MBA414: RETAIL MARKETING

The objective of the course is to enable students to have an insight into the working of
Retailing Sector.

1. Introduction to Retailing and Retailing Strategy: advent of retailing –function of retailing

– types of retailing – customer buying behavior- target market and retail format- growth
strategies – strategic retail planning process – factors to be consider for retail planning- Retail
locations strategies.
2. Human Resource & Administrative Strategy: designing the organizational structure for
retail firm – Retail organization structures. Information Technology in Retailing Business.
3. Merchandize and Store management: Merchandize planning – Sources of merchandize –
category management – Buying systems to stores- allocation of merchandise- objectives of a
good store design – store design – store layout- space planning- merchandize presentation
techniques and atmospherics.
4. Pricing and Communication Strategies in Retailing: Retail pricing strategies- approaches
for setting pricing- pricing adjustments – Using price to stimulate retail sales – promoting the
merchandise – implementing an advertising plan.
5. Retailing in India: the present Indian retail scenario – Factors affecting retailing in India –
Region wise analysis of Indian retailing- Retailing opportunities in Indian
(Minimum 5 cases to be dealt each from each unit so that all units will be covered)
Readings
1. AJ Lamba “ The Art of Retaailing, TMH, 2008
2. Chatan Bajaj Rajnish Tuli and srivatsva Retail Management (Oxford)
3. Barry berman & Joel R evans Retail Management A strategy approach (Pearson)
4. Levy Weiz retailing management (TataMcgraw Hill)
5. Suja R Nair Retail Management (Himalaya)
What is Retail?

At its simplest definition, retail is the sale of different goods and services to customers with the
intention to make a profit. Retail includes selling through different channels, so items purchased in
store and those purchased online both apply.

The definition of retail is expansive enough that it includes the traveling merchants of antiquity
all the way to sprawling shopping malls, big-box stores and ecommerce platforms.

ADVENT OF RETAILING

The History and Evolution of Retail Stores

1. Mom and Pops: 1700s–1800s.

A “mom and pop” store is a colloquial phrase for a small, family-owned, independent business.

In the 18th and 19th centuries, and particularly by the 1880s, these stores were plentiful
throughout the United States. Many of these stores were drug stores or general stores selling
everything from groceries and fabrics to toys and tools. People during this time were also
expanding settlement across the country and creating new towns. It was not uncommon for each
town to have a mom and pop store offering general merchandise that could be purchased for
daily life.

2. Department stores arrive: Mid 1800s – Early 1900s.

The pioneering spirit of people moving west and both opening and shopping at local general
stores evolved as the United States moved into the 20th century.

In the late 19th and early 20th centuries, America’s business and economic sectors changed
dramatically. Agriculture — which had previously been the dominant business — was replaced
by manufacturing and industry. Oil, steel, textile, and food production in factories brought new
jobs and new standards of living.

3. Cha-Ching: 1883.
The first cash register was invented by James Ritty in 1883. Ritty was a saloon keeper in Ohio
and nicknamed the invention the “incorruptible cashier.” The machine used metal taps and
simple mechanics to record sales. A bell sounded when a sale was completed, leading to the
phrase “ringing up” — which we still use today. This invention went on to spark the ease of
customer checkout for over a century, as it was quickly adopted for retail sales.
4. Credit takes a hold: 1920s.

Just as it’s hard to imagine a store without a cash register, it’s equally hard for many to imagine a
time when paying in cash was still king.

In the 1920s, credit cards or “charge cards” began to take hold of the American shopper.
However, these early cards were usually issued by hotels or individual businesses and could only
be used within their companies. The first universal credit card that could be used at multiple
establishment was the Diners Club card in 1950.

5. Shopping malls: 1950s.

As touched on in the introduction, the concept of malls as central locations where customers can
visit multiple merchants has been around since the agoras of Ancient Greece. However, our more
modern concept of malls — as physically built shops connected in one location with communal
facilities — began in the 20th century.

The first shopping mall was technically an outdoor shopping plaza that opened in 1922 in Kansas
City. However, the first indoor shopping mall that mirrored how we think of malls today was
opened in 1956 in Edina, Minnesota. Malls were often anchored by a large department store with
a cluster of other stores around it.

6. Big Box is in: 1960s.

The very first Walmart in Rogers, Arkansas.

While people loved malls for the social aspect and enjoyment of window shopping and moving
from store to store, there was also a renewed interest in a return to the one-stop-shop. However,
unlike the mom and pop general stores of old, these large stores served bigger populations and
provided items cheaply at a much bigger scale.

7. Ecommerce looms on the horizon: 1990s.

Arguably one of the biggest flashpoints in retail history is the dawn of widespread internet
shopping. Amazon was established in 1995 as a simple online bookseller. In 2018, the online
retail platform reported a net income over $10 billion dollars.
8. Social media opportunities: 2007.

Facebook, the most successful social media platform ever, has over 60 million active business
pages on it. Twitter provides a way for businesses to talk directly to customers, and with
Instagram, they can showcase their products in authentic lifestyle situations.

Social media opportunities have been both an opportunity for retail brands to capitalize on and a
new challenge for them to conquer. Current projections show that by 2020, 90% of
businesses will use social media for a portion of their customer service.

 of sales in physical stores in 2018 was merely 3.7%. Meanwhile, ecommerce sales saw a 15%
jump. In a decade, ecommerce sales have grown from 5% of the retail market share to nearly
15%.

Customers are hungry for online shopping experiences, but not all ecommerce is created equal.
Brands are developing strong multi-channel strategies. Below we’ll look at why some businesses
are thriving and others are failing to keep up with modern trends and expectations.

FUNCTION OF RETAILING:

Retailers play a significant role as a conduit between manufacturers, wholesalers, suppliers and
consumers. In this context, they perform various functions like sorting, breaking bulk, holding
stock, as a channel of communication, storage, advertising and certain additional services.
Sorting

Manufacturers usually make one or a variety of products and would like to sell their entire
inventory to a few buyers to reduce costs. Final consumers, in contrast, prefer a large variety of
goods and services to choose from and usually buy them in small quantities. Retailers are able to
balance the demands of both sides, by collection an assortment of goods from different sources,
buying them in sufficiently large quantities and selling them to consumers in small units.
The above process is referred to as the sorting process. Through this process, retailers undertake
activities and perform functions that add to the value of the products and services sold to the
consumer. Supermarkets in the US offer, on and average, 15,000 different items from 500
companies. Customers are able to choose from a wide range of designs, sizes and brands from
just one location. If each manufacturer had a separate store for its own products, customers
would have to visit several stores to complete their shopping. While all retailers offer an
assortment, they specialize in types of assortment offered and the market to which the offering is
made. Westside provides clothing and accessories, while a chain like Nilgiris specializes in food
and bakery items. Shoppers’ Stop targets the elite urban class, while Pantaloons is targeted at the
middle class.
Breaking Bulk

Breaking bulk is another function performed by retailing. The word retailing is derived from the
French word retailer, meaning ‘to cut a piece off’. To reduce transportation costs, manufacturers
and wholesalers typically ship large cartons of the product, which are then tailored by the
retailers into smaller quantities to meet individual consumption needs.
Holding Stock

Retailers also offer the service of holding stock for the manufacturers. Retailers maintain an
inventory that allows for instant availability of the product to the consumers. It helps to keep
prices stable and enables the manufacturer to regulate production. Consumers can keep a small
stock of products at home as they know that this can be replenished by the retailer and can save
on inventory carrying costs.
Additional Services

Retailers ease the change in ownership of merchandise by providing services that make it
convenient to buy and use products. Providing product guarantees, after-sales service anddealing
with consumer complaints are some of the services that add value to the actual product at the
retailers’ end. Retailers also offer credit and hire-purchase facilities to the customers to enable
them to buy a product now and pay for it later. Retailers fill orders, promptly process, deliver and
install products. Salespeople are also employed by retailers to answer queries and provide
additional information about the displayed products. The display itself allows the consumer to
see and test products before actual purchase. Retail essentially completes transactions with
customers.
Channel of Communication

Retailers also act as the channel of communication and information between the wholesalers or
suppliers and the consumers. From advertisements, salespeople and display, shoppers learn about
the characteristics and features of a product or services offered. Manufacturers, in their turn,
learn of sales forecasts, delivery delays, and customer complaints. The manufacturer can then
modify defective or unsatisfactory merchandise and services.
Transport and Advertising Functions

Small manufacturers can use retailers to provide assistance with transport, storage, advertising
and pre-payment of merchandise. This also works the other way round in case the number of
retailers is small. The number of functions performed by a particular retailer has a direct relation
to the percentage and volume of sales needed to cover both their costs and profits.
 TYPES OF RETAILING:

Types of Retailing
 Store Retailing: Department store is the best form of store retailing, to attract a number
of customers. The other types of store retailing includes, speciality store, supermarket,
convenience store, catalogue showroom, drug store, super store, discount store, extreme value
store. Different competitive and pricing strategy is adopted by different store retailers.
 Non-store Retailing: It is evident from the name itself, that when the selling of
merchandise takes place outside the conventional shops or stores, it is termed as non-store
retailing. It is classfied as under:
 Direct marketing: In this process, consumer direct channels are employed by the
company to reach and deliver products to the customers. It includes direct mail marketing,
catalog marketing, telemarketing, online shopping etc.
  Direct selling:Otherwise called as multilevel selling and network selling, that
involves door to door selling or at home sales parties. Here, in this process the sales person
of the company visit the home of the host, who has invited acquaintances, the sales person
demonstrate the products and take orders.
 Automatic vending: Vending machines are primarily found in offices, factories,
gasoline stations, large retail stores, restaurants etc. which offer a variety of products
including impulse goods such as coffee, candy, nnewspaper, soft drinks etc.
 Buying service: The retail organization serves a number of clients collectively,
such as employees of an organization, who are authorized to purchase goods from specific
retailers that have contracted to give discount, in exchange for membership.
 Corporate Retailing: It includes retail organizations such as corporate chain store,
franchises, retailer and consumer cooperatives and merchandising conglomerates. There are a
number of advantages that these organizations can achieve jointly, such as economies of scale,
better and qualified employees, wider brand recognition, etc.
 Department Stores: Sell a wide range of merchandise that is arranged by category into
different sections of the physical retail space. Some department store categories include
shoes, clothing, beauty products, jewelry, housewares, etc. Examples of department store
retailers include Macy's, Nordstrom, and JCPenney, to name just a few.

 Grocery Stores and Supermarkets: Sell all types of food and beverage products, and
sometimes also home products, clothing, and consumer electronics as well. 

 Warehouse Retailers: Large no-frills warehouse-type facilities stocked with a large

variety of products packaged in large quantities and sold at lower-than-retail prices.

 Specialty Retailers: Specialize in a specific category of products. Toys ‘R’ Us,

Victoria's Secret, and Nike are examples of specialty retailers.

 Convenience Retailer: Usually part of a retail location which sells gasoline primarily,

but also sells a limited range of grocery merchandise and auto care products at a premium
"convenience" price from a brick-and-mortar store.

 Discount Retailer: Sell a wide variety of products are often private labeled or generic
brands at below-retail prices. Discount retailers like Family Dollar, Dollar General, and
Big Lots will often source closeout and discontinued merchandise at lower-than-
wholesale prices and pass the savings onto their customers.

 Mobile Retailer: Uses a smartphone platform to process retail transactions and then

ships the products that were purchased directly to the customer.

 Internet Retailer: Sells from an Internet shopping website and ship the purchases
directly to customers at their homes or workplaces and without all the expenses of a
traditional brick-and-mortar retailer, usually sell merchandise for a lower-than-retail
price.

CUSTOMER BUYING BEHAVIOR:

1.Problem Recognition

Put simply, before a purchase can ever take place, the customer must have a reason to believe
that what they want, where they want to be or how they perceive themselves or a situation is
different from where they actually are. The desire is different from the reality – this presents a
problem for the customer.

However, for the marketer, this creates an opportunity. By taking the time to “create a problem”
for the customer, whether they recognize that it exists already or not, you’re starting the buying
process. To do this, start with content marketing. Share facts and testimonials of what your
product or service can provide. Ask questions to pull the potential customer into the buying
process. Doing this helps a potential customer realize that they have a need that should be solved.

2. Information Search

Once a problem is recognized, the customer search process begins. They know there is an issue
and they’re looking for a solution. If it’s a new makeup foundation, they look for foundation; if
it’s a new refrigerator with all the newest technology thrown in, they start looking at refrigerators
– it’s fairly straight forward.

As a marketer, the best way to market to this need is to establish your brand or the brand of your
clients as an industry leader or expert in a specific field. Methods to consider include becoming
a Google Trusted Store or by advertising partnerships and sponsors prominently on all web
materials and collaterals.

Becoming a Google Trusted Store, like CJ Pony Parts – a leading dealer of Ford Mustang parts –
allows you to increase search rankings and to provide a sense of customer security by displaying
your status on your website.

Increasing your credibility markets to the information search process by keeps you in front of the
customer and ahead of the competition.

3. Evaluation of Alternatives

Just because you stand out among the competition doesn’t mean a customer will absolutely
purchase your product or service. In fact, now more than ever, customers want to be sure they’ve
done thorough research prior to making a purchase. Because of this, even though they may be
sure of what they want, they’ll still want to compare other options to ensure their decision is the
right one.
Marketing to this couldn’t be easier. Keep them on your site for the evaluation of alternatives
stage. Leading insurance provider Geico allows customers to compare rates with other insurance
providers all under their own website – even if the competition can offer a cheaper price. This
not only simplifies the process, it establishes a trusting customer relationship, especially during
the evaluation of alternatives stage.

4. Purchase Decision

Somewhat surprisingly, the purchase decision falls near the middle of the six stages of the
consumer buying process. At this point, the customer has explored multiple options, they
understand pricing and payment options and they are deciding whether to move forward with the
purchase or not. That’s right, at this point they could still decide to walk away.

This means it’s time to step up the game in the marketing process by providing a sense of
security while reminding customers of why they wanted to make the purchase in the first time.
At this stage, giving as much information relating to the need that was created in step one along
with why your brand, is the best provider to fulfill this need is essential.

If a customer walks away from the purchase, this is the time to bring them back. Retargeting or
simple email reminders that speak to the need for the product in question can enforce the
purchase decision, even if the opportunity seems lost. Step four is by far the most important one
in the consumer buying process. This is where profits are either made or lost.

5. Purchase

A need has been created, research has been completed and the customer has decided to make a
purchase. All the stages that lead to a conversion have been finished. However, this doesn’t mean
it’s a sure thing. A consumer could still be lost. Marketing is just as important during this stage
as during the previous.

Marketing to this stage is straightforward: keep it simple. Test your brand’s purchase process
online. Is it complicated? Are there too many steps? Is the load time too slow? Can a purchase be
completed just as simply on a mobile device as on a desktop computer? Ask these critical
questions and make adjustments. If the purchase process is too difficult, customers, and therefore
revenue, can be easily lost.
6. Post-Purchase Evaluation

Just because a purchase has been made, the process has not ended. In fact, revenues and
customer loyalty can be easily lost. After a purchase is made, it’s inevitable that the customer
must decide whether they are satisfied with the decision that was made or not. They evaluate.

If a customer feels as though an incorrect decision was made, a return could take place. This can
be mitigated by identifying the source of dissonance, and offering an exchange that is simple and
straightforward. However, even if the customer is satisfied with his or her decision to make the
purchase, whether a future purchase is made from your brand is still in question. Because of this,
sending follow-up surveys and emails that thank the customer for making a purchase are critical.

Take the time to understand the six stages of the consumer buying process. Doing this ensures
that your marketing strategy addresses each stage and leads to higher conversions and long-term
customer loyalty.

Target Marketing: Four Generic Target Marketing Strategies

The purpose of evaluating market segments is to choose one or more segments to enter.
Target market selection is the choice of which and how many market segments the
company will compete in.

When selecting their target markets, companies have to make a choice of whether they are going
to be focused on one or few segments or they are going to cater to the mass market. The choice
that companies make at this stage will determine their marketing mix and positioning
plank. There are four generic target marketing strategies.
1. Undifferentiated marketing:
There may be no strong differences in customer characteristics. Alternatively, the cost of
developing a separate marketing mix for separate segments may outweigh the potential gains of
meeting customer needs more exactly. Under these circumstances a company will decide to
develop a single marketing mix for the whole market. There is absence of segmentation.

This strategy can occur by default. Companies which lack a marketing orientation may practice
this strategy because of lack of customer knowledge. It is convenient since a single product has
to be developed.

A company using an undifferentiated targeting strategy essentially adopts a mass-market

philosophy. It views the market as one big market with no individual segments. The company
uses one marketing mix for the entire market. The company assumes that individual customers
have similar needs that can be met with a common marketing mix.
The first company in an industry normally uses an undifferentiated targeting strategy. There is no
competition at this stage and the company does not feel the need to tailor marketing mixes to the
needs of market segments.

Since there is no alternate offering, customers have to buy the pioneer’s product. Ford’s Model T
is a classical example of an undifferentiated targeting strategy. Companies marketing commodity
products like sugar also follow this strategy.

Companies following undifferentiated targeting strategies save on production and marketing

costs. Since only one product is produced, the company achieves economies of mass production.
Marketing costs are also lower as only one product has to be promoted and there is a single
channel of distribution.

But undifferentiated targeting strategy is hardly ever a well considered strategy. Companies
adopting this strategy have either been blissfully ignorant about differences among customers or
have been arrogant enough to believe that their product will live up to the expectations of all
customers, till focused competitors invade the market with more appropriate products for
different segments.

Therefore companies following this strategy will be susceptible to incursions from competitors
who design their marketing mixes specifically for smaller segments.

Finding out that customers have diverse needs that can only be met by products with different
characteristics means that managers have to develop new products, design new promotional
campaigns and develop new distribution channels. Moving into new segments means that
salespeople have to start prospecting for new customers.

2. Differentiated marketing or multi-segment targeting:

When market segmentation reveals several potential target segments that the company can serve
profitably, specific marketing mixes can be developed to appeal to all or some of the segments.
A differentiated marketing strategy exploits the differences between marketing segments by
designing a specific marketing mix for each segment.
A company following multi-segment targeting strategy serves two or more well- defined
segments and develops a distinct marketing mix for each one of them. Separate brands are
developed to serve each of the segments.

It is the most sought after target market strategy because it has the potential to generate sales
volume, higher profits, larger market share and economies of scale in manufacturing and
marketing. But the strategy involves greater product design, production, promotion, inventory,
marketing research and management costs.

Another potential cost is cannibalization, which occurs when sales of a new product cut into
sales of a firm’s existing products. Before deciding to use this strategy, a company should
compare the benefits and costs of multi-segment targeting to those of undifferentiated and
concentrated targeting.

The car market is most clearly segmented. There are segments for small cars, luxury cars, sports
utility vehicles, etc. Most car makers like General Motors, Ford, Toyota, Honda and others offer
cars for all the segments. Though Toyota entered the US market with small cars, it eventually
chose to operate in most of the segments.

3. Focus or concentrated targeting:

Several segments may be identified but a company may not serve all of them. Some may be
unattractive or out of line with the company’s business strengths. A company may target just one
segment with a single marketing mix. It understands the needs, and motives of the segment’s
customers and designs a specialized marketing mix.

Companies have discovered that concentrating resources and meeting the needs of a narrowly
defined market segment is more profitable than spreading resources over several different
segments. Starbucks became successful by focusing exclusively on customers who wanted
gourmet coffee products.

The strategy is suited for companies with limited resources as these resources may be too
stretched if it competes in many segments. Focused marketing allows R&D expenditure to be
concentrated on meeting needs of one set of customers and managerial activities are devoted to
understanding and catering to their needs.
Large organizations may not be interested in serving the needs of this one segment or their
energies may be so dissipated across the whole market that they pay insufficient attention to the
requirements of this small segment. One danger that such niche marketers face is attracting
competition from larger organizations in the industry if they are very successful.

Companies following concentrated targeting strategies are obviously putting all their eggs in one
basket. If their chosen segments were to become unprofitable or shrink in size, the companies
will be in problem. Such companies also face problems when they want to move to some other
segments, especially when they have been serving a segment for a long time.

They become so strongly associated with serving a segment with a particular type of product or
service, that the customers of other segments find it very difficult to associate with them. They
believe that the company can serve only that particular segment.

Companies which start with concentrated targeting strategy but nurse ambitions to serve more
segments should make early and periodic forays into other segments.

The idea is to avoid being labelled as the company which exclusively serves a particular
segment. The association with one particular segment should not be allowed to become so strong
that customers cannot imagine the company doing something else.

Mercedes offers premium cars for the upper segment of the market only. It does not offer cars for
the middle and lower segments. But Mercedes segments the premium segment and offers
different cars for its different premium segments.

Some companies are focused in another way. They focus on heavy users—the small percentage
of customers that account for large share of a product’s sale.

The problem with such a strategy is that all the major players would be targeting this segment,
and hence serving this segment will involve high marketing expenditure, price cutting and low
profitability. A more sensible strategy is to target a small, less attractive segment rather than
choose the same segment that every company is after.
4. Customized / Micro marketing:
In some markets, the requirements of individual customers are unique and their purchasing
power is sufficient to make designing a separate marketing mix for each customer a viable
option. Many service providers such as advertising, marketing research firms, architects and
solicitors vary their offerings on a customer to customer basis.

They will discuss face to face with each customer their requirements and tailor their services
accordingly. Customized marketing is also found within organizational markets because of high
value of orders and special needs of customers.

Customized marketing is associated with close relationships between the supplier and customer
because the high value of an order justifies large marketing and sales efforts being focused on
each buyer.

Strategic Retail Planning Process 

For the purpose of developing retail strategies, retailers are required to follow a step by step
procedure or planning process. The planning process discusses/involves the present stage of
business, the formulation, list of available strategic options, and the implementation of the
selected strategies. Considering the importance of strategic decisions for the future success of the
business, a systematic approach is essential.
The strategic planning process, which after considering the HR potential and USP of a
particular store takes proper shape, is normally divided into following steps:
1. Deciding the store’s philosophy, mission and objectives,

2. Situation analysis,

3. Formulation of retail strategy

4. Strategy implementation and control.

1. Deciding the store’s philosophy, mission and objectives:

The retail strategic planning process starts with the identification of store’s mission for its
existence and hence the scope of the retail store. The mission of a store entails identifying the
goods and services that will be offered to customers. It also deals with the issue that how the
resources and capabilities of a store will be used to provide satisfaction to customers and how the
store can compete in the target market vis-a-vis its competitors.

The mission also involves the way of store’s functioning. How a store will work and accomplish
its day to day operations? What is the emergency planning? All are answered in the store’s
mission statement. For example, Vishal Mega Marts, they have philosophy of customer
satisfaction through “manufacturing to retailing”.

This reflects not only the way it tends to treat its customers, but discusses the secret of its
competitive advantage, i.e. the profit saved from absence of intermediaries like agents and
brokers, commission saved is distributed to customers by way of low priced items.

Once the organization mission has been determined, its objectives, desired future positions that it
wishes to reach, should be identified. Stores’ objectives are defined as ends which the store seeks
to achieve by its USP (Unique Selling Preposition) and operations.

The store’s objectives may be classified into two parts

(i) External store objectives, and

(ii) Internal Store Objectives.

External store objectives are those that define the impact of store on its environment, e.g., to
develop high degree of customer confidence by providing quality goods at lowers prices. Internal
store objectives, on the other hand, are those that define how much is expected to be achieved
with the available resources, e.g. to raise the store turnover by 15% in the coming year.

2. Situational Analysis (SWOT Analysis):

The objective of doing store’s situation analysis is to determine where the store is at present and
to forecast where it will be if formulated strategies are implemented. The difference between
current and future position (forecasted) is known as planning or strategic gap. Under
organisational analysis, normally stores study their external (environmental) and internal
environments.
External Analysis:
The purpose of examining the store’s external environment is to study the opportunities and
threats in the retailing environment. The external analysis studies factors that affect the macro-
environment of retailing industry and the task environment.

Under external analysis, retailer studies these parameters:

(i) Economic environment of retailing,

(ii) Political environment of retailing,

(iii) Legal environment of retailing,

(iv) Socio-cultural environment of retailing,

(v) Technological environment of retailing, and

(vi) International environment of retailing.

The store’s task environment can be influenced directly by retailer’s own policies and includes
competitors, suppliers and customers.

Internal Analysis:
The objective of studying internal environment of its own store is to identify the store’s strengths
and weaknesses. The store will try to increase its capabilities, and overcome the weaknesses that
deter the business profit. While doing the internal analysis, store examines the quality and
quantity of its available resources and critically analyzes how effective these resources are used.

These resources for the purpose of examining are normally grouped into human resources,
financial resources, physical resources (assets) and intangible resources (goodwill, image etc).

The types of questions that are enquired under different resources are:
Human resource:
(a) Is present strength of employees at various levels is sufficient for future action?

(b) Are the employees trained and capable to perform the tasks assigned to them?
(c) Are the employees loyal to store?

(d) Are the employees punctual and regular?

(e) Are the employees skilled in their assigned tasks?

Financial resource:
(a) What is the total cash flow from store’s present activities?

(b) What is the ability of retail store to collect money at the time of requirement/ emergency?

(c) How much effective and stable financial policies are?

(d) What is the ratio between fixed and current assets?

(e) What are the contingency plans in case of negative cash flow?

Physical resources:
(a) What is the contribution of fixed assets?

(b) What is the position of abandoned/unused assets?

(c) How effective and update are the store’s information systems?

Intangible resources:
(a) What is the present capability of the company’s management?

(b) How effective is the R & D cell?

(c) How good is the competitor’s intelligence system?

(d) How effective store’s loyalty programmes are?

(e) What is the capability of retail store manager?

(f) Are customers loyal towards company’s products?

3. Formulation of Retail Strategy:
In this stage, after analyzing the store’s capabilities in terms of HR, finance, physical and
intangible resources, a store manager formulates retail strategy with regard to marketing, retail
positioning and retail mix. Marketing is the way to achieve the set objectives. Therefore,
marketing strategy should be devised according to store’s primary and secondary objectives.
Generally, marketing strategy is developed on the basis of product and/or market segmentation
instead of the market as a whole.

Retail Positioning is a plan of store’s action for how the retailer will enter the target market and
will compete with its main competitors. Retail positioning from a retail store’s point of view, is a
step by step plan to create and maintain a unique and everlasting image of the store in the
consumers’ mind.

This process reveals the fact that understanding ‘what customer wants?’ is the success key to
retail positioning in the market. Under retail positioning, a retailer conveys the message that its
products are totally different and as per customers’ requirement. The reason here is that
customers are attracted towards items that are new for them with the perception that if it is new,
it will have some extra/added features.

Retail positioning is made possible under these circumstances:

(i) By differentiating the store’s merchandise from its competitors,

(ii) By offering high level of after sales services at nominal/no cost, and

(iii) By adopting low pricing policies.

Retail Mix is the blend of various retail activities which in total present the whole concept of
retailing. The retail marketing and retail positioning strategies are put into effect by this retail
mix – the set of controllable elements that a retailer can use to satisfy customers’ needs and to
influence their buying behavior and compete effectively in the target market. Utmost care is
required on the part of retail manager to select the various elements for a perfect retail mix.
The main elements a retail store manager has to face are:
i. Store’s location

ii. Merchandise assortment

iii. Pricing policy

iv. Customer service mechanism

v. Visual merchandising

vi. Personal selling efforts

vii. Advertising efforts and

viii. Store’s internal and external environments.

4. Strategy Implementation and Control:

It is concerned with the designing and management of retail systems to achieve the best possible
combination of human, financial, physical and intangible resources of a retail store to achieve the
formulated objectives, without timely and effective implementation also requires scheduling and
coordination of various retail activities. For example, the coordination between the marketing
and sales promotion department is a must for sales promotion to make success.

Further, the spirit of team work is an essential part for the success of strategy implementation. If
the retail store’s strategies are competitive, marketing efforts are as per demand but the sales
promotion employees are not taking it seriously or are ineffective, result will not be up to the
mark.

The implementation of new retailing strategies sometimes require changes in the way of
functioning and duties that can lead to resistance from employees. Therefore, stores should take
positive steps to reduce this resistance to change and to convince the employees that it in a long
term will be beneficial for both the store and employees.
The positive steps include the following:
(i) Inspection,

(ii) Detection, and

(iii) Correction.

It means after implementing the retail strategies, retailer should assess how effectively strategies
are being implemented, how far the strategic objectives are being achieved and what has been
left to be achieved in the store’s objectives list. Therefore, retailers inspect the implemented
strategies from time to time and detect the fault (if any) in the implementation of various retail
elements. If any deficiency is found during inspection process, that has to be corrected with
immediate effect without any further loss to store.

LOCATION STRATEGY
Formulating a location strategy typically involves the following factors:

1. Facilities. Facilities planning involves determining what kind of space a company will need given
its short-term and long-term goals.
2. Feasibility. Feasibility analysis is an assessment of the different operating costs and other factors
associated with different locations.

3. Logistics. Logistics evaluation is the appraisal of the transportation options and costs for the
prospective manufacturing and warehousing facilities.

4. Labor. Labor analysis determines whether prospective locations can meet a company's labor
needs given its short-term and long-term goals.

5. Community and site. Community and site evaluation involves examining whether a company and
a prospective community and site will be compatible in the long-term.

6. Trade zones. Companies may want to consider the benefits offered by free-trade zones, which
are closed facilities monitored by customs services where goods can be brought without the usual
customs requirements. The United States has about 170 free-trade zones and other countries
have them as well.

7. Political risk. Companies considering expanding into other countries must take political risk into
consideration when developing a location strategy. Since some countries have unstable political
environments, companies must be prepared for upheaval and turmoil if they plan long-term
operations in such countries.
 8. Governmental regulation. Companies also may face government barriers and heavy restrictions
and regulation if they intend to expand into other countries. Therefore, companies must examine
governmental—as well as cultural—obstacles in other countries when developing location
strategies.

9. Environmental regulation. Companies should consider the various environmental regulations that
might affect their operations in different locations. Environmental regulation also may have an
impact on the relationship between a company and the community around a prospective location.

10. Incentives. Incentive negotiation is the process by which a company and a community negotiate
property and any benefits the company will receive, such as tax breaks. Incentives may place a
significant role in a company's selection of a site.

Depending on the type of business, companies also may have to examine other aspects of prospective
locations and communities. Based on these considerations, companies are able to choose a site that will
best serve their needs and help them achieve their goals.

UNIT-III

Merchandise Planning
Meaning of Merchandise Planning:

Merchandising is defined as offering right kind of product at right place and in right
price. A retailer has to plan to have in his store the product that is desired by the
customer. Success of any retail organisation depends on its merchandise planning.

Merchandise planning is defined as “Planning and control of merchandise inventory

of the retail firm, in a manner, which balances between the expectation of target
customer and strategy of firm”.

Strategy of a firm may be profit maximization growth and expansion of its market.
Expectation of customers is always a product that is desired by him and that satisfies
his need. There is interlink between them, i.e., a firm can meet its target of profit or
market share, when it is in a position to stock and sell the product that is liked by the
customer. This call for merchandise planning.

Components of Merchandise Planning:

Following are important components of merchandise planning:

(1) Product:

Product or merchandise is the basic component of marketing mix. Retailer has to

cater to the products that are expected by his segments. He has to maintain adequate
inventory of product category expected by his customer.

Products may be broadly classified into:

i. Staple- Like food and clothing that have regular demand. Adequate stock of that is
to be maintained.

ii. Seasonal products- that are in demand during the season. Adequate inventory of
that is to be augmented before the season and the stock is to be maintained to
sustain the season.

iii. Fashions- Goods that are in demand until the fashion prevails. Retailer has to
estimate the quantum of demand to last the fashion trend.

iv. Fads- the kind of products that have limited period of demand. Retailer has to be
careful to estimate the demand and buy the fad products.

(2) Price:

Another important component of marketing mix. Price is an important variable in a

country like India, where people are price sensitive. Retailer has to determine his
segment and the price range to which they belong. Broadly it can be classified as low,
Medium and premium range.

Retailer has to offer the product that meets price range of his target customers.
Apart from this retailer has to adopt different price strategies like Price Skimming,
Mark down price, discounts price and offers like buy one and get one depending on
demand for the goods and extent of stock. The planning should be to offer an
attractive price package that can result in regular sale, stock clearance and assure
adequate profits.

(3) Range:
Range refers to width, breadth and depth of products offered for sale. Customers
should have opportunity to make choice or selection depending on the type of retail
store i.e.-

Specially store specialises in limited width i.e., particular category (Bata, Raymond’s)
But it must have depth i.e., different designs, number, color, price-range etc., so that
customer can make choice. Departmental store which deals in long category of
products must not only have width, but also must have breadth (different brands)
and depth.

A wide range of product demands more investment in merchandise. Retailer has to

evaluate that there is adequate return on investment made. Apart from this he has to
ensure that merchandise is acceptable and saleable. Buy and store that range of
merchandise that can be sold.

(4) Assortment:

It refer to combination of products made available to customer at retail outlet.

Merchandise is assorted and presented category wise and department wise.

E.g. – Cosmetics, Toiletries, Electronics, Staples, Vegetable, Furniture etc., each

category further will have different products or different brands at different size and
price level.

E.g. – Toothpaste, Shampoo, Soaps, etc., are presented in one category of different
brands companies and brands.

Retailer must make systematic assortment or classification. Goods of similar

category must be made available at one place. Items of electronics should not be
placed along with vegetables.

Apart from this retailer must keep adequate SKU (Stock Keeping Unit) of each item
of products. He has to regularly monitor that enough number of merchandise is
available for customer’s choice. He has to ensure that such assortment of
merchandise is convenient for customers to select, and enough variety is available to
choose from.

At the same time, he has to ensure that assortment stock is moving and there is
better turnover. He has to ensure that each line of product is contributing towards
profit. The product line that is not popular may be replaced with a new and more
popular line.

(5) Space: Products should visible to visiting customer. Retailer have limited floor
space, he should provide adequate space for display of each product. Available space
for display of each product is utilized to showcase and presents goods, through
different types of fixtures, hangers, gondolas, mannequins, fridge depending on the
nature, size, dimension of goods.

Retailer will also decide merchandise hierarchy as to how space is to be created for
various category of products. E.g. -Products may be classified as new arrivals, fads,
fashions staples, vegetable, electronics, furniture’s, kids etc.

Retailer has to priorities the place for different products:

i. He has to ensure that the products are visible.

ii. Customers have convenience and comfort in picking the products.

Merchandise planning is planning of product price, range and assortment.

It has following implications:

a. Finance:

Finance large amount is invested in merchandise the planning regarding price,

product, range etc., must ensure adequate return on investment.

b. Marketing:

Retailer has to undertake, marketing measures like advertising sales promotion etc.,
to ensure that the merchandise is sold.
c. Warehousing and Logistics:

This department has responsibility of receiving, taking account of stock, stock

keeping and dispatching the goods, to stores to departments and stores.

d. Store Operations:

Each store of department is to be informed regarding merchandise bought. The store

has to initiate measures to clear the sale and to clear stock.

Merchandise planning buying right kind of product, fixing a right kind of price
providing adequate range of products through an appropriate assortment, and
ensure adequate space to showcase and sell the product.

Process of Merchandise Planning:

Success of any retail organisation depends on presenting the merchandise that is

needed by the customer. Firms have to make meticulous planning regarding type of
merchandise to be bought, its presentation, pricing etc., planning process has to be
detailed and elaborate. It must cover every angle of merchandise management.

Success of organisation depends on buying what the customers wants and selling it
to him in the manner desired by him.

Merchandise planning has to be:

a. Time Based:

It must make annual budget of merchandise required. Budget has to be further

broken into quarterly, weekly and daily on requirements.

b. Location Based:

Merchandise for entire organisation covering each store under the company’s
umbrella. It should be broken into demand for each individual store.

c. Store Based:
Demand of store or each department, category wise, product wise etc.

Micro and macro estimation of merchandise needed that has to be acquired in right
time, right quantity so that it can be sold in right time when demanded by customer.
Planning should ensure optimum stock of each product, because shortage of stock is
lost opportunity of sale. Excess stock is a burden on finance and cost.

Process of merchandise planning is as follows:

1. Forecast of Sales:

Merchandise plan or budget is dependent on estimated sales. Forecast of sales for

entire organisation, department and product wise is to be made. Further new
products to be added, or deletion of product is to be considered. Estimate is made
based on past records, present scenario, impact of fashion economic trend etc., Firm
also has to determine pricing strategy in the sale of product.

2. Merchandise Budget:

Estimate of merchandise required is made based on expected sales. Estimate is made

at head office level that determines merchandise required for each store or
department. Merchandise required for each department and likewise for each store
and for entire organisation.

Along with this firm also makes financial implication of investment in merchandise.
Plan ensures that investment on merchandise assures expected gross profit or
return. Plan has to assure that each store and departments is given adequate stock
support to avoid scarcity. At the same time it has to ensure that there is turn-over of
merchandise, if not to adopt strategy like markdown sales to replenish the stock.

3. Merchandise Control:

Retailer has to balance between purchase and sale of merchandise. It is necessary to

avoid either over or under stocking of merchandise. Daily and weekly stock reports
are taken to monitor the movement of stock. Fresh order of purchase is made before
the stock reaches danger level.
Firms will have their own policy of maintaining stock levels. Control over inventory
can be ensured by monitoring movement of merchandise from the godown to the
store and from there to the department. Adequate control can minimise the problem
of stock clearance, or discount or mark down sale.

4. Assortment Planning:

Assortment is arrangement of products category wise. It is presentation of entire

products range classified under categories, department or section. E.g. – Food
section, cosmetics, Garments etc., merchandiser has to ensure that there is proper
assortment i.e., each assortment or section must have relevant or related items,
every category must have adequate SKU (Stock keeping units) no shelf , rack, should
be empty. At the same time it should be ensured no department or product category
is overloaded.

Assorted merchandise need to be presented making optimum use of space and

positioning the products in racks, hangers etc., so that it is visible, and comfortable
for customer to select.

Sources of merchandize

Having a fresh and appealing product selection is one of the pillars of retail success. You can’t attract customers
with dated or uninspired merchandise, so it’s important to constantly stay abreast of the latest product trends and be
on the lookout for merchandise or suppliers that can help you keep up.
But how exactly should you source your products?
Well, that’s what we’ll tackle in this post. Below, we’ve outlined the different product sourcing methods in retail,
along with key tips and resources to help you find the right manufacturers, suppliers, or materials for your inventory.
How do you decide what products to sell?
Before we talk about product sourcing, let’s first discuss how to figure out what to sell.Suppliers or manufacturers
are essential, but you also need to make sure that you’re sourcing products that people actually want.
The easiest ways to accomplish is to talk to your customers, listen to your staff, and look into your retail analytics.
How do you source products for retail?
Retailers typically have three main options when it comes to sourcing products. Some merchants work directly with
manufacturers, while others buy from wholesalers. There are also a number of retailers who make their products
themselves.
Let’s explore the distinctions between these methods.
Work directly with manufacturers
For many retailers, working directly with the manufacturers (like factories) is ideal because it eliminates middlemen
like wholesalers. However, establishing that working relationship isn’t always easy.
It’s not uncommon for a manufacturer to require minimum order quantities (MOQs), depending on the
product. What’s more, many manufacturers would rather work with retailers who place bigger orders with
them, committing to purchases of hundreds or even thousands of units. This means that if you’re new to the
game and don’t have a massive budget, working with manufacturers might not be so simple.
Then there’s the issue of actually dealing with manufacturers. Working with manufacturers means you’re in charge
of sending specifications and ironing out details like warehouse imports. All that can be time-consuming and can
prevent you from focusing on your retail business.
And that brings us to our next point, which is to…
Work with wholesalers
A wholesaler is a firm (or sometimes an individual) who purchases large quantities of goods from manufacturers.
They store those items and then sell them to retailers just like you.
Wholesalers can take care of all the stress that comes with importing and warehousing the items. You don’t need to
travel anywhere, and there are no shipping customs to deal with. All you need to do is place your orders.
Make your own products
It’s rare for medium to large businesses to make their own products, as it’s hard to keep up with demand. But it’s
totally doable if you’re in the right niche and have a small team behind you who can meet demand while producing
high-quality products.
If you decide to create your own products, you will first need to work out where to source your materials
(craft stores and flea markets are great places to look), and you’ll also need to work out how long it takes to
make each item.
Need to hire a team to help you? Be sure to determine your labor costs so that you don’t run up a huge bill without
realizing it.
Where do you find suppliers, manufacturers, and other vendors?
So, you know what you want to sell and have a general idea of how you should source it. Now it’s time to talk
about where to find those product sources. What resources should you tap into to find the best manufacturers,
wholesalers, or vendors?
Let’s take a look at some of your options…
1. Events
Expos, buying shows, and other industry events offer numerous opportunities to learn about upcoming trends in
your industry. More importantly, they enable you to get essential face time with manufacturers, wholesalers,
suppliers and their merchandise, so you can see and touch materials or products firsthand.
There are a lot of huge retailer events out there whose main purpose is to connect buyers with suppliers. For
example, there’s ASDLV in Las Vegas, the largest and most diverse general buying show in the US which
brings together suppliers from categories like fashion accessories, health and beauty, toys, gift & home, and
more. There’s also MAGIC, the most comprehensive buying show for apparel, footwear, and accessories,
and New York Now for home and lifestyle retailers.
There’s a show for just about every category, so if you’re looking for something more specific, you won’t have any
trouble finding one to attend. Do a search on Google or use websites likeEvents in America (a trade show and
conference directory in North America) and the Trade Show News Network (for global events). You can also ask
other retailers and suppliers about the industry events they attend.
At the events
What should you do on the expo or show floor? Here are some best practices…
Take notes – Harriet Vaight, owner of design shop Chirpy said that she was able to figure out what to sell and make
the most out of craft fairs and design events by taking detailed notes about the suppliers and products she
encountered.
“I collected the names of people whose work I liked, then put them in a spreadsheet. I listed their wholesale
information, trade prices, retail prices, and minimum order quantities,” she shared. “From there I worked out which
products had the best value.”
Follow Harriet’s lead the next time you attend an event. Get organized and take notes when you’re there so you can
go back home with a clear idea of which products and suppliers are worth pursuing.
Walk the whole show first – Keep this in mind especially when you’re attending large events. It may be tempting
to pounce on the first great products or suppliers you see, but it’s best to wait until you’ve explored the whole
function before filling out any purchase orders. Give yourself the opportunity to see what everyone has to offer, then
get back to the ones that are a good fit.
Take advantage of show deals – Some vendors give out special offers for event attendees, so keep an eye out for
these promos. If you don’t see any at the booth, ask anyway, and see if you can still take advantage of them after the
event.
2. Trade Publications
Don’t have the time or budget to attend events? Try specialty or trade magazines instead. Like trade shows, industry
publications are great sources for product ideas and supplier information.
Their content could give you insights on the products others are selling – and who’s supplying them. What’s more, a
lot of vendors advertise on trade publications, so perusing them could put some noteworthy suppliers in your radar.
And like events, there are trade magazines for just about any industry, so if you’re not subscribed to any publications
yet, you may want to check out TradePub.com or Forum Publishing and see if you can get your hands on relevant
publications.
3. Industry Associations
Most trade associations provide networking and directory services to help you connect with vendors. And in some
cases, you don’t even have to be a member of an organization to take advantage of certain benefits.
For instance, some associations will let you attend their events for prices that are a bit higher than their members’
rates, and other groups – such as the American Apparel & Footwear Association – let users access their online
supplier directory for free.
And if you can’t find what you need there, you can always turn to good ‘ol Google to search for organizations in
your field.
4. Online Directories
ThomasNet.com and Alibaba.com are two online directories you can head to when looking for products and
suppliers. (There are many others, of course, but we suggest you start with these two because you don’t want to
overwhelm yourself by browsing too many marketplaces.)
Both of these sites give you access to thousands of supplier profiles and offer search and browsing features so you
can easily zero in on the products or vendors you need. The main difference is that ThomasNet focuses on suppliers
in the US and in Canada, while Alibaba can direct you to suppliers in other countries.
Tips for using online supplier directories
Do your due diligence – Be sure to research all potential suppliers before doing business with them. Check their
website, run your basic web search, and ask for samples (even if you have to pay) as well as references. Be on alert
for red flags like vendors who don’t have a phone number or suppliers who don’t have custom domains for their
email address.
Also, note that both ThomasNet and Alibaba provide tools and features to help you evaluate suppliers. ThomasNet,
for example, lets you download company certifications and registrations, while Alibaba has Gold Suppliers,which
are vendors who have passed the site’s tests and certification checks.
Be detailed and thorough when communicating – Keep this in mind especially when dealing with suppliers in
countries where English isn’t the first language. Communicate with them in easy to understand language, be very
detailed with what you need from them, and if necessary, have them repeat what you said back to you to verify that
they understood.

Category Management: Definitions,

Significance and 8-Steps Process
A category is an assortment of items that a consumer finds as reasonable substitutes
for each other. Goods are categorized on the basis of similarities in consumer tastes,
preferences, liking and disliking such as Junk food, Bar-be-Que, Razors, burgers,
baked confectionary, sweets, etc.

The goods are priced, promoted and targeted to same customer base (target market).
For instance Vishal Mega Mart, Gokul Mega Mart and few other domestic and global
brands have the practice of dividing their apparel on the basis of Gents’ Apparel,
Ladies’ Apparel and Kids Apparel.

Two retailers selling similar merchandise may have different definitions and thus
different categories of the same product range. For instance, one retailer divides its
‘apparel’ under gents, ladies, kids and infants category, while another (for say) may
define categories in terms of brands like Polo figer be one category and Rivalry be
the other. Why it is so? Because a ‘Polo’ customer will buy only polo figer not the
Rivalry.

In short, whatever may be the base of defining a ‘Category’, one thing must be
remembered that it should suit to customers who ultimately will be affected in terms
of time and money spent. Further, supply chain members and suppliers may find it
convenient and hassle free.
Category Management is the process of managing retail business that merchandise
category outputs rather than the contribution of individual brands or models. Under
category management retailer’s efforts (promotional, pricing and display) are
grouped into categories with the objectives of measuring their financial and
marketing performance separately.

Consequently, it arranges grouping of products in to strategic business units (SBU)

in order to better serve the needs and demands of consumers. Most of the emerging
retail outlets are managing their merchandise on the same pattern.

While on the other side, unorganized Indian retail sector has developed their
merchandise items in the categories that serve their customers requirement and are
cost effective and time saving for them. Therefore, these categories differ from
region to region and outlet to outlet.

1. Definitions:
According to Institute of Grocery Distribution, “Category Management is the
strategic management of various merchandise groups through trade tie ups and
partnerships which aims to maximize turnover and profit by satisfying consumer
needs and want.”

According to Nielsen (1992), Category Management is a process of managing

product categories as separate business units and customizing them to satisfying
consumer needs.

Why Category Management?

1. One foremost reason for the introduction of ‘category management’ is that all the
items of merchandise are not equally important for a retailer from cost revenue
generation point of view. Some items are very small but of high value, some items
are most popular but of low profit margin. Therefore need was point to categorized
the items in to different sub groups.
2. One reason for introduction of ‘category management’ was the fact that only a
definite amount of profit could be obtained from price negotiations and that there
was more profit to be made in for the purpose of increasing the total sales.

3. One reason for introduction of ‘category management’ was that the collaboration
with supplier will be helpful in development of categories under three ways:

The ways are:

(i) Part of the work load like development of categories would be assign to the
concerned supplier.

(ii) Supplier’s expertise will be utilized.

(iii) Supplier will take the venture seriously.

2. Significance of Category Management:

1. Increased sales, goodwill and market share

2. Proper care and devotion to each item of merchandise

3. Increased sales further lead to increased turnover

4. Maximize shelf efficiencies

5. Less inventory shrinkage

6. Recognizes procurement opportunities

7. Enhances customer knowledge level

8. Improves return on investment (ROI)

9. Decreases chances of out-of-stock positions

10. Enhances return on money invested in marketing efforts

11. Classifies the performance of brands as doing well, not doing well, problem
brands, etc.

12. Purchasing merchandise exercise becomes easy and cost effective.

Essentials / Prerequisite of Category Management:

1. Category should be divided and arranged as per consumers’ ease not because of
retailer’s convenience.

2. CM should be based on differentiation and uniqueness.

3. CM should drive multiple item purchases at the same time.

4. It should result in better customers’ relations rather than relations with suppliers.

5. Category division should be based on the basis of product response, space, time
and profitability.

3. Category Management Process (8 Steps)

Category management is the process of classifying and managing product categories
as strategic business units, rather than simply viewing a retailer’s offering as a
collection of individual products. The category management approach delivers
enhanced business results by focusing on delivering consumer value. It is often a
shared process between a retailer and its vendors.

This description comes from Category Killers (2005) by Robert Spector:

Category management began in the supermarket business, where big retailers

of packaged goods learned that they could improve sales and profits if they
could more efficiently administer all their different product classifications.
The idea was to oversee the store not as an aggregation of products, but rather
as an amalgam of categories, with each category unique in how it is priced and
how it is expected to perform over time.
One vendor is designated as “category captain” and charged with helping the retailer
define the category; determine its place within the store; evaluate its performance by
setting goals; identify the target consumer; divine the best way to merchandise,
stock, and display the category; and then influence the implementation of the plan.
Becoming a captain is obviously an important position because it offers that supplier
an opportunity to sway a retailer’s buying decisions.

Thus the category management process is a repetitive, strategic and long-term

business philosophy that promotes cross functional working between companies
with the involvement of professionals from very diverse areas such as procurement,
finance, supply chain, marketing, store operations, sales and space planning.
A typical category management process is discussed as follows:
1. Category Definition:
Defining a category is the first step in a typical category management process. In this
step retailer classifies the store’s products into different categories depending on the
usage of the product by the consumers and its packaging. What should be the best
way to define a particular category are always debatable issues amongst retailers.

The category management experts opine that whatever the base it should be,
category definition should be based on consumers’ buying behaviour not on retailer’s
buying behaviour. Before beginning with the process of category definition, the
retailer and vendor should first understand what exactly makes a category? The
supplier know-how about a category and its potential customers becomes vital in
developing the correct definition and segmentation of the category.

This basically decides the products that fall under a particular category, sub-category
and key segmentation. Thus a retailer basically assigns products to the different
categories depending upon customers’ liking, disliking, quantity size, and packaging.
The main objective of defining category is to know what items to include and what
items to exclude.

The definition of category varies from situation to situation and one store to another.
In one circumstance, category may be narrowly defined or very broadly defined,
depending upon several factors. For instance, the category of sandwich may be
narrowly defined so as to comprise only vegetarian sandwich, or it may be broadly
defined to include all types of varieties such as vegetarian, non-vegetarian, chocolate,
fried, baked, grilled, cheese spicy/mutton spicy etc.

The point is to be remembered that it is the customer that gives the profit so its
perspective should be kept at top priority while defining a particular category. The
task further should result into particular product titles with respect to its sizes, color,
packaging, sub-categories, variety of products and variety within the product.
2. Category Role:
Under this step, retailers usually determine the priority level and then assign a role
for the category based on a cross category comparison considering liking and
disliking of consumers, and market trends. Basically here retailers develop the base
for allocating resources for the entire business.

While assessing the role played by a category, retailers should thoroughly consider
the nature and size of product category. For instance, some categories may represent
luxury brands, whilst others might be denominated by low priced brands. It signifies
that if a particular category is denominated by luxury brands, then most of the
underlying brands are or will be, lucrative.

On the other hand, category largely composed of low priced brands may not provide
any opportunity to earn profitable margins for both the retailer and the supplier.
Hence, it becomes imperative for a retailer to consider the role played by a category
in the store while determining a particular category.

For example, the ice cream product category has been upgraded in UK marked by
introducing premium luxury ice-cream, ice cream confectionery, mass scale
marketing and sales promotion companies such as Haagen Dazs and the
development of premium store brands. Athletic footwear (trainers), toys and beer
are examples of other categories that have shifted from value to premium
(Vishwanath and Mark, 1999).

The role of SKU within a Category:

When a retail product manager is reviewing the choice within a product category, the
individual roles that are played by the different brands or product variations will be
acknowledged (McGrath, 1997). In a store, some products within a category are
‘customers’ catchers’, giving high sales and have a large market share. These are the
sources of attraction for visitors/customers and their non-availability may result in
customer loss. Store brands are clearly concerned with achieving sales targets.
Low-priced goods not only attract customers but motivate customers to buy other
goods too kept in store. Some stock keeping units (SKUs) create excitement and
theatre in stores while other SKUs depict latest fashion and imported goods under
same roof. Some SKUs sometimes have been observed for latest fashion and known
for first arrivals.

Be it profit generator or service provider, all have their own presence and
significance for a retail store. Each (SKU) member of the category contributes in the
overall turnover and it should be clearly visible. Otherwise astute retailers would like
to replace its efforts to another more profitable brand. For instance, will it be feasible
to replace one ‘non- performing’ brand with another more profitable brand. Does a
present category enable to create excitement?

Considering a category to be a part of growing market, is there any scope for further
excitement? Does a particular SKU require packaging change with regard to quantity
packed and offered? Do we offer two or more different pack sizes of a same item like
1 kg, 3 kg, and 5 kg packs? Will the sales be hampered if we offer only two sizes –
small and family pack?

While on the other hand, the best practices in category management

report suggests a set of four consumer centric categories roles as
follows:
I. Destination Category:
It is used by retailers to position themselves as the most favorite stores
of customers through combining the attributes of several categories of
stores:
(i) The size of a mass merchandiser,

(ii) The variety and scope of a department store, and

(iii) The low prices of a discount store.

So that customers should make a special trip to their stores with the specific
intention of making a purchase that concentrates on one product category and that
combines a huge multivariate selection with low prices. Large discount toy chains,
sporting goods chains, and office supply chains are examples of destination
categories.

Besides this, fresh vegetables and fruits at super bazaars, apparel at departmental
stores, fresh bakery produce and food at RPG’s Giant Hypermarket are few examples
of destination categories. The primary reason for calling them as destinations is that
people are willing to travel a good distance to shop in these stores.
II. Routine Category (Preferred category):
These are the products and services that customers use in their day to day life on
regular basis as a matter of routine or habit. The products placed under routine
category include shaving cream, body wash, hair oil, shampoo, toothpastes, soap,
and so on. The services under routine category include banking, post office, courier,
gyms, spa, health centres etc.

III. Seasonal Category (Occasional category):

These are the products and services which are not purchased on regular basis but
occasionally. The products placed under seasonal category include raincoats,
umbrellas, sweaters, mangoes, etc. other items such as crackers during Diwali
Season, Colours and water balloons before Holi, flying kites before independence
day in Delhi and Northern part of India are also examples of seasonal items.

IV. Convenience Category:

These are the products that a customer always prefers to buy from neighbourhood
retail stores. Usually these goods carry a wide range of products but of low prices.
The products under convenience category include bread, butter, eggs, routine
stationery, and routine medicines and so on. Convenience products can be
categorized into staple (milk), impulse (not intended prior to shopping trip).

Category roles are implemented through the appropriate mix of strategies in the
category. Certain strategies are implied by role. Figure 9.3 illustrates the type of
marketing strategy that is most commonly deployed to implement a category role.
These strategies should be considered before other strategies.
Category Assessment:
Under category assessment step, the retailer conduct an analysis of the category’s
sub categories, segments with respect to sales, turnover, profits, return on assets by
reviewing consumer, market, retailer and supplier information. Category assessment
requires a variety of analytical measures designed to determine the strengths,
weaknesses, opportunities and threats of a particular category. It provides the
retailer an opportunity to identify future prospects in the category.

The retailer’s objective to assess categories is to know (a) whether to continue with
the present category categorization, (b) Which categories require additional effort to
generate profits, (c) What are the areas of highest turnover, profit, and return on
asset improvement opportunities, and lastly to know the gaps existed between the
chosen
category and the present performance level of the category. Besides analytical tools,
retailer sometimes assesses the categories with the help of data on the customers,
suppliers or competitors.

4. Category Performance:
Measuring category performance is the fourth step in the category management
process in which the retailer develops bottom-line and benchmark to measure the
performance of the categories. It involves setting measurable targets in terms of
sales, volume, margins, and gross margin return on investment (GMROI).

Establishing category performance measures are essential for measuring

performance of a particular category which later on becomes base for further
improvement within the category. Category performance measures basically
represent the category score card that result in target objectives that are set by the
retailer and supplier for the achievement of the implementation of the category
business plan.

Category Strategy:
Under this stage of category management business process, retailers develop
marketing and product supply strategies that determine the category role and
performance objectives. The basic purpose behind developing strategies is the
retailer’s intention to capitalize on category opportunities through creative and
optimum utilization of available resources assigned to a category.
The sub objectives are:
I. How to horizontally position a store’s own brand relative to the incumbent
national brand and

II. How to price the store and national brands for retail category profit
maximization.

Following seven are the widely applied category management strategies:

(i) Traffic Building:
Traffic building strategy is used to draw customers’ attention towards store, aisle,
and/ or category. This is usually achieved through advertising relatively low priced
goods (having enough price difference from the everyday). This strategy typically
applies to products that are most price sensitive, have high degree of household
penetration, need frequent purchases, frequently promoted, having high sales in the
category and generate major portion of sales.

(ii) Turf Protecting:

A turf protecting strategy (also known as super traffic building) basically is applied
to defend the category sales and market share against a known competitor through
competitive based pricing. This policy is only deployed when absolutely essential
because it is generally an expensive strategy in terms of profit impact products with
large transaction size that are under intense pressure from a defined competitor are
considered under turf protection strategy. Turf protection strategy should be applied
carefully as and when required because of the essential margin investment.
However, proper use of a turf protection strategy can assist the retailer in creating a
positive overall price image. Implementing turf protecting strategy requires that if
the competitor reduces prices or prices fall in the market, the retailer will follow with
price reductions to maintain turf protection strategy.

(iii) Transaction Building:

This strategy is issued to increase the sales of a particular category by emphasizing
larger sales, multi packs, goods with trade-up options, aggressively pricing and
promotion large transactions size terms, and goods that are subject to impulse
purchase.

(iv) Profit Generating:

This strategy is used to generate profits by focusing on sub-category or parts of the
category while keeping prices within competitive ranges. Products generating higher
margins usually have a substantial amount of loyalty and which are not like less
price sensitive items, with higher than category average gross margins are commonly
used in this category. Store’s own brands also come under profit generators.

(v) Excitement Generating:

This strategy is used to create excitement to a particular category by communicating
a sense of dire need (urgency), or opportunity to the prospect. Seasonal items, latest
arrivals, special items, limited edition, rapidly growing segments, fashion trends,
and high items with a high incidence of impulse purchasing, come under this
category.

(vi) Cash Generating:

This strategy is used to generate cash flow to ensure the retailer a balanced cash flow
across the categories in a store to meet operating cash requirements, larger sales
volume products, fast turning products, low inventory turnover goods, and goods
with favorable payment terms come under this category.

(vii) Image Enhancing:

This strategy is used to enhance retailer’s image before customers in one
or more of the following aspects:
a. Quality

b. Variety

c. Price

d. Service
e. Presentation

f. Delivery

g. Brands Available

Examples with regard to image enhancing are:, offering live fishes to customers
stocked in fish tanks, exclusive product offerings, combo offers, happy meal menus,
meal solution suggestions, wide product assortment, luxury brand assortment,
competitive pricing, easy loan options, multiple modes of payment, feel of the
product, etc.

6. Category Tactics:
Categories tactics are used to determine the optimal category assortment, pricing
promotions, and shelf penetration, essential to ensure that strategies put are on right
track. Category tactics determine and authenticate the specific actions that are
required to implement the category strategies developed earlier.

The areas covered under category tactics vary from retailer to retailer and place to
place. But pricing, promotions, assortments and the store’s overall presentation are
few commonly used areas where tactics are developed.

Therefore, it is expected from a supplier to do proper amount of value addition

depending upon the role expected from a category; by assessing this retailers further
develop proper strategies. For instance, a SKU may play convenience role for one
retailer but a destination role for another.

Therefore, while developing the category, category captain (usually supplier) should
take an overall view of the category and create a framework suggesting for marketing
(traffic building, profit generating, and image enhancing etc.) as well as ensuring
product supply. The retailing format (departmental, destination, hypermarkets, etc.)
and the product’s stage in a product life cycle should be taken into consideration.
7. Category Implementation:
This step is used to implement the category business plan through a systematic
schedule and list of responsibilities. Implementing category plan as per the
objectives laid down, is the path to the success of category management.

A typical category plan under implementation stage includes:

I. What specific tasks need to be done?

II. When to do,

III. Where to do, and

IV. Who will do it

Therefore, in a short, implementing category plan on the part of a retailer requires to

decide what, where, when a task to accomplish and by whom.

8. Category Revision:
This is the final step in a typical category management business plan. Category
review enables a retailer and concerned supplier to gauge the performance of a
category and identify key areas of opportunity and threats to overcome by adopting
alternate plans.

As today category management is an important strategic plan, it becomes imperative

for a supplier to revisit the dynamics of the category and the appropriate strategies
and tactics. This will enable a supplier to measure performance against the
appropriate strategies and tactics.

In this regard, one thing should be noted that category business plans are subject to
change with regard to change in assumptions laid down. For instance, incase of any
specific change in business environment, assumptions made earlier may not hold
validate. Therefore, business plan must be modified with respect to change in
underlying assumptions without any delay.
Merchandise Buying Systems: Two Types
(Staple and Fashion)
Retailers throughout the globe usually employ two types of buying
systems:
(i) Staple merchandise buying system

(ii) Fashion merchandise buying system

Sales forecasting, which is essential for all types of products, is straightforward in

case of staple merchandise buying system but more complex for those with fashion
and seasonal merchandise.

Efficient buying systems ensure the balance between sales, stock levels, quantity
ordered and account for influences on availability of merchandise. There are several
steps in the buying process, which when followed systematically ensure retail
success.

Buying systems significantly influence these factors:

1.Sales Volume:
Providing right merchandise in right quality in the right price and at right place.

2.Gross margins:
Buying systems influence not only the price (cost) of merchandise but also the
pricing policy and the extent of the markup.

3.Markdowns:
Buying systems influence the markdowns as they regulate the quantity, lead time,
price and the type of merchandise ordered.

4.Stock Levels:
Buying systems have impact on the balance of inventory (inventory in stock).
Further, buying system balances the inventory levels to achieve high sales targets
with low level of inventory.
Following are the steps in a typical buying process:

 Buying System for Staple Merchandise:

Staple merchandise consists of the items that are regularly purchased, displayed and
sold by the retailers. For a grocery store, staple merchandise will be bread, butter,
milk, salt, eggs, tissues and so on. Similarly, most of the merchandise at sports store
and home improvement centers are staple.

For a departmental store, staple merchandise is camera rolls, stapler pins, pens,
notebooks, briefcase, gift items and house wares.

The reason behind forecasting demand for staple merchandise easily is that these are
the items of daily/regular use and are not influenced by season and other factors. A
retailer can easily predict the quantity required for these items. Usually for this
purpose, retailers prepare a ‘basic stock list’ that clearly outlines the inventory levels,
size, colour, style, packaging, fragrance and so on for various staple items.

Following are the features of a staple buying system:

(i) Easy and straightforward method

(ii) Can predict demand easily

(iii) Provides accurate forecasts comparatively

(iv) Easy to administer

(v) Necessary adjustments can be made to ensure availability of stock

(vi) Monitors and measures present sales for the items at the SKU level

(vii) Guides the ordering sequence for re-stocking of merchandise

Maintaining backup stock in staple merchandise system:

Backup stock, commonly known as a ‘safety stock’ or ‘buffer stock’ or ‘not for general
use’ is the stock that is kept for unwarranted orders for the purpose to avoid ‘out of
stock’ situation.

The size of the backup stock depends upon following factors:

(i) Size of the product availability, a retailer wish to have

(ii) Time taken to acquire merchandise

(iii) Suppliers’ quickness and product availability

(iv) Fluctuations in consumer demand – higher the fluctuation, more the backup will
be

(v) Availability of funds

(vi) Retailer’s re-order level

2. Buying Systems for Fashion Merchandise:

Fashion merchandise consists of the items those usually have unpredictable demand
and limited sales record. Demand forecasting as discussed earlier, in the absence of
any sales history for specific fashion store keeping unit (SKU) becomes difficult.

The reason behind this is that these items have cyclical sales and become outdated
very easily with the changes in customers’ taste and preferences, liking and disliking.
Therefore, for few seasons, the demand for such merchandise is high, become
outdated for a while and then again becomes fashion of the day.

For instance, ‘Yoga and meditation’ that was part and parcel of Indians’ lives before
seventies, was replaced by gym, spa and health centers, has again entered in Indians’
lives and becoming popular among youths too.

Following are the features of Fashion merchandise:

(i) Unpredictable and unstable demand

(ii) No/limited sales history (record)

(iii) Relatively difficult to forecast sales

Seasonal Merchandise:
It consists of items those change season to season but relatively have good demand
over non-consecutive time periods. Items such as room coolers, desert coolers, air
conditioners, sweaters, umbrellas have excellent demand during one season
annually.

Since most of the sales of such items take place at the same time every year, it
becomes easy to forecast the demand. Further, previous years’ sales record may be
helpful to predict demand and therefore, sales revenue.

Merchandise Allocations
Merchandise allocation is the process of determining how to distribute merchandise to individual store
units for maximum sales and minimal markdowns. Depending on the size and sophistication of the retail
operation, this can be a simple process, or an extremely complex algorithmic exercise. Some retailers
plan their season’s purchases from the ground up based on ideal store allocation, or others use the
allocation process to break down merchandise receipts to allocate to online warehouse distribution,
regional distribution centers or direct to stores.

In additional to the math of the process, there are strategic and tactical considerations for merchandise
allocation as well. Stores in their “grand opening” phase will receive maximum merchandise allocation to
both make an impact to new customers and to help determine the sales potential of the new store unit for
future allocation accuracy. Allocation can also be influenced by a competitive strategy where a retailer is
attempting to make a “show of strength” with wide assortments and deep quantities for a more favorable
impression when compared their competitors inventory position.
As you would imagine, commercial software applications have been developed to assist retailers in the
computational-heavy process of merchandise allocation. Vendors such as JustEnough, RELEX, Logility,
JDA Software, Oracle, and many others compete in this space. Here are some screen shots of a package
from JustEnough, to give you an idea of the capabilities of these applications.
 In the first, screen shot you can see the individual store locations broken out and the allocation
percentages listed based on performance metrics. The second screen shot is more focused on a
category of merchandise grouped by style with exception reporting enabled.

Store Layout Design: 9 Tips for Arranging Your Retail Shop

Planning the layout of your store is both an art and a science — it requires creativity,
psychological insights, and testing.
In this post, we’ll explore common tactics that you can implement when planning the
arrangement of your store. Go through them below and see if you can apply any of these
pointers to your store’s layout and merchandising.
1. Use the right floor plan
The choice of which one is right for you will depend on a number of factors including the
size of your store, the products that you sell, and more importantly, your target market.

What are your customers like? Are they shopping in a hurry or can they take their
time? Do they prefer self-service features or will your associates guide them
throughout the store? Do want to find exactly what they need efficiently, or are they
open to discovering items along the way?
These are just some of the questions you have to ask when deciding on your floor
plan.
Straight floor plan
his floor plan involves positioning shelves or racks in straight lines to create an organized
flow of traffic. It’s one of the most economical store layouts and is mostly used in large
retail spaces, supermarkets, and in stores that primarily use shelving to showcase their
merchandise.
Racetrack or loop plan
This layout encourage customers to “loop” your store. You position your fixtures and
merchandise in such a way that you create a path to guide that guides shoppers around
your shop.
Angular floor plan
This layout encourage customers to “loop” your store. You position your fixtures and
merchandise in such a way that you create a path to guide that guides shoppers around
your shop.
Angular floor plan
This store layout consists of curves and angles to give off a sophisticated vibe. According
to theHouston Chronicle, the angular floor plan is usually adopted by high-end retailers
and it “reduces the amount of display area you have but focuses instead on fewer, more
popular lines.”
Geometric floor plan
The geometric floor plan utilizes racks and fixtures to create a unique store feel and
design. Go with this layout if you’re showcasing trendy products.
Free flow plan
A free flow layout affords you the most creativity. You’re not limited to floor patterns or
shelves that have to be placed at certain angles. And unlike the other layouts, you’re not
prodding people to use a path around your store; instead, shoppers are encourage to
browse and go in any direction.  
2. Be aware of where you “lead” shoppers
There’s quite a bit of debate about whether or not retailers should lead customers in a
clockwise or counter-clockwise fashion inside their stores.
On one hand, some claim that since most people are right-handed, they instinctively turn
to the right and explore the store in a counter-clockwise direction.
3. Ensure that your product quantities are appropriate
The question of how much merchandise to have on display is an important one — and the
answer is not clear-cut.
What’s interesting, though, is while Walmart’s sales declined during that time period,
customer satisfaction increased. In other words, customers were happier, but they weren’t
buying as much. William S. Simon, then Walmart’s chief executive for the US division
said that customers “loved the experience” of having less stock on the sales floor, but at
the same time they also bought less.

4. Have enough space between products and fixtures

It’s ok to have shelves that are packed with merchandise (if that’s what you’re going for)
as long as you still give your customers their personal space.
You want to avoid the butt-brush effect, which according to Underhill, is a phenomenon
where shoppers would abandon a display or product they were looking at when they were
bumped once or twice from behind.
5. Freshen up your displays regularly
The rules around how often to change up your displays will vary depending on who
you’re talking to and the type of store you run.
That said, most experts recommend changing some part of your store around once a
week. You could, for example, change the outfits of your mannequins or feature a
different upsell every week.
And for obvious reason, you want to switch up your merchandising whenever new
products come in.
6. Find ways to appeal to multiple senses
While the majority of a location’s design is made up of visual components, other factors
—including scent, touch, sound, and taste—can also make an impact on a store’s look
and feel. If you wish to create a truly immersive in-store experience, design your store to
appeal to as many shopper senses as possible.
Here are a few ideas on what you can do:
Sound
Pick your playlist wisely. Determine the atmosphere that you want to create and pick
songs that enhance (and not overpower) the ambiance. Volume and beat can influence
behavior, depending on who you’re selling to. For instance, while loud music may work
well for retailers that target younger shoppers, the same thing can’t be said for merchants
catering to adults.
Scent
Bakeries and cafes may have a slight edge here, as they can use the smell of their
products to draw customers in. But you can still cater to people’s sense of smell even if
you aren’t in the food industry.
Reuters cites a few great examples of scent marketing in action. Some upscale
merchants for instance, “scent their baby goods department with the soothing smell
of baby powder” while “Cruise lines and hotels use signature aromas in their rooms
and on the brochures mailed to guests after they go home, in hopes the scent will
bring back memories of a pleasant vacation and spur repeat bookings.”
Other retailers craft a scent made out of their best products. Brandi Halls, Lush’s
director of brand communications for North America, told Racked that that strong
scent in their stores are a mixture of their top products.
The right scents to incorporate in your store will of course depend on your audience and
business, so do your research and figure out which ones will encourage shoppers to linger
and buy.
Touch
Having a “hands-on” vibe can enhance shopper experience. One way of doing this is to
take out sample products from their boxes to encourage customers to test or play with
them.
Apple pioneered this approach in the electronics retail space when they launched stores
that had their products out in the open instead of being inside big brown boxes (which
was the norm at the time).
Consumers loved it, and soon other retailers in the computer and electronics space
followed suit.
Taste
If you sell food in your store, see if you can have taste testing stations. Again, this
encourages a more hands-on shopping experience and makes it less intimidating for
people.
Check out what Brandless did when in their LA pop-up store. To give people a taste of
their coffee and tea, they set up a station where people can sample the products.
By the way, even if you’re not selling edible products, you can still appeal to shoppers’
sense of taste by offering nibbles and drinks that they can enjoy while shopping.

7. Don’t forget to cross-merchandise

Grouping your merchandise into neat categories or departments is a great strategy, but
see if you can find room to cross-merchandise different items. Identify products in your
store that would go well together and put them in a single display.
View your merchandise from a customer’s perspective. For example, if you were a
shopper looking at a particular dress, is there anything in the store that would go well
with it?
Have a look at this display from Gymboree, which cross-merchandises a range of shirts
and sweaters with a matching purse.
Here’s another cool example from Target. The top shelf showcases different brands of
sunblock for kids, while the shelf directly below it has swim diapers on display. Target
knows that customers shopping for swim diapers will likely need sunblock (and vice
versa) so they cleverly put the products together.

8. Make sure your employees are on point

Don’t forget that your staff also plays a role in your store’s design and layout. How they
are positioned in your shop can make or break your store’s appeal. Having your
employees move around on the sales floor instead of staying behind the counter is a good
way to make the place more inviting.
As the Retail Doctor Bob Phibbs said on his blog, “Get your employees out from behind
the counter and keep them active, especially if you have windows.”
Consumers looking into your shop will be more enticed to walk in if they see people
moving about. That’s why Bob recommends that merchants instruct employees to “act as
if they were customers” if a store is empty in order to make it more enticing.
9. Track and measure your efforts
Last not but not least, always ask whether or not you’re making the right floor plan,
design, or arrangement decisions. This is critical to making sure that you’re implementing
the best strategies possible.
You and your staff should be very observant with how people behave in your store. Pay
attention to where they go, where they linger, and what they do while they’re inside. Also
ask questions on what they think of your shop and what you can do to improve.
Let’s say you’re implementing a major layout or merchandising change in your store.
You want to benchmark metrics like sales, traffic, and dwell time before you make the
updates, and then measure the results once the changes are implemented.
Also, consider making use of foot traffic analytics solutions such as people counters,
beacons, heat sensors, and more. These tools can give you deeper analytics and insights
on shopper habits and behavior, so you can make data-driven decisions.
Finally, you need to ensure that your layouts and displays are being executed correctly, so
conduct store audits whenever you make changes to your store. Consider using a tool
such as Compliantia to evaluate your stores.

UNIT IV

Retail Management - Pricing

The price at which the product is sold to the end customer is called the retail price of the
product. Retail price is the summation of the manufacturing cost and all the costs that
retailers incur at the time of charging the customer.

Factors Influencing Retail Prices

Retail prices are affected by internal and external factors.

Internal Factors
Internal factors that influence retail prices include the following −
 Manufacturing Cost − The retail company considers both, fixed and variable
costs of manufacturing the product. The fixed costs does not vary depending upon
the production volume. For example, property tax. The variable costs include
varying costs of raw material and costs depending upon volume of production.
For example, labor.
 The Predetermined Objectives − The objective of the retail company varies with
time and market situations. If the objective is to increase return on investment,
 then the company may charge a higher price. If the objective is to increase market
share, then it may charge a lower price.
 Image of the Firm − The retail company may consider its own image in the
market. For example, companies with large goodwill such as Procter & Gamble
can demand a higher price for their products.
 Product Status − The stage at which the product is in its product life cycle
determines its price. At the time of introducing the product in the market, the
company may charge lower price for it to attract new customers. When the
product is accepted and established in the market, the company increases the
price.
 Promotional Activity − If the company is spending high cost on advertising and
sales promotion, then it keeps product price high in order to recover the cost of
investments.
External Factors
External prices that influence retail prices include the following −
 Competition − In case of high competition, the prices may be set low to face the
competition effectively, and if there is less competition, the prices may be kept
high.
 Buying Power of Consumers − The sensitivity of the customer towards price
variation and purchasing power of the customer contribute to setting price.
 Government Policies − Government rules and regulation about manufacturing
and announcement of administered prices can increase the price of product.
 Market Conditions − If market is under recession, the consumers buying pattern
changes. To modify their buying behavior, the product prices are set less.
 Levels of Channels Involved − The retailer has to consider number of channels
involved from manufacturing to retail and their expectations. The deeper the level
of channels, the higher would be the product prices.

Demand-Oriented Pricing Strategy

The price charged is high if there is high demand for the product and low if the demand
is low. The methods employed while pricing the product on the basis of demand are −
 Price Skimming − Initially the product is charged at a high price that the
customer is willing to pay and then it decreases gradually with time.
 Odd Even Pricing − The customers perceive prices like 99.99, 11.49 to be
cheaper than 100.
  Penetration Pricing − Price is reduced to compete with other similar products to
allow more customer penetration.
 Prestige Pricing − Pricing is done to convey quality of the product.
 Price Bundling − The offer of additional product or service is combined with the
main product, together with special price.

Cost-Oriented Pricing Strategy

A method of determining prices that takes a retail company’s profit objectives and
production costs into account. These methods include the following −
Cost plus Pricing − The company sets prices little above the manufacturing cost. For
example, if the cost of a product is Rs. 600 per unit and the marketer expects 10 per cent
profit, then the selling price is set to Rs. 660.
Mark-up Pricing − The mark-ups are calculated as a percentage of the selling price and
not as a percentage of the cost price.
The formula used to determine the selling price is −
Selling Price = Average unit cost/Selling price
Break-even Pricing − The retail company determines the level of sales needed to cover
all the relevant fixed and variable costs. They break-even when there is neither profit nor
loss.
For example, Fixed cost = Rs. 2, 00,000, Variable cost per unit = Rs. 15, and Selling
price = Rs. 20.
In this case, the company needs to sell (2,00, 000 / (20-15)) = 40,000 units to break even
the fixed cost. Hence, the company may plan to sell at least 40,000 units to be profitable.
If it is not possible, then it has to increase the selling price.
The following formula is used to calculate the break-even point −
Contribution = Selling price – Variable cost per unit
Target Return Pricing − The retail company sets prices in order to achieve a particular
Return On Investment (ROI).
This can be calculated using the following formula −
Target return price = Total costs + (Desired % ROI investment)/Total sales in units
For example, Total investment = Rs. 10,000,
Desired ROI = 20 per cent,
Total cost = Rs.5000, and
Total expected sales = 1,000 units
Then the target return price will be Rs. 7 per unit as shown below −
Target Return Price = (5000 + (20% * 10,000))/ 1000 = Rs. 7
This method ensures that the price exceeds all costs and contributes to profit.
Early Cash Recovery Pricing − When market forecasts depict short life, it is essential
for the price sensitive product segments such as fashion and technology to recover the
investment. Sometimes the company anticipates the entry of a larger company in the
market. In these cases, the companies price their products to shorten the risks and
maximize short-term profit.

Competition-Oriented Pricing Strategy

When a retail company sets the prices for its product depending on how much the
competitor is charging for a similar product, it is competition-oriented pricing.
 Competitor’s Parity − The retail company may set the price as close as the giant
competitor in the market.
 Discount Pricing − A product is priced at low cost if it is lacking some feature
than the competitor’s product.

Differential Pricing Strategy

The company may charge different prices for the same product or service.
 Customer Segment Pricing − The price is charged differently for customers
from different customer segments. For example, customers who purchase online
may be charged less as the cost of service is low for the segment of online
customers.
 Time Pricing − The retailer charges price depending upon time, season,
occasions, etc. For example, many resorts charge more for their vacation
packages depending on the time of year.
 Location Pricing − The retailer charges the price depending on where the
customer is located. For example, front-row seats of a drama theater are charged
high price than rear-row seats.

Retail Pricing Strategies to Increase Profitability

Many factors influence a retailer'sbottom line, including properly priced products that hit

the sweet spot of maximizing unit sales without sacrificing the profit per unit.
Understanding your business cost structure and choosing the right pricing strategy are
crucial steps toward achieving your profit goals. Many pricing strategies exist, which is
why it may be wise to experiment until you find a strategy that is the most effective for
your individual business.

Product Cost and Profitability

The cost of goods also includes the cost of any direct labor to produce the item. The
expenses related to operating the business, known as operating expenses, include
overhead items such as advertising, payroll, marketing, building rent, and office supplies.

Once you have clarity on what your products actually cost, look at how your competition
prices their products to establish a benchmark for your price. As a retailer, you also need
to examine your channels of distribution, such as online sales through your own website,
via brick-and-mortar stores, and through other vendors.

Top Pricing Strategies

Before you can determine which retail pricing strategy to use in determining the right
price for your products, you must consider the product's direct costs and other related
expenses. These two key elements of overall product cost are termed cost of goods
and operating expense.

Markup Pricing: The markup on cost can be calculated by adding a preset, often

industry standard, profit margin percentage to the cost of the merchandise. The
percentage markup on retail is determined by dividing the dollar markup by the retail
price. For example, if your markup is $20 and your product retails for $40, your
percentage markup is: $20 / $40 = .50 or 50 percent. Remember to keep your markup
high enough to allow price reductions and discounts, cover shrinkage (theft,) and other
anticipated expenses, in order to achieve a satisfactory profit.

If you retain a varied product selection, you can use different markups for each product
line if needed.
Vendor Pricing: Manufacturer suggested retail price (MSRP) is a common strategy used
by smaller retail shops to avoid price wars and still maintain a decent profit. For any
products you resell, you'll find some suppliers have minimum advertised prices (MAP)
and may not let you continue to sell their products if you try to price below their MAP.

Competitive Pricing: Consumers have many choices and are generally willing to shop
around to get the best price. Retailers considering a competitive pricing strategy need to
provide outstanding customer service to stand above the competition.

 Pricing below competition simply means pricing products lower than the

competitor's price. This strategy works well if you as a retailer can negotiate the
lowest buying prices from your suppliers, reduce other costs, and develop a
marketing strategy to focus on price specials.
 Prestige pricing, or pricing above the competition, may be considered when
your location, exclusivity, or unique customer service can justify higher prices.
Retailers that stock high-quality merchandise that isn't readily available at other
locations may be quite successful in pricing products above their competitors.

Psychological Pricing: Psychological pricing is a technique of setting prices at a certain

level where the consumer perceives the price to be fair, a bargain, or a sale price. The
most common method is odd-pricing, which uses figures that end in 5, 7 or 9, such as
$15.97. It is believed that consumers tend to round down a price of $9.95 to $9, rather
than $10.

Keystone Pricing: Keystone pricing involves doubling the cost paid for merchandise to

set the retail price. Although this was once the rule of pricing products, more intense
competition and the continually changing retail landscape have driven some retailers to
use methods other than Keystone. However, stores selling higher-end goods with less
sensitivity to price may still use keystone.

Multiple Pricing: This method involves selling more than one product for one price,
such as three items for $1. Not only is this strategy great for markdowns or sales events,
but retailers have noticed consumers tend to purchase in larger amounts when they use
multiple pricing strategies.

Pricing Strategies Based on Discounts 

Discount pricing and price reductions are a natural part of retailing. Discounting can
include coupons, rebates, seasonal prices, and other promotionalmarkdowns. Typically,
price strategies based on discounts are designed to bring in more traffic that might offer
the potential of purchasing higher-priced items.

Discount Pricing: This one is self-explanatory. Merchandise priced below cost is

referred to as a loss leader. Although retailers make no profit on these discounted items,
they hope the loss leader brings more consumers into the store who will purchase other
products at higher margins.

Economy Pricing: Used by a wide range of businesses including generic food suppliers

and discount retailers, economy pricing aims to attract the most price-conscious of
consumers. With this strategy, businesses minimize the costs associated with marketing
and production in order to keep product prices down.

Price Skimming: Designed to help businesses maximize sales on new products and

services, price skimming involves setting rates high during the introductory phase. One of
the benefits of price skimming is that it allows businesses to maximize profits on early
adopters before dropping prices to attract more price-sensitive consumers.

Bundle Pricing: With bundle pricing, small businesses sell multiple products for a lower
rate than consumers would face if they purchased each item individually. Not only is
bundling goods an effective way of moving unsold items that are taking up space in your
facility, but it can also increase the value perception in the eyes of your customers.

PRICE ADJUSTMENTS

Price adjustments, also called price protection, is a retail practice in the USA in which
customers can obtain a partial refund of the purchase price of an item if they can show it
on sale at a lower price within a fixed time frame. In such circumstances, retailers will do
a “price adjustment,” refunding the difference between the price the customer paid and
the price now available. For example, if a customer buys a TV from for $300, and it
drops in price by $100, they can go back to the retailer to ask for a price adjustment and
get the difference returned to them, often in cash. Retailers with price adjustment policies
include Macy's, Gap, and Staples.
Price adjustments are not the same as return policies. With price adjustments, retailers
will refund a customer the difference in cost even if the item has already been used.
Returns, on the other hand, usually need to be in an unused condition. Some retailers
have different policies for in-store purchase and online purchases. Many retailers also
exclude certain items from price adjustments, price guarantees or price matching (like
items that were on sale to begin with).
Price adjustments are also slightly different from price matching policies. Price matching
is when a retailer will give you a refund of the difference between their higher price of a
good and a competing retailer's lower price for the same good. Price adjustments only
compare different prices within the same retailer over time.
There is a different kind of tools that can help online shoppers to get price adjustment
automatically. They tend to ask users sign up with an email account and read the invoice
in user mailbox to get the purchased price and track current price from the online stores
like Macy's, Nordstrom. The price adjustment time length for online stores are normally
between 14-30 days.

How to Promote a Product in 10 Different Ways

Creating a new product or launching a new service for your store is challenging enough,
but to promote a product and increase sales you’ll need a broader plan.

As a business owner, you’re doing everything: creating products, working with clients
and customers, marketing, and building your online store and social following. This can
be daunting. It can also be incredibly rewarding, and even fun.

So how do you effectively promote a product today?

How to Promote a Product in 10 Different Ways

1. Send an email to your list
2. Have a killer content strategy
3. Write a blog post
4. Share your product socially
5. Find and employ brand ambassadors
6. Offer a subscriber-only discount
7. Run a social contest
8. Ask influencers to share your product
9. Write a press release
10. Take it to Facebook Live

1. Send an email to your list

ur #1 strategy to promote a product and is likely to remain there. Email

marketing consistently converts at a higher rate than social media.

Why? On social, you’re competing for attention with a huge amount of distractions.
Other brands, personal posts, direct messages, and more are all attempting to catch the
eye of the same individuals you are working to reach.

Email inboxes are more streamlined, and potential customers have already shown interest
in your product by giving you their email address.

So, your email list is full of people who are already invested in your product. If you
aren’t already, start using free content to educate and engage them.

When your customers are used to receiving valuable content from you, an email about
your latest release is more likely to be effective and result in sales. So invest in making
consistent contact with your subscribers and providing value, building towards a big
release.

Email is vital to promote your product, but don’t stop there.

2. Weave your product’s story throughout your content strategy

Build your entire content strategy to share your product’s story with customers. Whether
you are creating engaging visual content to share on social or sending out timed emails to
your audience, crafting a smart content strategy can make your sales continue to grow
over time.

Even the design of your site should reinforce your brand story. For instance, if you are
marketing an online personal training business, your content will have a different focus
than if you plan to sell cosmetics.

Creating a content strategy for your product can include supporting blog posts and videos
that educate and inspire your ideal customers to take action.

For example, if you’re selling a program online on how to write and sell your first eBook,
you’ll want to send out emails that include tons of free, valuable content on how to come
up with your eBook title, how to organize your eBook before you begin writing, how to
stay productive while you’re working on it, etc.

Don’t forget to include a call-to-action in each post; whether that’s sharing the content,
signing up for your email list, or buying your product.

3. Write a blog post

As you learn how to promote a product you’ll want to build your content calendar.

Weave in a blog post announcing your product. This can be as simple as a post exploring
the benefits of the new product and the needs that it can meet, then including a button or
widget that allows your customers to easily to buy it.

Blogging is a smart way to increase your SEO, and it also gives you opportunities to gain
exposure for your brand in creative ways. Social platforms can limit your access to
customers if you don’t pay for boosted content and ads, so moving leads and existing
customers to a blog post with a call-to-action is a smart way to promote a product without
spending money for your audiences’ attention.

4. Share your product socially wherever your customers are

Whether your customers hang out on Instagram, Facebook, or Twitter, share posts about
your product with customized content for each channel. Make your social promotions
visual, so your fans get an instant sense of what they are buying.

Today, getting people to hear your story on social media, and then act on it, requires
using a platform’s native language, paying attention to context, understanding the
nuances and subtle differences that make each platform unique, and adapting your
content to match. – Gary Vaynerchuk

5. Find and employ brand ambassadors

Do you have a product or service that your customers love to gush about? Do you notice
that some of your customers rave about you on social media without any prompting from
you? They might be a natural brand ambassador that can help you promote a product in
spaces you couldn’t reach on your own.

Consider paying — or exchanging a product — with your brand ambassadors for their
help in sharing your product with their networks. Asking for reviews is also a great way
to connect and get new content! Don’t forget to repost user-generated content on your
own Instagram.

Offer a subscriber-only discount

Build discounts into your marketing strategy and use them wisely. Remember, you want
to reach new customers and encourage repeat business without cutting too far into your
profits.

Let’s say you want to use a button on your site to share and promote a product or turn
around an abandoned shopping cart. Remember that free shipping has a high perceived
value, as do buy-one-get-one-free (BOGO) offers.

7. Run a social contest

If you want to promote a product on social, consider running a social media contest to
spread awareness among your ideal audience.
Encircled, an eco-friendly women’s travel clothing company, recently ran a road trip
contest to promote their leggings. To enter, there were multiple ways you could engage:

 Following them on social

 Subscribing to their newsletter

 Commenting on their blog post

Each activity earned points and resulted in 4 winners. These kinds ofdigital
promotions are powerful because they involve customers describing the value they get
from your product in their own words on their own social channels.

Ask fellow entrepreneurs and bloggers to share your new product

Cultivating a group of fellow entrepreneurs that love the work you do can be a great
resource to tap into when it’s time to promote a product. Emily and Kathleen from Being
Boss call this your ‘Wolfpack’, which is a group of people who find value in your
product and will help promote your business.

Make it even easier for your ‘Wolfpack’ to share what you’re doing by providing pre-
written Tweets, Facebook posts, and visual content.

9. Write a press release

So much marketing is online these days, but what about going local? News agencies are
always looking for relevant information about the community to share and your new
product or service could be of interest.

Write a press release and share it with your local newspapers and news stations to get
some local love.

10. Take it to Facebook Live.

ore popularity, so why not give Facebook Live a try? If you have a bustling Facebook
page (even if it’s your personal page), take to video to talk to your fans and friends about
your newest product. Consider making a series, showing behind the scenes of the
product-making process, store announcements, and all throughout your launch.
Facebook users spend 3X more time watching live videos than traditional
videos. (Source)

If you haven’t tried live video yet to promote a product, this might be a great time to give
it a shot. While it can be intimidating to get behind the camera (even makeup artist Mia
Connor struggled with this at first), we all know that seeing the face behind a business is
humanizing and creates an authentic connection between you and your customers.

Every business needs an advertising plan. Think of it as your guide to promoting your
business. Your plan will tell you who your targets are, how to reach them – and most
importantly, it will point out what you're failing to do. This allows you to correct your
course and improve your business's marketing, which leads to increasing sales.

Time to get started planning an ad campaign.

HOW TO CREATE AN ADVERTISING PLAN

Once you go through these steps the first time, you'll have the groundwork already laid
out for subsequent campaigns. Thus, each new campaign will be easier to plan out.
1. START WITH YOUR GOAL

Simply put: what do you want your advertising plan to accomplish? Are you trying to
attract new customers or are you trying to encourage previous customers to come visit?
The best goals are specific: what kind of increase in customer traffic are you looking for
and in what time period?
2. DEVELOP YOUR BUDGET

Know how to build an advertising plan to fit your budget. How much are you willing to
spend on promoting your business? If you have some ideas already, how much will these
ideas cost to implement?
3. DEFINE YOUR AUDIENCE

When you're focused on increasing sales, it helps to figure out who's most likely to buy
your product or service. What is your target demographic? Are you catering to affluent
seniors or teenagers who are finding money beneath couch cushions?
4. DETERMINE WHAT PRODUCTS OR SERVICES YOU'LL FEATURE

The more specific you can be, the better. That's why fast food chains will advertise
particular products instead of a general advertisement that says "come eat here." Are you
launching a new product you want to feature or are you offering a discount on an old
one? What are you highlighting?
5. COMPLETE A SWOT ANALYSIS

SWOT stands for your company's strengths, weaknesses, opportunities, and threats. What
is your business's core competency? What do you do well that provides you with an
advantage? If you sell clothing, and winter is around the corner, that's an opportunity to
launch new winter gear. Likewise, what are your competitors doing that might hinder
your business?
6. USE THE SWOT TO ARTICULATE YOUR KEY DIFFERENTIATORS

When you're promoting your business, you want to focus on what makes you different
from your competition. Look at your competitors and use your SWOT analysis to find the
mismatches – do you offer lower prices? Better products? You'll want to exploit those
differentiators in your advertising plan.
7. BUILD YOUR ADVERTISING PLAN

You need to answer three questions: what, when, and where. What type of advertisements
are you going to run? When are you going to run them? And where are they going to
appear? Are you putting up a billboard in a mall for all of September or running a radio
campaign throughout the holiday season? Running display ads on the web? It all comes
down to a greatadvertising strategy!

8. CONSIDER OTHER LOW-COST METHODS

The best advertising is word of mouth – and few things are capable of generating word of
mouth like a well-run social media campaign. What kind of social media campaign can
your business run? Could you sponsor a local event or run a contest of some kind? Make
a list of low-cost actions your business can take that naturally support your advertising
plan.
9. LAUNCH YOUR ADVERTISING

An advertising plan won't help in promoting your business if no one follows through.
Now it's time to take all of your ideas and put them in action. Create the social media
campaign, produce the television spot, and broadcast the radio commercial.
Keep everything consistent, no matter the medium or channel. Consistency is
crucial when running a multi-faceted campaign. Be consistent in both messaging and
brand. It's one thing to use the same logo and colors. But the messaging itself should be
consistent as well. Billboard copy should mirror social messaging copy, which should be
the same as any radio or television ads, which should mimic what's on your website's
homepage.
10. ANALYZE RESULTS

The last step in developing an advertising strategy is arguably the most important: The
results! Did you do what you set out to do?
This is likely the first of many advertising campaigns for your business – so pay close
attention to the results. Did you reach the goals defined in step one? If so, what worked
best? If not, why not? For your next advertising plan, go back to step one and do it again
– but keep these results in mind.