due to the data generatedfrom stores, Web site browsing, and transactions, mobile apps, catalogues, and third-party data. This enables the retailer to monitor, identify, and address customer trends. In cross-merchandising, a retailer carries complementary goods and services to encourage shoppers to buy more. For example, apparel stores stock accessories. It increases revenues by making it easy for consumers to buy complementary items together. Cross-merchandising leverages customer preferences for one-stop shopping and the tendency to make impulse purchases and increases the retailer’s overall revenues. 6.1.4 Types of Merchandise Staple merchandise also called basic merchandise categories, are categories that are in continuous demand over an extended time period. These items are essential and don’t change in seasonality or fashion. For a supermarket, staples include milk, bread, canned soup, and facial tissues. For a department store, staples include everyday watches, jeans, glassware, and house-wares. Because these items have relatively stable sales and their nature may not change much over time, it is relatively easy to forecast demand, anda retailer can clearly outline the quantities for these items. A basic stock list specifies the inventory level, colour, brand, style category, size, package, and so on for every staple item carried by the retailer.Retailers will often carry what is known as safety stock or back-up stock for staple inventory. Some retailers will provide long-term forecasts (up to a year) to vendors to help them understand future forecast needs and plan production accordingly. Typically staple merchandise is controlled by a continuous replenishment buying system. Fashion merchandise consists of products that may have cyclical sales due to changing tastes and lifestyles. These categories are in demand only for a relatively short period of time. New products are continually introduced into these categories, making the existing products obsolete. Some examples of fashion merchandise categories are athletic shoes, mobile phones, and women’s apparel. For these items, forecasting can be hard because 110 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
styles may change from year to year. The demand for these items can differ based on factors that may or may not be controllable, such as weather or changes in consumer tastes. There might be limited selling history on these items and to understand how much inventory to invest. It is both a science and an art to buy fashion merchandise in just the right quantity to maximize sales and prevent excessive inventory which will lead to unprofitable markdowns. Seasonal merchandise categories consist of items whose sales fluctuate dramatically depending on the time of year. Some examples of seasonal merchandise are ski equipment, Christmas ornaments, swimwear, air-conditioner servicing have excellent sales during one season per year. Both staple and fashion merchandise can be seasonal categories. For example, swimwear is a fashion merchandise category; whereas snow shovels is a staple merchandise category. Thus seasonal merchandise has characteristics of both fashion and staple merchandise. Fad merchandiseare those productswith shorter product life cycle. They generated high sales for a short time and lose demand quickly. Often, toys and games are fads, such as Star Wars toys that flew off store shelves each time a related movie was released. It is hard to forecast whether such products will reach specific sales targets and how long they will be popular. Sometimes, fads turn into extended fads and sales continue for a long period at a fraction of earlier sales. 6.2 MERCHANDISE MANAGEMENT PROCESS Merchandise Management Process starts with buyers forecasting category sales, developing an assortment plan for merchandise in thecategory, and determine the amount of inventory needed to support the forecastedsales and assortment plan. Then buyers develop a plan outlining the sales expectedfor each month, the inventory needed to support the sales, and the money that canbe spent on replenishing sold merchandise and buying new merchandise. Alongwith developing the plan, the buyer or planners decide what type and how muchmerchandise should be allocated to each store. Having developed the plan, thebuyer negotiates with vendors and buys the merchandise. Finally, buyers continually monitor the sales of merchandise in the categoryand make adjustments. For example, if category sales are less than the forecast inthe plan and the projected GMROI for the category falls below the buyer’s goal,the buyer may decide to dispose of some merchandise by putting it on sale andthen use the money generated to buy merchandise with greater sales potential orto reduce the number of SKUs in the assortment to increase inventory turnover. Though these decisions follow each other sequentially as shown in fig. 6.1, some decisions may be made at the same time or in a differentorder. 111 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
Fig. 6.1 - Merchandise Management Process 6.3 FORECASTING SALES The first step in merchandise management process is to develop a forecast for category sales. The methods and information used forforecasting staple and fashion merchandise categories are different. 1. Forecasting Staple Merchandise: Use of Historical Sales - The sales of staple merchandise are relatively constant from year to year. Thus, forecasts are typically based on extrapolating historical sales. With substantial sales data available and sophisticated statistical techniques, retailers can forecast future sales for each SKU. However, these statistical forecasts are based on the assumption that the factors affecting item sales in the past will be the same and have the same effect in the future. Adjustments for Controllable Factors - Even though, sales for staple merchandise categories are relatively predictable, controllable and uncontrollable factors can have a significant impact on them. Controllable factors include openings and closings of stores, the price set for the merchandise in the category, special promotions for the category, the pricing and promotion of complementary categories, and the placement of the merchandise categories in the stores. Some factors beyond the retailer’s control are the weather, general economic conditions, special promotions or new product introductions by vendors, the availability of products, pricing, and promotional activities by competitors. 112 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
2. Forecasting Fashion Merchandise Categories Forecasting sales for fashion merchandise is challenging because buyers typicallyneed to place orders to buying specific quantities between three andsix months before the merchandise is delivered.In addition, for fashion items, there is no opportunity to increase or decreasethe quantity ordered before the selling season has ended. Finally, forecasting fashion merchandise salesis particularly difficult because some or all of the items in the category are newand different from units offered in previous seasons or years. Some sources of informationthat retailers use to develop forecasts for fashion merchandise categories are (1) previous sales data, (2) market research, (3) fashion and trend services, and(4) vendors. Previous Sales Data - Although items in fashion merchandise categories might be new each season, many items in a fashion category are often similar to items sold in previous years. Thus, accurate forecasts might be generated by simply projecting past sales data. For example, video games might change from season to season with new games and editions, but while the SKUs are different each season, the total number of football video games sold each year might be relatively constant and predictable. Market Research - Buyers for fashion merchandise categories undertake a variety of market research activities to help them forecast sales. These activities range from informal, qualitative research about trends affecting the category to more formal experiments and surveys. Buyers look for information about trends on Internet chat rooms and blogs, and visiting hot spots around town like restaurants and nightclubs to see what people are talking about and wearing. Buyers may look for information on social media sites, hit movies, albums, etc. Retailers also use traditional forms of marketing research such as depth interviews and focus groups.Finally, many retailers conduct merchandise experiments where new merchandise is introduced into a representative sample of stores to see what sales are generated. Similarly, multichannel retailers offer new items on Web sites before making a decision to stock them. Fashion and Trend Services - There are many services that buyers can subscribe to forecast the latest fashions, colours, and styles. Vendors - Vendors have proprietary information about their marketing plans, such as new product launches and special promotions that can have a significant impact on retail sales for their products. In addition, vendors tend to be very knowledgeable about market trends for categories they specialize in. Thus, information from vendors about their plans and market research is very useful to buyers. 3. Sales Forecasting for Service Retailers - Due to the perishable nature of services, service retailers face an even more extremeproblem than fashion retailers. So service retailershave devised approaches for managing demand and capacity.Some service retailers match supply and demand by taking reservationsor making appointments. Another approach is sellingadvance tickets for a service. 113 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
6.4 MERCHANDISE BUDGET A merchandise budget planis a forecast of particular merchandise related activities designed for a particular period of time, say, one year or six months. Under this plan, rather than physical control of items, stress is given towards their financial planning. These plans are usually are made for one season and then broken down into shorter periods like monthly & weekly plans.In an effective merchandise budget, a retailer forecasts and plans about five fundamental variables such as sales level, stock levels, purchases, reductions or markdowns and gross margin. The primary objective of having a merchandise budget plan is that a retailer would like to have a proper balance between: the cash outflow in terms of what will be paid to suppliers for purchase of merchandise and the cash inflow that will come in the business from sales to customers.For the effective accomplishment, the firm’s internal records, past years’ experience must be carefully considered. Components of Merchandise Budget: The various components of a merchandise budget plans are as follows: Planned Sales and Stock levels: A sales forecast for a particular period and for each month is prepared. After this, retailer should determine the beginning of month inventory in order to specify the desired rate of stock turn for each month of the season under study. Planning for Reductions:Planning for reductions involves deciding about markdowns, employee discounts and shortages. Reducing prices is critical because the degree of reduction will have exactly the same effect on the value of stock as an equal amount of sales for that period. Markdown is used to push retail sales that offer particular merchandise at a price less than the merchandise marked price. Planning For Purchases:After planning sales and stock levels and reductions, next step is to plan for purchases in value (Rupees).The planned purchases figure usually is based on retail prices rather than at cost. In order to determine the financial resources required to procure merchandise, it becomes imperative on the part of retailer that he should determine planned purchases at cost. Planning for Gross Margin and Operating Profit:The gross margin usually is the initial markup adjusted for price variations, reductions, shrinkage and other stock shortages. The gap between gross margin and expenses needed to create sales will either contribute to profit or a net profit. 6.5 EVALUATING MERCHANDISE MANAGEMENT PERFORMANCE A good performance measure for evaluating a retailfirm is ROA. Return on assets is composed of two components, asset turnover andnet profit margin percentage. But ROA is not a good measure for evaluating the merchandise managementperformance because merchandise managers do not have control over allof the retailer’s assets or operating 114 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
expenses that the retailer incurs. Merchandisemanagers have control only over the merchandise they buy, the price at which the merchandise is sold, and the costof the merchandise. Thus, buyers generally have control over the gross margin. GMROI- A financial ratio that assesses a buyer’s contribution to ROA is grossmargin return on inventory investment (GMROI). It analyzes a firm's ability to turn inventory into cash above the cost of the inventory. It is calculated by dividing the gross margin by the average inventory cost. The formula for the GMROI is as follows: GMROI=Average inventory cost/Gross profit To calculate the GMROI, two metrics must be known: the gross margin and the average inventory. The gross profit is calculated by subtracting company's cost of goods sold (COGS) from its revenue. The difference is then divided by its revenue. The average inventory is calculated by summing the ending inventory over a specified period and then dividing the sum by the number of periods. The gross margin may also be stated in dollar terms rather than in percentage terms.Gross margin return on investment is a useful concept for several reasons: It is a good indicator of a manager’s performance because it focuses on factors controlled by him. Interdepartmental comparisons can also be made. It is simple to plan and understand, and data collection is easy. It can be determined if GMROI performance is consistent with other company goals. It shows how diverse retailers can prosper. For example, any two retailers can have the same GMROI with varying profitability and turnover. 6.6 SUMMARY Merchandising is the art of marketing the right merchandise at the right place at the right time in the right quantity at the right price. The success of the merchandising lies in these five ‘Rights’. Merchandise is broken down into categories for planning purposes. Buyers and planners manage these categories, often with the help of their major vendors. A retail merchandising philosophy can be product-based and/or consumer-focused. Product-focused merchandising involves analysing SKU-level sales performance to find and invest in the most profitable products based on store size, volume, and sell- through for each category. Consumer-focused merchandising involves creating product assortments based on customer insights, their preferences, and their path to purchase based on an analysis of loyalty data, social network signals, shopping patterns, and other sources. The steps in the merchandise management process are (1) forecasting category sales, (2) developing an assortment plan, (3) determining appropriate inventory levels and product availability, (4) developing a plan for managing inventory, (5) allocating 115 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
merchandise to stores, and (6) monitoring and evaluating performance and making adjustments. Staple merchandise also called basic merchandise categories, are categories that are in continuous demand over an extended time period. For a supermarket, staples include milk, bread, canned soup, and facial tissues. Because these items have relatively stable sales and their nature may not change much over time, it is relatively easy to forecast demand, and a retailer can clearly outline the quantities for these items. Fashion merchandise consists of products that may have cyclical sales due to changing tastes and lifestyles. These categories are in demand only for a relatively short period of time. New products are continually introduced into these categories, making the existing products obsolete. Seasonal merchandise categories consist of items whose sales fluctuate dramatically depending on the time of year. Both staple and fashion merchandise can be seasonal categories. For example, swimwear is a fashion merchandise category; whereas snow shovels is a staple merchandise category. Fad merchandise are those products with shorter product life cycle. They generated high sales for a short time and lose demand quickly. Often, toys and games are fads, such as Star Wars toys. Buying systems for staple merchandise are very different from those for fashion merchandise. Because staple merchandise is sold month after month and the sales levels are predictable, an automated continuous replenishment system is often used to manage staple merchandise categories 6.7 KEYWORDS Merchandising - Activities involved in acquiring particular goods and/or services and making them available at the places, times, and prices and in the quantity to enable a retailer to reach its goals. Staple Merchandise - Consists of the regular products carried by a retailer whose demand is relatively stable throughout the year. Seasonal merchandise - Inventory whose sales fluctuate dramatically according to the time of the year. Stock-keeping unit (SKU) - The smallest unit available for keeping inventory control. In soft goods merchandise, an SKU usually means a size, colour, and style. Stockout - A situation occurring when an SKU that a customer wants is not available. Scrambled Merchandising - Occurs when a retailer adds goods and services that may be unrelated to each other and to the firm’s original business. Micro merchandising - Strategy whereby a retailer adjusts its shelf-space allocations to respond to customer and other differences among local markets. 116 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
Merchandising Philosophy - Sets the guiding principles for all the merchandise decisions a retailer makes. 6.8 LEARNING ACTIVITY 1. Variety, assortment, and product availability are thecornerstones of the merchandise planning process. Give examples for retailers positioned on these factors. ___________________________________________________________________________ _______________________________________________________________________ 2. Assume you are the grocery buyer for canned fruitsand vegetables at a five-store supermarket chain. How do you forecast the sales? ___________________________________________________________________________ _______________________________________________________________________ 6.9 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What do you mean by retail sale forecasting? 2. What is Merchandise Budget? 3. Define merchandise management. Explain its role in retailing. 4. Differentiate staple and fashion merchandise. 5. What do you mean by Fad? 6. What are seasonal products? Long Questions 1. What are the various methods in retail sales forecasting? What factors affect the accuracy of forecasting? 2. Briefly discuss the various kinds and classification of merchandise items. 3. Explain the steps in the merchandise management process. 4. How do you evaluating Merchandise Management Performance? 5. Write a note on forecasting in service retailing. B. Multiple Choice Questions 1 Items such as milk, bread, and canned soup are examples of: a. staple merchandise b. fashion merchandise c. seasonal merchandise d. fads 117 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
2. Products that have cyclical sales due to changing tastes and lifestyles are: a. assortment merchandise b. fashion merchandise c. fad merchandise d. nostalgic merchandise 3. A high level of sales is generated for a relatively short time with: a. fad merchandise b. seasonal merchandise c. fashion merchandise d. nostalgic merchandise 4. The number of distinct goods/service categories a retailer carries is referred to as the: a. consistency of the product mix b. width of assortment c. product life cycle d. depth of assortment 5. Products are arranged into strategic business units to better meet consumer needs and to achieve sales and profit goals in: a. direct product profitability b. retail auditing c. category management d. merchandising Answers 1-a, 2-b, 3-a. 4-b, 5-c 6.10 REFERENCES References book Levy, M. and Weitz, B., (2012). Retailing management. Boston: McGraw-Hill Irwin. New York. Berman, Barry; Evans, Joel R.; and Chatterjee, Patrali, \"Retail Management: A Strategic Approach\" (2018). New Delhi: Pearson India Textbook references 118 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
Anand Thakur, (2002). RETAIL MANAGEMENT (Ed), EXCEL BOOKS PRIVATE LIMITED, New Delhi. 119 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
UNIT 7:MERCHANDISE MANAGEMENT PROCESS PART-2 STRUCTURE 7.0. Learning Objectives 7.1. Introduction 7.2. Assortment Plan 7.3. Inventory Management 7.4. Merchandise Buying 7.5. Buying National-Brand Merchandiser 7.6. Developing And Sourcing Private-Label Merchandise 7.7. Summary 7.8. Keywords 7.9. Learning Activity 7.10. Unit End Questions 7.11. Reference 7.0 LEARNING OBJECTIVES: After studying this unit, you should be able to: Develop assortment plans Explain the concept of inventory management Determine the appropriate inventory levels Understand the responsibilities of merchandise buyer Describe the process of merchandise buying 7.1 INTRODUCTION The goal of every retailer isn't just to make sure that what they carry meets the needs of their customers. Retailers also need to have the ability to organize and manage their inventory. Retailers need to be able to track their inventories from the time they're ordered from a manufacturer to the time a consumer buys an item They must ensure that all merchandise is handled and stored correctly, that it's organized in the store so that consumers can easily find what they want, and that it's easy to determine when it is time to re-order. In the present scenario, it is theconsumer who is deciding about what they want and has the wide choices available. Thus, in the present scenario the merchandiser has to constantly beon the watch of target market needs and their complete satisfaction, so as tomaximize the sales and profitability of the retail store. 120 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
7.2 ASSORTMENT PLAN One of the biggest challenges that retailers face is analyzing the trends and identifying the products that the customers may buy for the particular month or season and have the stock ready accordingly. This is also known as assortment planning which is defined as ‘planning of the right quantity of stock for the right month or season for the right customers’.After sales forecasting, the next step in the merchandise managementprocess is to develop an assortment plan. An assortment plan is the set of SKUs that a retailer will offer in a merchandisecategory in each of its stores. The assortment plan thus reflects the width and depth of merchandise that the retailer plans to offer in a merchandisecategory. Width of assortment refers to the number of distinct product categories (product lines) a retailer carries. Depth of assortment refers to the variety in any of the product category (product line) a retailer carries. Assortment strategies vary widelyand can range from wide and deep of a department store to narrow and shallow of a box store. For instance, shoe stores will have narrow (focused on shoes), but deep (many shoe brands and models) category selection. 7.2.1 Factors affecting Retail Assortment Planning The buyer considers the following factors: the firm’s retail strategy, the effect ofassortments on GMROI, the complementarities between categories, the effects ofassortments on buying behaviour, and the physical characteristics of the store. 1. Retail Strategy - The number of SKUs offered in a merchandise category is a strategic decision as the breadth and depth of the assortment in a merchandise category can affect the retailer’s brand image. Retailers might increase the assortment in categories that are closely associated with their image. 2. GMROI - In developing the assortment plan, buyers need to be sensitive to the trade-off of increasing sales by offering greater breadth and depth but, at the same time potentially reducing inventory turnover and GMROI because of the increased inventory investment. Increasing assortment breadth and depth also can decrease gross margin. 3. Complementary Merchandise - When buyers develop assortment plans, they need to consider the degree to which categories in a department complement each other. For instance, customers who buy a Smartphone might also buy complementary products and services such as accessories, cables, and warranties that have a high GMROI. Thus, the buyer may decide to carry more SKUs to increase the more profitable accessory sales. 4. Effects of Assortment Size on Buying Behavior - Offering large assortments provides a number of benefits to customer. First, it increases the chance that customers find the product that best satisfies their needs. Second, large assortments provide a more informative and stimulating shopping experience. Third, large assortments are appealing to customers who 121 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
seek variety and try new things. However, offering a large assortment can make the purchase decision more complex and time consuming. 5. Physical Characteristics of the Store - Buyers need to consider how much space to devote to a category. More space is needed to display categories with large assortments. In addition, a lot of space is needed to display individual items in some categories, and this limits the number of SKUs that can be offered in stores. For example, furniture takes up a lot of space, and thus furniture retailers display one model of a chair or sofa and then have photographs or through their Internet and catalog channels show how the furniture would look with different upholstery. 7.2.2 Importance of Retail Assortment Planning Serving Customers:When the retailer has the right assortment planning he will be able to serve the customer by fulfilling his needs in an appropriate way. It also helps in making the customer not searching for it beyond his Store and thereby giving customer convenience more priority.A good retail assortment planning will help to attract more and more customers of different tastes to the same shop. Retail Budget:Importance of retailers assortment planning is that it helps to manage the retail budget accordingly. The retailer cannot buy every product of every size, color and combination to keep in the store, hoping that some customer might walk in and take it.Instead, the retailer can keep the regular sizes, colors and varieties of the products that are most demanded or commonly used and the exceptional sizes and colors on-demand basis. For example, in case of apparel retail store, the retailer can keep the regular size of shirts that areused commonly, but the extreme sizes can be ordered and given on-demand basis. Avoiding losses:With proper planning, the retailer can avoid the unsoldinventory, which increases inventory cost and also cause financial losses to the retailer. 7.3 INVENTORY MANAGEMENT Retailer utilizes inventory management to acquire and maintain a proper merchandise assortment while ordering, shipping, handling, storing, displaying, and selling costs are kept in check. First, a retailer places an order based on a sales forecast or actual customer behaviour. Both the number of items and their variety are requested when ordering. Order size and frequency depend on quantity discounts and inventory costs. Second, a supplier fills the order and sends the merchandise to a warehouse or directly to the store(s). Third, the retailer receives the products, makes items available for sale, placing them on the sales floor, and completes customer transactions and the items are delivered to the customer. The cycle starts anew as a retailer places another order. This is basically called inventory managementwhich includes setting inventory levels, merchandise security, reverse logistics, and inventory analysis. 122 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
7.3.1 Inventory Levels Having the proper inventory on hand is a difficult balancing act as the retailer wants to be appealing and never lose a sale by being out of stock. At the same time does not want to end up with excess merchandise that must be marked down drastically. This involves careful analysis to determine the model stock plan for the category. 7.3.2 Model Stock Plan The model stock plan, is the number of each SKU in the assortment plan that the buyer wants to have available for purchase in each store. For example, the model stock plan may include X units of size 1, for girls’ traditional denim jeans in light blue. Retailers typically have model stock plans for the different store sizes in a chain. For example, retailers typically classify their stores as A, B, and C stores on the basis of their sales volume. The basic assortment in a category is stocked in C stores. The larger A and B stores may have more brands, colors, styles, and sizes. The model stock plan needs more backup stock also called buffer or safety stock, if the retailer wants to increase product availability, that is, increase the probability that customers will find the product they want when they visit the retailer’s store. Choosing an appropriateamount of backup stock is critical to successful assortment planning. 7.3.3 Managing Inventory Turnover Increasing inventory turnover can increase sales volume, improve sales associate’s morale, and provide more resources to new buying opportunities.Higher inventory turnover increases sales because new merchandise is continuallyavailable to customers and attracts customers to visit thestore more frequently. When inventory turnover is low, the merchandisebegins to look shop-worn or damaged from being displayed andhandled by customers for a long time. One approach for increasing turnover is to reduce the numberof SKUs within a category. However, if customers can’tfind the size or coloror brand or product linedue to the reduced assortment,patronage and sales can decrease. Another approach for increasing inventory turnover is tobuy merchandise more often and in smaller quantities, as thisreduces average inventory without reducing sales. But buyingsmaller quantities decreases the gross margin because buyerscan’t take advantage of quantity discounts and transportationeconomies of scale. Thus, buyers need to strike a balance while determining thelevel of inventory turnover. 7.3.4 Inventory Analysis Inventory status and performance must be analyzed regularly to gauge the success of inventory management. Availability of computer software’s has made such analysis much more accurate and timelier. Some of the elements of inventory performance that are deemed most important are: gross margin in rupees, inventory turnover, gross profit percentage, gross margin return on inventory, the weeks of supply available, and the average in-stock position. 123 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
7.4 MERCHANDISE BUYING 7.4.1 The Buying Organization A merchandising plan cannot be properly devised unless the buying organization and its processes are well defined.Every retailer has its own system for grouping categories of merchandise, but the basic structure of the buying organization is similar for most retailers. Level of Formality - With a formal buying organization, merchandising buying is a distinct retail task and requires the setup of a separate department. A formal organization is most often used by larger firms and involves distinct personnel. Advantages of a formal organization are clarity of responsibilities and use of full-time, specialized merchandisers. The disadvantage is the cost of a separate department. In an informal buying organization, merchandising buying is not a distinct task. The same personnel handle both merchandising and other retail tasks. Informal organizations generally occur in smaller retailers. Advantages of an informal format are low costs and flexibility. Disadvantages are less-defined responsibilities and less emphasis on merchandise planning. Degree of Centralization - In a centralized buying organization, all purchase decisions are made at the headquarters in a chain store where as in decentralized buying organization, purchase decisions are made locally or regionally. Advantages of centralized buying are the integration of effort, strict controls, consistent image, proximity to top management, staff support, and volume discounts. Possible disadvantages are the inflexibility, time delays, poor morale at local stores, and excessive uniformity. Decentralized buying has these advantages: adaptability to local conditions, quick order processing, and improved morale because of branch autonomy. Potential disadvantages are disjointed planning, an inconsistent image, limited controls, little staff support, and a loss of volume discounts. Organizational Breadth - In a general buying organization, one or several people buy all the merchandise for the firm. The owner of a small store will buy the merchandise for his or her store. With a specialized organization, each buyer is responsible for a product category. For example, a department store usually has separate buyers for girls and women clothes. A general approach is better if a retailer is small or there are few products involved. A specialized approach is better if a retailer is large or carries many products. Personnel Resources - A retailer can choose an inside or outside buying organization. An inside buying organization is staffed by a retailer’s personnel, and merchandise decisions are made by permanent employees. With an outside buying organization, a firm or personnel external to the retailer are hired on a fee basis. An inside buying organization is most often used by large retailers and very small retailers. An outside organization is most frequently used by small or medium-sized retailers or those far from supply sources. 124 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
7.4.2 Merchandise Classification/Hierarchy This is the method followed by big Retailers to classify the products. It is a logicalway in which the products are classified, based on the manner in which theconsumers are likely to buy the products.The hierarchy or classification can happen on many levels. 1. The highest classification level is the Merchandise Group.For example, in a store merchandise may be divided into four groups: (1) women’s apparel; (2) men’s, children’s, and intimate apparel; (3) cosmetics, shoes, jewellery, and accessories; and (4) home and kitchen. Each of the four merchandise groups is managed by a general merchandise manager (GMM). 2. The second level in the merchandise classification scheme is the Department. Departments are managed by divisional merchandise managers (DMMs). For example, the departments could be Apparels or Leather or Perfumes or Beauty care Products, etc. 3. The Merchandise Classification is the third level for categorizing and organizing merchandise management activities. A classification is a group of items targeting the same customer type, such asMen’s or Women’s or Kid’s in the Apparel section. 4. Merchandise Categories are the next lower level in the classification scheme like for example for Men’s Apparel we can have categories like Shirts, Trousers, Denims, Jackets, kurtas, etc. Each buyer manages several merchandise categories. Within a category classification could be at the level of Merchandise Sub-category, e.g. the Shirt could be formal and casual. 5. A Stock-Keeping Unit (SKU) is the smallest unit available for inventory control. An SKU usually means a particular size, colour, and style. For example, a pair of size 5, stonewashed, blue, straight legged Levi jeans is an SKU. 7.4.3 Brands Alternatives As part of its assortment planning, a retailer chooses the proper mix of manufacturer, private, and generic brands. Manufacturer (national) brands are produced and controlled by manufacturers. They are usually well known,supported by manufacturer ads, and pre-sold to consumers. They require limited retailerinvestment in marketing, and often represent maximum quality to consumers.Manufacturer brands dominate sales in many categories. Popular manufacturer brands includeApple, Coke, Gillette, Levi’s, Microsoft, Nike, Revlon, and Samsung. The small retailers, Web firms, discounters are likely torely most heavily on manufacturer brands. Although theyface extensive competition from private brands, manufacturer brands remain the dominant typeof brand, accounting for more than 80 percent of all retail sales worldwide. Private (dealer or store) brands contain names designated by wholesalers or retailers. Theyare more profitable to retailers, are better controlled by retailers, are not sold by competing retailers,are less expensive for consumers, and lead to customer loyalty to retailers. With most privatebrands, retailers must line up suppliers, arrange for 125 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
distribution and warehousing, sponsor ads,create displays, and absorb losses from unsold items. This is why retailer interest in private brands is growing. Private brands are often priced 20 to 30 percent below manufacturer brands. In general, gross profits are higher for private brands than manufacturer brands,despite their lower prices. Generic brands feature product’s generic names as brands (such as canned peas); they are a form of private, no-frills goods stocked by some retailers. These items usually get secondary shelf locations, have little or no promotion support, may be of less quality, are stocked in limited assortments, and have plain packages. Retailers control generics and price them well below other brands. In supermarkets, generics account for less than 1% of sales. However, for prescription drugs, generics provide 60 percent of sales. 7.5 BUYING NATIONAL-BRAND MERCHANDISER Retail buyers of national brands meet with vendors,review the merchandise they have to offer at wholesale markets, and place orders.A wholesale market for retail buyers is a concentration of vendors within a specificgeographic location, or under one roof such as Metro Cash and Carry or over the Internet. For many types of merchandise, particularlyfashion apparel and accessories, buyers regularly visit with vendors in established market centers. Trade shows provide another opportunity for buyers to see thelatest products and styles and interact with vendors. Vendors display their merchandisein designated areas and have sales representatives, company executives,and sometime even celebrities available to talk with buyers in the exhibit area. 7.6 DEVELOPING AND SOURCING PRIVATE-LABEL MERCHANDISE Larger retailers that offer a significant amount of private-label merchandise, have large divisionswith people devoted to the development of their private-label merchandise.Employees in these divisions specialize in identifying trends, designing and specifyingproducts, selecting manufacturers to make the products, maintaining aworldwide staff to monitor the conditions under which the products are made,and managing facilities to test the quality of the manufactured products. Smaller retail chains can offer private-label merchandise without making a significantinvestment in the supporting infrastructure. Smaller retailers often asknational-brand or private-label suppliers to make minor changes to products theyoffer and then provide the merchandise with the store’s brand name or a special Label. 7.7 SUMMARY Assortment planning is the process of ‘planning of the right quantity of stock for the right month or season for the right customers’. It depends on the firm’s retail strategy, 126 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
the effect of assortments on GMROI, the complementarities between categories, the effects of assortments on buying behaviour, and the physical characteristics of the store Inventory management deals with acquiring and maintaining a proper merchandise assortment while ordering, shipping, handling, storing, displaying, and selling costs are kept in check. Buying merchandise sometimes is facilitated by resident buying offices. Market representatives of the resident buying offices facilitate merchandising purchases in foreign markets. Retailers can purchase either national brands or private-label brands. Each type has its own relative advantages. Choosing appropriate brands and a branding strategy is an integral component of a firm’s merchandise and assortment planning process. Buyers of manufacturer’s brands attend trade shows and wholesale market centres to meet with vendors, view new merchandise, and place orders. Virtually every merchandise category has at least one annual trade show at which retailers and vendors meet. The process for buying private-label merchandise can be more complicated than that for buying national brands because the retailer takes on some of the responsibilities, such as designing and specifying products and selecting manufacturers to make the products. Retailers that can successfully team up with their vendors can achieve a sustainable competitive advantage. 7.8 KEYWORDS Centralized buying - A situation in which a retailer makes all purchase decisions at one location, typically the firm’s headquarters. Clearance sale - An end-of-season sale to make room for new goods; also pushing the sale of slow-moving, shop-worn, and demonstration model goods. Inventory Management- Process whereby a firm seeks to acquire and maintain a proper merchandise assortment while ordering, shipping, handling, storing, displaying, and selling costs are kept in check. Inventory Shrinkage - Encompasses employee theft, customer shoplifting, vendor fraud, and administrative errors. Model Stock Plan - Planned composition of fashion goods, which reflects the mix of merchandise available basedon expected sales. It indicates product lines, colours, andsize distributions. Inventory turnover - Net sales divided by average retail inventory;used to evaluate how effectively managers utilize their investment in inventory. 127 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
Merchandising planner - A retail employee responsible for allocating merchandise and tailoring the assortment in several categories for specific stores in a geographic area. Safety Stock - Extra inventory to protect against out-ofstock conditions due to unexpected demand and delaysin delivery. 7.9 LEARNING ACTIVITY 1. List the private-label brands of any two retailers. ___________________________________________________________________________ _______________________________________________________________________ 2. Go to your favorite food store; prepare a comparative chart of prices of private label brands and any two national brands. ___________________________________________________________________________ _______________________________________________________________________ 7.10 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What do you mean by product assortment? 2. Explain Category. 3. Explain the objectives of inventory turnover. 4. Describe the constraining factors influencing merchandise plan. Long Questions 1. Why have retailers found exclusive private labels to be an appealing branding option? 2. What are the advantages and disadvantages of manufacturer’s brands versus private label brands? 3. Explain the factors that affect the types of evaluation to be employed for supplier selection. 4. Briefly discuss about model stock plan. 5. What are the various steps involved in the process of category management? B. Multiple Choice Questions 1. A private-label brand is also known as a. A reseller brand b. A store brand c. A distributor brand 128 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
d. All of these 2. Merchandise availability is an example of a. cost of sales b. Pretransaction service. c. Operating cost. d. Transaction service. 3. Product assortment depth focus on a. Number of categories per product lines b. Items and variants in each category per product line c. Both a & b d. None of these 4. When making ‘purchasing decisions’, the chief considerations involved in the organizational buying are. a. Product quality. b. Price. c. Service. d. All of these 5. Generics are a. Unbranded versions of common products b. Plainly packaged versions of common products c. Less expensive versions of common products d. All of these Answers 1-d, 2-d, 3-a. 4-d, 5-d 7.11 REFERENCES References book Levy, M. and Weitz, B., (2012). Retailing management. Boston: McGraw-Hill Irwin. New York. Berman, Barry; Evans, Joel R.; and Chatterjee, Patrali, \"Retail Management: A Strategic Approach\" (2018). New Delhi: Pearson India 129 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
Textbook references Anand Thakur, (2002). RETAIL MANAGEMENT (Ed), EXCEL BOOKS PRIVATE LIMITED, New Delhi. 130 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
UNIT 8: RETAIL COMMUNICATION STRUCTURE 8.0 Learning Objectives 8.1 Introduction 8.2 Using Communication Programs To Develop Retail Image 8.3 Integrated Marketing Communication Program 8.4 Elements Of The Retail Promotional Mix 8.5 Planning The Retail Communication Program 8.6 Summary 8.7 Keywords 8.8 Learning Activity 8.9 Unit End Questions 8.10 Reference 8.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Discuss the importance of retail communication program Explain the elements of retail communication-mix. Describe the steps involved in planning retail communication program State the importance of integrated retail communication 8.1 INTRODUCTION Customer expectations keep rising, especially when it comes to in-store shopping. Today’s on-demand shoppers expect a comfortable retail shopping environment and want to create their own unique shoppingexperiences. Therefore, a retailer needs a superior communication strategy to properly position itself in the minds of target market and to influence their shopping behaviour. As soon as customers are attracted, theretailer must strive to create an engaging shopping experience for them. Various physical andsymbolic cues can be used to do this. It is imperative to maximize the total retailexperience for shoppers.For example, researchers have found that shoppers’ experiences at online retailer Web sitesdrive their expectations of the shopping experience in stores. Retailers need toleverage the tangible strengths of physical stores to create interactive and inspired social experiencesthrough theatrical product displays, as well as professional assistance by knowledgeableand friendly store associates to maximize the total retail experience for shoppers. 131 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
The communicationprogram informs customers about the retailer as well as the merchandiseand services it offers and plays a role in developing repeat visits andcustomer loyalty.Communication programs can have both long- and short-term effects on a retailer’sbusiness. In the long-term, communication programs can beused to create and maintain a strong, differentiated image of the retailer and itsprivate-label brands. This image develops customer loyalty and creates a strategicadvantage. In addition, retailers frequently use communication programs to realize theshort-term objective of increasing sales during a specified time period. For example, supermarkets usually place weekly ads with couponsthat can be used to save money on purchases made during the week. 8.2 USING COMMUNICATION PROGRAMS TO DEVELOP RETAIL IMAGE A brand is a distinguishing name or symbol, such as a logo, that identifies theproducts offered by a seller and differentiates those products from the offerings of competitors. In a retailing context, the name of theretailer is a brand that indicates to consumers the type of merchandise and servicesoffered by that retailer. Some retailers developprivate-label brands that are exclusively sold through their channels. In somecases, private-label merchandise bears the retailer’s name such as Big Basket, while othersuse special brand names such as Golden Harvest, Tasty Treat, so on. Value of Brand Image Brand image refers to how a retailer is perceived by customers and others. To succeed, a retailer must communicate a distinctive,clear, and consistent image. Once its image is established in consumers’ minds, a retailer is placedin a niche relative to competitors. For global retailers, it can be challenging to convey a consistentimage worldwide, given the different backgrounds of consumers. Brands provide value to both customers and retailers. Brands convey informationto consumers about the nature of the shopping experience, the retailer’s mix, they will encounter when visiting a retailer. They also affect customer’s confidence with a particular retailer. Finally, brands can enhance customer satisfaction with the merchandise and services they buy. The value that a brand image offers to retailers is referred to as brand equity.Strong brand names can affect the customer’s decision-making process, motivaterepeat visits and purchases, and build loyalty. In addition, strong brand names enableretailers to charge higher prices and lower their marketing costs. Thus, strong brand image enables retailers to increase their margins. Building Brand Equity 132 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
The activities that a retailer needs to undertake to build brand equity are (1) create a high level of brand awareness, (2)develop favorable associations with the brand name, and (3) consistently reinforcethe image of the brand. Brand Awareness - Brand awareness refers to a customer’s ability to recognize or recall a brand name. It is the strength of the link between the brand nameand the type of merchandise or service in the minds of customers.Retailers build top-of-mind awareness by having memorable names; repeatedlyexposing their names to customers through advertising, locations, and sponsorships;and using memorable symbols. Some brand names are easy to remember,such as the name Home Depot. Zara does very little advertising but has high awarenessbecause of the large number of stores it has in greatlocations. Symbols involve visual images that typically are moreeasily recalled than words or phrases and thus are usefulfor building brand awareness. For example, the image ofan apple and the golden arches enhance the ability of customersto recall the names Apple Store and McDonald’s. Associations - The value of the brand is largelybased on the associations that customers make with thebrand name. Brand associations are anything linked to orconnected with the brand name in a consumer’s memory.For example, some of the associations that consumers mighthave with Apple are its innovative products, such as theiPhone, iPod, and Mac computers, as well as its easy-to-usecomputer interface and innovative stores. These strongassociations influence consumer buying behaviour.Some common associations that retailers develop with their brand name are asfollows: The most common association is to link the retailer to a category of merchandise. For example, Office Depot would like to have consumers associate its name with office supplies. Some retailers, such as IKEA, Home Centre want to be associated with offering unique, high-fashion merchandise. Other retailers, such as Walmart, want associations with low prices and good value. A retailer can link its stores to attributes, such as 7-Eleven’s association with providing convenience. Some retailers associate their name with a specific lifestyle or activity. 8.3 INTEGRATED MARKETING COMMUNICATION PROGRAM Retailers communicate with customers using a mix of methods, such as advertising,sales promotion, publicity, e-mail, blogs, and social media like Twitter,Facebook, and YouTube. They also communicate implicitly through their store layouts, design, and visual merchandising. Retailers need to developan integrated marketing communication program that integratesall these communication elements to deliver a comprehensive, consistentmessage to all customers over time, across all elements of their retail mix, 133 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
andacross all delivery channels. Without this coordination, the communication methodsmight work at cross-purposes. For example, the retailer’s televised advertisingcampaign might attempt to build an image of exceptional customer service, butthe firm’s sales promotions might all emphasize low prices. If communication methods are not consistent, customers may become confused about theretailer’s image and therefore not patronize the store. 8.3.1 Objectives Communication Program: A retailer would select one or more of these goals to base Communication efforts on: To grow sales across categories To stimulate impulse buying. To increase customer traffic. To generate leads for sales personnel. To build and reinforce the retailer image. To inform customers about new goods and services. To popularize new stores and Web sites/Mobile Apps. To gain positive word of mouth (WOM) To develop and/or reinforce a retail image To stimulate demand for private brands To enhance customer experience To improve customer support To maintain brand consistency To provide real-time tracking 8.4 ELEMENTS OF THE RETAIL PROMOTIONAL MIX The effective communications program helps the retailerto deliver the rightmessage to the right audience through the right media, with the ultimate goal ofprofiting from long-term customer relationships and short-termtransactions.Asthe media environment grows more complicated,reaching the right audience is becoming more difficult. No single type of media is necessarily better than another. The advances in technology have led to a variety of new media options such as direct marketing, Internet sites and social media along with the traditional media such as advertising, public relations, personal selling, and sales promotion. 8.4.1 Advertising Is paid, non-personal communication transmitted through out-of-store mass media by an identified sponsor. This includes mass media such as newspapers, radio, TV, the Web, and other mass channels, rather than personal contacts. Traditionally, advertising has been passive and offline. However,recently there has been a growth in online advertising.Advertising 134 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
entails the placement of announcements and persuasive messagesby retailers that seek to inform and/orpersuade target audience about their products,services, organizations, or ideas. For example, Amazon relies on targeted online advertising, television advertising, public relations, its Associates program, cooperative advertising with vendors, and price promotions. However, retailers otherthan national chains and online firmsusually have more geographically concentrated target markets and therefore cannot utilize national media as readily as manufacturers. Only the largeretail chains and franchises can advertise on national TV programs. Sometimes the costs of retail advertising are sometimes sharedby manufacturers or wholesalers and their retailers. Also, two or more retailers may share costs.Both of these approaches are calledcooperative advertising. The major advantages of advertising are: A large audience is attracted. The costs per viewer, reader, or listener are low. A number of alternative media are available The retailer has control over message content, graphics, timing, and size, so astandardized message in a chosen format can be delivered to the audience. In print media, a message can be studied and restudied by the target market. The major disadvantages of advertising are: Standardized messages lack flexibility Do not focus on the needs of individual customers. Some media require large investments. Media may reach large geographic areas, and for retailers, this may be wasteful. A small Some media require a long lead time for placing ads. Some media have a high throwaway rate. Circulars may be discarded without being read. A 30-second TV commercial or small newspaper ad does not have many details. MEDIA Retailers can choose from the media described below. Newspapers represent the preferred medium for many retailers, having the advantages of proper market coverage, short lead time, reasonable costs, flexibility, longevity, graphics, and editorial association. Because newspapers are distributed in well-defined local market areas, they’re effective at targeting specific retail markets. Newspapers also offer a quick response. There’s only a short time between the deadline for receiving the advertisement and the time advertisement will appear. Thus, newspapers are useful for delivering messages on short notice. Newspapers effectively convey a lot of detailed information. But newspaper ads aren’t effective because of the poor reproduction quality. Also, the life of a newspaper advertisement is short. Finally, the cost of developing newspaper ads is relatively low. 135 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
Magazines. With the growth of local magazines, regional editions of national magazines, and specialized magazines, local retailers can take advantage of this medium. Retailers tend to use this medium for image advertising because the reproduction quality is high. Due to the longer lead time, a major disadvantage of magazine advertising is that the timing is difficult to coordinate with special events and sales. Television commercials can be placed on a national network or local station. Retailers typically use TV for image advertising, to take advantage of the high production quality and the opportunity to communicate through both visual images and sound. Television ads can also demonstrate product usage. Disadvantages include high minimum costs, audience waste, a need for brevity and repetition, and limited availability of popular timesfor non-sponsors. Radio. Many retailers use radio advertising because messages can be targeted to a specific segment of the market. Advantages are the relatively low costs, its value as a medium for car drivers and passengers, its ability to use segmentation, its rather short lead time, and its wide reach. Disadvantages include no visual impact, the need for repetition, the need for brevity, and waste. The use of radio by retailers has increased in recent years. Web. Online retailers use Web ads to stimulate awareness and E-commerce. For store retailers, the Web provides information to customers about locations; describes products carried; allows people order catalogues, and so forth. Retailers have two opportunities to reach customers: advertising on search engines and third party Web sites; and communicating with customers at their own sites. Web-based advertising has been growing at a faster pace. Transit advertising is used in areas with mass transit systems. Ads are displayed on buses and in trains and taxis. Advantages are the captive audience, mass market, high level of repetitiveness, and geographically defined market. Disadvantages are the ad clutter, distracted audience, lack of availability in small areas. Many retailers also advertise on their delivery vehicles. Outdoor (billboard) advertising is sometimes used by retailers. Posters and signs may be displayed in public places, on buildings, and alongside highways. Advantages are the large sizeof the ads, the frequency of exposure, and the relatively low costs. Disadvantages include the clutter of ads, a distracted audience, and the limited information. Social media have become the digital hub for many retailers. Furthermore, social media may provide the sole digital presence for many small retailers who do not have a Web site. Advantages include developing interactive ads; creating excitement and suggestion selling through sharing of images, videos, and information and promotions; and providing customer service, identifying new customers based on their social media profiles. Disadvantages include the intense competition, the possibility of negative comments, and the lack of methods to measure the impact on sales. 136 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
Mobile apps are now being developed by retailers or third-party retail intermediaries and then downloaded by customers. Advantages include the ability to drive traffic to stores; to provide personalized, geo-targeted information and time-sensitive promotions; to enhance in-store experiences; to provide out-of-store product interaction opportunities; and to complete ordering, payments, and purchases through a smartphone without the need for retail salesperson interaction. Disadvantages include technological limitations and privacy implications. 8.4.2 Public Relations Public relations entail any communication that fosters a favourable image for the retailer amongits publics (consumers, investors, government, channel members, employees, and the generalpublic). It may be non-personal or personal, paid or nonpaid, and sponsor controlled or not controlled.Public relations can benefit both large and small retailersto achieve various objectives, suchas building and maintaining a positive image,handling unfavourable stories orevents, and maintaining positive relationships. Publicity is any nonpersonal form of public relations whereby messages are transmittedthrough mass media, the time or space provided by the media is not paid for, and there is no identifiedcommercial sponsor. In many cases, it supportsother promotional efforts by generating free media attentionand general goodwill.The basic distinction between advertising and publicity is that publicity is nonpaid. Thus, itis not as readily controllable as advertising. A story on a store opening may not appear, appear after, ornot appear in the form desired. However, publicity is often more credible and valuable.Advertising and publicity should complement one another. Social media now have a huge impact on a retailer’s public relations efforts and on the publicityit receives. Bloggers and YouTubers as influencers may represent real customers who reach a targeted audienceand whose opinions are trusted by their followers. They may generate activeengagement, influence purchase decisions, and help drive return on investment of the retailer. This is sometimes referred to as “influencer marketing.” Another popular PR tool is event sponsorship where corporations supportvarious activities usually inthe cultural or sports and entertainment sectors. 8.4.3. Personal Selling Personal selling involves oral communication with one or more prospective customers for thepurpose of making a sale. Retail salespeople include anyone who interacts face-to- face with the shopper to exchange information. Retail salespeople may work in a store, visit consumer homes or office; engage in telemarketing; or engage in real-time online chat. The levelof personal selling used by a retailer depends on the image it wants to convey, the 137 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
products sold,the amount of self-service, and the interest in long-term customer relationships and customerexpectations. The cost of communicatingdirectly with a potential customer is quite high compared with other formsof promotion, but it is simply the best and most efficient way to sell certain productsand services. In many cases, salesrepresentatives add significant value, which makes the added expense of employingthem worthwhile. Personal selling can have huge impact on customer service; stimulate cross-selling; suggesting that customers to try different colors, styles, orquality. And last, salespeople can help foster customer loyalty. 8.4.4. Sales Promotion Sales promotions are special incentives or excitement-building programs thatencourage consumers to purchase a particular product or service. These are typicallyused in conjunction with other advertising or personal selling programs.Many sales promotions, like freesamples or point-of-purchase (POP) displays, attempt to build short-term sales,whereas others, like loyalty programs, contests, and sweepstakes, have becomeintegral components of retailer’s long-term customer relationship management. The main priority of a sales promotional strategy should be to maximize profit by sellingas many units as possible. The various tools used in sales promotions are presentedbelow. Type Description Point-of-purchase displays Window, floor, and counter displays that allow a retailer to (POP) remind customers and stimulate impulse purchases. Contests Customers compete for prizes by completing a contest or game, such as a crossword puzzle, a slogan, or a football lottery. Coupons Retailers advertise special discounts for customers who redeem advertised coupons, clipped from print media or POP displays, or online code. Sweepstakes Similar to a contest, except that participants merely fill out application forms and the winner is picked at random. Frequent shopper programs Customers are given points or discounts based on the value of their purchases. The points are accumulated to acquire goods or services Prizes Similar to frequent shopper programs, retailer gives free gifts immediately, such as glasses, silverware, and others. 138 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
Demonstrations Products are shown cleaning up floors, mixing foods, and so on. Services are also demonstrated. Samples Free tastes or smells of items are given to customers. Matchbooks, pens, Items that contain the retailer’s name are given to customers calendars, shopping bags, etc. Referral gifts Presents or gifts are given to current customers when they bring in new customers. Special events Include fashion shows, autograph sessions with book authors, art exhibits, and holiday activities. 8.4.5. Direct Marketing Direct marketing is marketing that communicates directly with target customersto generate a response or transaction. Direct marketing contains a variety of traditionaland new forms of marketing communication initiatives. Traditional direct marketing includesmail and catalogues sent through the mail and today it also includes Internet-enabledmethods such as e-mail and mobile marketing. Retailers have been able to build databases,thanks to increased use of credit and debit cards, store-specificcredit and loyalty cards, and online shopping, all of which require the buyers togive personal information. Such information enables retailers to focus their direct marketing efforts appropriately.Direct marketing retailers try to carefully target their customers so that theywill be more receptive to their messages. There are different forms of directmarketing whichuse both online/offline communication methods. Direct Mail: Direct mail includes any brochure, catalogue, advertisement, or other printed marketing material delivered directly to the consumer through the mail or a courier company. The direct mail piece can go to all customers or even on a personalized basis to individual customers. Although relatively expensive on a per-customer basis, direct mail is still extensively used by many retailers because people respond favourably to personal messages. E-mail: E-mail is a direct marketing communication vehicle that involves sending messages over the Internet. E-mail can be personalized to the specific consumer. Retailers use e-mail to inform customers of new merchandise and special promotions, confirm the receipt of an order, and indicate when an order has been shipped. Mobile Marketing: Mobile marketing is marketing through wireless handheld devices, such as cellular telephones, and m-commerce or mobile commerce involves completing a transaction via the cell phone. Smartphones offer a kind of mobile computer with the ability to obtain sports scores, weather, music, videos, and text messages, as well asto 139 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
purchase merchandise. Retailers are steadily improving customer experience with their mobile interfaces by creating applications. 8.4.6. Online Marketing There are several online media vehicleswith which customers can interact such as Websites, blogs, and social media. Web Sites - Retailers use their Web sites to build their brand images; inform customers of store locations, special events, and the availability of merchandise; and sell merchandise and services. In addition, some retailers provide services that help garner customer loyalty and indirectly increase sales. Some retailers use their Web sites to community building and also encourage customers to post reviews of products they have bought or rate the quality. Research has shown that these online product reviews increase customer loyalty and provide a competitive advantage for sites that offer them. Blogs - A well-received blog can communicate trends, announce special events, and create word-of-mouth communication. Blogs connect customers by forming a community, allow the company to respond directly to customer comments, and facilitate long-term relationships.Many retailers utilize blogs as part of the communication strategy. Social Media - Social media includes content distributed through social interactions on YouTube, Facebook, and Twitter, so on. This is another online vehicle for word-of-mouth communications, consumer reviews, and aggregate information about products, prices, and promotions. This type of social media also allows users to interact among themselves. By proactively engaging with its customers, a retailer can build stronger relationships. 8.5 PLANNING THE RETAIL COMMUNICATION PROGRAM There are four steps involved in developing and implementing aretail communication program: Establish objectives, determine a budget, allocatethe budget, and implement and evaluate the program. 1. Establish Objectives Communicationprograms can have a long-term objective, such as creating or altering a retailer’sbrand image or short-term objectives such as increasing store traffic on a weekend.Communication objectives are specific goals related to the retailcommunication mix’s effect on the customer’s decision-making process.Some of them are: Increase sales Stimulate impulse buying. Increase customer traffic. Generate leads for sales personnel. Build and reinforce the retailer image. Inform customers about new goods and services. 140 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
Popularize new stores and Web sites/Mobile Apps. Gain positive word of mouth (WOM) 2. Determine the Communication Budget The second step in developing a retail communication program is to determine abudget.There are five main procedures for setting the size of a retail promotional budget. Retailers shouldweigh the strengths and weaknesses of each technique in relation to their own requirements andconstraints. Affordable method (All-you-can-afford) where a retailer first allots funds for each element of the retail strategy mix and the remaining funds go to promotion. This is the weakest technique. Its shortcomings are that little emphasis is placed on promotion as a strategic variable; expenditures are not linked to goals; and if little or no funds are left over, the promotion budget is too small or non-existent. This method is used predominantly by small, conservative retailers. The incremental method relies on prior promotion budgets to allocate funds. A percentage is either added to or subtracted from previous year’s budget to determine the budget. This technique is useful for a small retailer which provides a reference point and budget is adjusted based on the past success or failure. It is easy to apply but the budget is rarely linked to specific goals. Competitive parity method, where a retailer’s promotion budget is raised or lowered based on the leading competitor’s actions. This method is often employed by both small and large firms, and is market-oriented. However, it is tough to get competitive data and competitor’s objectives may be quite different. The percentage-of-sales method, when a retailer ties its promotion budget to revenue. Promotion budget is developed as a percentage of sales. This process uses sales as a base, is adaptable, and correlates promotion and sales. Nonetheless, there is no relation to goals and promotion may drop during poor periods. This technique provides excess financing in times of high sales and too few funds in periods of low sales. The objective-and-task method, a retailer clearly defines its promotion goals and prepares a budget to satisfy them.A goal might be to increase retailer brand awareness to 70 percent from existing 50 percent. To do so, it would determine the tasks and costs required to achieve that goal. This method is the best budgeting technique as goals are clear, spending relates to goal-oriented tasks, and performance can be assessed. However, it is time consuming and complex, especially for small retailers. 3. Allocate the Promotional Budget After determining the size of the communication budget, the third step is to allocate the budget to specific communicationelements, merchandise categories, geographic regions, or 141 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
long- and shorttermobjectives. The promotional mix is affected by the type of retailer involved. For example, supermarkets use sampling,frequent shopper promotions, theme sales, and bonus coupons mostly.Research indicates that allocation decisions are more important than the decisionabout the budget itself. In other words, retailerscan realize the same objectives by reducing the communicationbudget but allocating it more effectively.A firm with a limited budget may rely onstore displays, Web site traffic, flyers, targeted direct mail, and publicity to generate customertraffic. One with a large budget may rely more on newspaper and TV ads. The retailer should allocate the budget to areas that will yieldthe greatest return. 4. Implementing and Evaluate CommunicationPrograms The implementation of a promotional mix involves choosing which specific media to use, timing, content, nature of sales force, specificsales promotion tools, and the responsibility for coordination. Media Decisions - The choice of specific media is based on their overall costs, efficiency, lead time, and editorial content. The retailer’s promotion budgetis important since heavy use of one expensive medium may distort a balanced promotional mix, and a firm may not be able to repeat a message in a costly medium. Further, different media offers different reach and frequency. Reach refers to the number of target customers exposed to a retailer’s promotion program in a specific period. Frequency is the average number of times each customer reached is exposed to the message in a specific period.Also media vary with required lead times. A newspaper ad can be placed with a short notice; an online ad can go ‘live’ almost immediately, whereas a print magazine ad must be placed months in advance. Timing - A massed promotion effort is used by retailers, such as toy retailers, that promote seasonally. A distributed promotion effort is used by retailers, such as fast-food restaurants, that promote throughout the year. Massed advertising is practiced by supermarkets where many use Wednesday or Thursday for weekly newspaper ads. This takes advantage of the fact that a high proportion of consumers make their shopping trip on Friday, Saturday, or Sunday. Sales force size can vary by time (morning versus evening), day (weekdays versus weekends), and month (December versus January). Sales promotions also vary in their timing. Store openings and holidays are especially good times for sales promotions (and public relations). Repetition is important, particularly for a retailer seeking to develop an image or sell new goods or services. Content of Message - Whether written or spoken, personally or impersonally delivered, message content is important. Advertising themes, wording, headlines, use of colour, size, layout, and placement must be selected. Press releases must be written. In personal selling, the greeting, sales presentation, demonstration, and closing need to be applied. With sales promotion, the firm’s message must be composed and placed on the 142 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
promotional device. To a large extent, the characteristics of the promotional form influence the message. A shopping bag often contains no more than a retailer’s name, and a billboard is good for visual effect but can hold only limited words. Evaluation - Although it is tough to assess promotion efforts, it is crucial for retailers to systematically measure performance andadapt their promotional mixes if required. An analysis of the success of a promotional plan depends on its objectives. Revisions should bemade if pre-set goals are not achieved. For example, Walmart provides suppliers with store-by-store data and sets upfrontgoals for cooperative promotion programs. Actual sales are then compared against the goals. 8.6 SUMMARY Retail promotion is any communication by a retailer that informs, persuades, and/or reminds the target market about any aspect of the retailer through ads, public relations, personal selling, and sales promotion. Advertising involves paid, nonpersonal communication. It has a large audience, low costs per person, many alternative media, and other factors. Key advertising media are papers, TV, the Web, phone directories, direct mail, radio, transit, outdoor, magazines, and flyers/circulars. Public relations include all communications to create awareness, enhance a favourable image. It may be nonpersonal or personal, paid or nonpaid, and sponsor controlled or not controlled. Publicity is the nonpersonal, nonpaid form of public relations. Personal selling uses oral communication with one or more potential customers and is critical for persuasion and in closing sales. It is adaptable, flexible, and provides immediate feedback. The audience is small, per-customer costs are high, and shoppers are not lured into the store. Sales promotion comprises paid communication activities other than advertising, public relations, and personal selling. Tools include point-of-purchase displays, contests and sweepstakes, coupons, frequent shopper programs, prizes, samples, demonstrations, referral gifts, calendars, shopping bags, and special events. Direct marketing has received the greatest increase in attention by retailers and can occurusing telemarketing, mobile marketing, direct mail and catalogues, and e-mail. All the elements in the communication mix must be coordinated so that customers have a clear, distinct image of the retailer and are not confused by conflicting information. Retailers go through four steps to develop and implement their communication program: Establish objectives, determine a budget, allocate the budget, and implement and evaluate the program. 143 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
8.7 KEYWORDS Promotion - Activities undertaken by a retailer to provide consumers with information about a retailer’s store, its image, and its retail mix. Integrated marketing communication (IMC) program - The strategic integration of multiple communication methods to form a comprehensive, consistent message. Interactive electronic retailing- A system in which a retailer transmits data and graphics over cable or telephone lines to a consumer’s TV or computer terminal. M-commerce (mobile commerce) - Communicating with and even selling to customers through wireless handheld devices, such as cellular telephones and personal digital assistants. Media coverage - The theoretical number of potential customers in a retailer’s market who could be exposed to an ad. Positioning - The design and implementation of a retail mix to create in the customer’s mind an image of the retailer relative to its competitors. Also called brand building. Personal selling - A communication process in which salespeople assist customers in satisfying their needs through face-to- face exchange of information. 8.8 LEARNING ACTIVITY 1. Retailers and manufacturers deliver coupons throughthe Internet in addition to delivering them by mail oras inserts. Which methods are more appropriate according to you? ___________________________________________________________________________ ___________________________________________________________________________ 2. Discuss the sales promotions used by a local furniture retailer. ___________________________________________________________________________ ___________________________________________________________________________ 8.9UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is retail image? 2. Discuss the significance of internet and social media in retail communication. 3. What are the various tools available in sales promotion for a retailer? 4. What are the differences between advertising and publicity? 5. What are features of personal selling? 6. How direct mails are more useful? 144 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
Long Questions 1. Explain the role of an integrated marketing communication program in retailing? 2. How can retailers use communication programs to develop brand images and build customer loyalty? 3. What steps are involved in developing a communication program? 4. What are the positive and negative aspects of direct marketing from the customer’s perspective? 5. What factors should be considered in developing the advertising budget? Which are the methods? B. Multiple Choice Questions 1. Retail advertising incorporates: a. payment for media b. a personal presentation c. a format that can be adapted to individual consumers d. an unidentified sponsor 2. Which type of retailer has the highest advertising-to-sales ratio? a. convenience stores b. furniture stores c. grocery stores d. jewellery stores 3. Advertising costs are shared between two or more retailers or a manufacturer, a wholesaler, and a retailer through: a. promotional monies (PMs) b. promotional allowances c. cooperative advertising d. slotting fees 4. Which method of establishing an overall promotional budget relies on previous budgets in the allocation of funds? a. incremental b. all-you-can-afford c. competitive parity d. percentage-of-sales 145 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
5. The face-to-face interaction with prospective buyers for the objective of answering questions, procuring orders and making presentations is a. Personal selling b. Interactive marketing c. Personal selling d. Word-of-mouth marketing Answers 1-a, 2-b, 3-c. 4-a, 5-a 8.10 REFERENCES References book Levy, M. and Weitz, B., (2012). Retailing management. Boston: McGraw-Hill Irwin. New York. Berman, Barry; Evans, Joel R.; and Chatterjee, Patrali, \"Retail Management: A Strategic Approach\" (2018). New Delhi: Pearson India Textbook references Anand Thakur, (2002). RETAIL MANAGEMENT (Ed), EXCEL BOOKS PRIVATE LIMITED, New Delhi. 146 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
UNIT 9: RETAIL MARKETING ENVIRONMENT STRUCTURE 9.0 Learning Objectives 9.1 Introduction 9.2 Importance Of Marketing Environment 9.3 Factors In The Micro Environment 9.4 Factors In The Micro Environment 9.5 Environmental Issues 9.6 Summary 9.7 Keywords 9.8 Learning Activity 9.9 Unit End Questions 9.10 Reference 9.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Describe the nature of retail marketing environment State the need and importance of Environment Analysis Identify the elements of retail marketing environment State the environmental issues in retail industry 9.1 INTRODUCTION Retailers are affected by the environment in which they operate. These external forces affect the retailer’s ability to develop and maintain successful transactions and relationships with its target customers. For example, changes in the population, increasing reliance on social media and growing concern for the environment and so on. Retailers who are wise to adapt to these changes are going to survive in the future. A retailer should continuously anticipate and adapt to both the opportunities and threats in a changing business environment. They must use their intelligence and marketing research to track the changing environment. By erecting early warning systems, retailers will be able to revise marketing strategies in time to meet new challenges and opportunities in the environment. For example, with the increase in online shopping, many retailers are responding by creating user-friendly websites and providing discounts on shipping. In fact environmental scanning or analysis is the primary step to develop a good retail strategy which determines the success of a retail firm. This complex external environment can be divided into two types of environment:micro 147 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
environment and macro environment. The micro environment consists of the actors in the retailer’s immediate environment that affect its ability to serve its markets such as Suppliers, intermediaries, customers, competitors and publics. The macro environment consists of legal, social, economic and technological forces. 9.1.1 Micro Environment Every retailer’s primary goal is to profitably serve and satisfy specific needs of target markets. To carry out this task, the retailer links himself with a set of suppliers and a set of intermediaries to reach its target customers. The suppliers, intermediaries, and customer chain comprise the core marketing system of the retailer. In retail, anything in the immediate environment including suppliers, customers, competitors, and stakeholders constitute the micro environment. Any government and other regulating body can be thought of as a stakeholder. Typically the micro environment is local to the business and any business owner should be well aware of those factors affecting the retail business. These factors are to some extent in the control of a retailer. 9.1.2 Macro Environment Macro environments are often outside of the retailer’s control and are typically of a larger scale and are usually of an economic and industry viewpoint. These represent a set of uncontrollable factors such as demographic, legal, social, economic and technological variables. Therefore, the macro environment must be continually monitored and its effects should be incorporated into retailer marketing planning. 9.2 IMPORTANCE OF MARKETING ENVIRONMENT 1. To understand the trends and events in the market and successfully analysing the data to identify customer desires and expectations. 2. The organisations that constantly screen the environment become future ready and successfully bridge the gap between current and desired positions in the market. 3. Factors of the environment are interrelated and can have both direct and indirect impact on the functioning of the organisation. For example, a change in taxation by the government will affect the finance department, but also other functions like supply, production, etc. 4. The environmental analysis helps is assessing strengths and weaknesses of the organisations and thereby helps in upgrading the strengths and overcoming the weaknesses. 148 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
5. The environmental analysis helps in analysing the opportunities and threats to the organisation and thereby capitalising the opportunities before the competition. 6. It helps an organisation understand its competitive position in the market as analysing the competitors is part of environment scanning. 7. Finally, by analysing the changes that are occurring in the Environment, organisations can adapt themselves to changes, prepare long-term plans, forecast potential demand and sales, and compete with the intense competition. 9.3 FACTORS IN THE MICRO ENVIRONMENT 1. SUPPLIERS - Suppliers are business firms and individuals who provide resources needed by the retailer. For example, a retail store must obtain various products from different suppliers so that he will be in a position to sell them on time to his target customers. Changes in the supplier’s environment can have a substantial impact on the retailers marketing operations. Retail managers need to watch price trends of their key inputs and be concerned with supply availability. Supply shortages and other events can prevent fulfilling delivery promises of retailers and they may lose sales in the short run and goodwill in the long run. Therefore, many retailers buy from multiple sources to avoid dependency on any one supplier who might raise prices arbitrarily or limit supply. Retail buyers try to build long-term relationships with key suppliers in order to get preferential supplies during scarcity. 2. INTERMEDIARIES - Intermediaries are firms that aid the retailer in promoting, selling and distributing goods to its final buyers. These agents do not buy the merchandise - they facilitate retailers to buy and sell to the ultimate consumers. Physical distribution firms and transportation companies assist in stocking and moving goods from original locations to other destinations. Warehousing firms assist in storage of goods before they are sold. Every retailer has to decide how much storage space to build for itself and how much storage space allotted for different merchandise. Marketing service agencies-marketing research firms, advertising agencies, media firms and marketing consulting firms also assist the retailer in targeting and promoting its products to the right markets. Similarly, financial intermediaries include banks, credit companies, insurance companies and other companies that help finance firm and minimize risk associated with the buying and selling goods. Most retailers and customers depend on financial intermediaries to finance their transactions. 3. CUSTOMERS: No retailer can force its goods and services on people. The firm should learn about its target market, the tastes and preferences, lifestyles, attitudes, cultural and social influences and formulates a strategy which is consistent with consumer trends. It cannot sell goods or services that are beyond the desired price range of customers, or that are 149 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
not displayed or advertised in the proper manner. Retailer links himself with suppliers and middlemen, so that he can efficiently supply appropriate products and services to its target market. 4. COMPETITIRORS: The competition in retail markets is affected by barriers to entry, the bargaining power of vendors, and competitive rivalry. Retail markets are more attractive when competitive entry is costly.Markets dominated by large competitors with scale economies are too unattractive because the cost advantages of the dominant firms. However, markets are less attractive when few vendors control the merchandise sold in the market and thus have better bargaining power.In case of high competitive rivalry, price wars erupt, and advertising and promotion expenses increase, and profit potential falls. Therefore, a retailer should re-examine its strategy, including its target market and merchandising focus, to ensure that it holds a competitive edge. Further, retailers should define competition broadly. For example, a supermarket may face competitive threats not just from other supermarkets but also from traditional Kirana stores, online grocers, street vendors, neighborhood stores and so on. These competitors have to be identified carefully and monitored continuously to maintain customer loyalty. 9.4 FACTORS IN THE MICRO ENVIRONMENT The external environment of retail marketing includes larger societal forces that are uncontrollable by the retailer. These variables not only affect the functioning of the retail organization but also affect many factors of micro environment. Therefore, tracking and analyzing macro environment is more crucial. Following are some of the important macro environmental factors: 1. DEMOGRAPHIC ENVIRONMENT - The first environmental fact of interest to retailers is population because people make up markets. Demographics involve the study of age, sex, marital status, household size, education and geographic location and social ethnic and religious structure. These changes not only influence the size and attractiveness of markets for many different goods and services but also influence the behaviour of consumers. The ripples of these changes will reach the organization forcing it to alter or amend the existing marketing practices in vogue. In short, Retail firms, will have to continuously measure the changes qualitative as well as quantitative - that are taking place in the population structure. To avoid negative consequences brought on by active consumer groups, a retailer must communicate with consumers, anticipate problems, respond to complaints and make sure that the firm operates properly. 150 CU IDOL SELF LEARNING MATERIAL (S1.27LM)
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