Retailing VTU notes

PART-B- RETAIL MANAGEMENT

MODULE 5 - RETAIL MANAGEMENT

Retail Management: Definition:

“Retailing consists of activities involved in selling goods and services to
ultimate consumers for personal consumption” cuoghan , Aderson, louis
“Retaling is a set of business activities that add value to the products and
services sold to consumer for their family or personal use.”

- “Retailing”- the word derived from French word “ retaillier ” meaning to

“ cut a piece off or to break bulk
- Retailing is not only the sale of product in stores but also involves the
sale of services; videotape rental, haircut, home delivered pizza
- Retailer perform specific acitivities – anticipating customer wants,
developing assortments of products, acquiring market information and
financing.Retailing encompasses selling through mail, the internet, door
to door visits, any channel that could be used for approaching consumer.
- To enter retailing is easy and fail is even more easy. Retail profit is
usually a small fraction of sales and generally about 9-10%.
- The subject of retailing has gained momentum as the impact of retailing
on the economy is high.Retailing is a major part of US and world
commerce.

Retail Management: is the process of understanding the environment

especially customer and competition, developing and implementing
effective strategies.Retail management mainly involoves merchandise
management and store management.

Characteristics of Retailing:
Ø Average amount of sales transaction is much less than manufacturer,
so there is need for tightly controlling the costs, maximizing the no. of
customers, emphasizing more on special promotion etc.
Ø Survey shows that large number of buyers make impulse purchasing,
this behaviour indicates the value of instore displays- the ability to
forecast is difficult.
Ø All retailiers offer assortment of products, but they also specialize in the
assortment they offer
Ø The bulk items shipped by manufacturer is offered in smaller quantities
tailored to individual customers.
Ø Holding inventory – products are available at the disposal of consumers
so they can keep small inventory at home
Ø There is direct end user interaction and retailing increases the value of
products and services.
Ø Location is critical factor in retailing.

RETAIL INDUSTRY IN INDIA:

The retail industry is the largest industry accounting for over 10%. It is
the second largest employer after agriculture. There are 12mm retail
outlets in India. Retailing in India is gradually inching its way toward
becoming next booming Industry.
The Indian population is witnessing a significant change in its
demographics. A large working population with median age of 24 years,
nuclear families in urban areas along with increasing working population
and emerging opportunities in services sector are going to be the key
driver of the organised retail sector in India.
The revamping exercise of Indian retail industry goes with departmental
stores, hypermarket, supermarket, and specality store. Western style
malls have began appearing in the metros and second rung cities alike
introducing the Indian consumer to a shopping experience like never
before.
India has been ranked 2nd in a Global Retail Development Index of 30
countries drawn by AT Kearney. It has estimated India’s total retail
amount at US $202.6 billion which is expected to grow at a compounded
30% over next 5 years and the revenues are expected to triple from
current us$ 7.7 bn to US $ 24 bn by 2010.
The retail Industry is divided into organised and unorganized sector.
Organisational retailing refers to trading activities undertaken by licensed
retailiers. ie. those who are registered for sales tax, Income tax
etc( Corporate banked hyper markets, retail chains , partly owned large
retail business) Unorganised on the otherhand, refers to the traditional
format of low cost retailing.

Growth of retail outlets in India:

outlets
1996
2001
Food Retailers
Non-Food
Total
2769
5773. 6
3682
7482.1
8542
1165.0
Unorganised retailing is by far the prevalent form of trade in India
constituting 98% of trade while organised trade accounts for 2%. It was
estimated that the corporate owned retail business was poised to grow to
35500 by 2005 from 15000 in 1999. Organised Trade employs 51lac
people wheras unorganized retail trade employs 3.95 crores.

Share of retailing in employment across different countries:

Country
Employment
India
USA
Poland
Brazil
China
8%
16%
12%
15%
7%
source: presentation by FICI by Alan Rosling

Retail Trade in India and South East Asia:

countries
Organised
unorganised
India
China
s. korea
Indonesia
Phillipines
Thailand
Malaysia
2
20
15
25
35
40
50
98
80
85
75
65
60
50
The Indian retail Industry continues to be highly fragmented. According to
Global consultancy firm ACNeilson & KSA Tehnopak, India has the highest
Shop Density in the world and there were outlets for every 1000 people.
Given this backdrop, the recent clamour about opening the retail sector to
FDI becomes very sensitive Issue with arguments to support both sides of
the debate. It has positive and negative sides. Positively, it can lead to
greater effiencey, improving living standards apart from integration into
the Global Economy. Consumers will also benefit. On the negative side,
labour may be displaced to the extent that it can only expand by
destroying traditional retail sector. As per present regulation, no FDI is
permitted in retail trade in India. Allowing 26( in the first 2years), 49 %
( in the next 3 Years) and 100% ( in the next 5 Years) have been the
proposed figures till date.
The Waiting Foreign Juggernaut:
The worlds largest retailer walmart has huge plans for India. It is moving
a senior official from its headquarters in Bentoville, to head its market
research and business development function pertaining to its retail plan in
India.
The new york based high and fashion retailer saks fifth Avenue has tied
up with retail major DLF properties to set up shop in a mall in New Delhi.

Trends in Retailing:
The Retail Industry is changind rapidly due to various reasons
1. Spatial convenience: Number of working women have fueled an intense
demand for convenience. The quest for convenience on the part of
consumers is shown by
v frantic growth of convenience store fueled by the entry of Petroleum
marketers AM/PM store
v Exploding Popularity of online shopping operators
v Diversification of vending machine into food /clothing and videotapes
2. Increased power of retailer : At one time, colgate dominated retailers.
Now the retailers tend to dominate them.The reasons for this reversal are
many. Retailers have many new products from which to choose when
deciding what to stock on their sheleves. Further the IT has diffused
throughout retailing to such an extent that virtually all major retailer can
capture item-by-item data via scanning devices at that electronic point of
sale terminal. This knowledge of information has permitted retailers to
calculate the (DPP) Direct Portfolio of Individual Items, track what moves
and what does not move well in their stores. So the Manufacturers
struggled to get space in the shelves of retailers. They offer Pricing
concession, slotting allowance etc., to promote products.
3. Growing Diversity of Retail formats:
Consumers can now purchase same merchandise from wide variety of
retailers. they are Dept. store, specality store, convenience store,
category killer, Mass merchandiser, Hypermarket.
v Mom and Pop Stores and Traditional Kirana stores: small independent
stores across product categories is very common retail format in India.
Partiucularly in small townships
v E- commerce: The amount of retail business conducted on the Internet
is growing everyyear. Companies like Amazon. com and First and
second.com which helped pioneer th retail e-commerce. Fabmart.com
v Department store with varied merchandising operations.
v Franchise : Territory rights are also sold to franchisees. Various
distribution and other services are provided by contract to franchisees for
fee. Ex. McDonalds, Blockbuster Video
v Warehouse club- wholesale club: Appeal is to price conscious shopper.
size is 60000 sq. ft. or more. Product selection is limited and products are
usually sole in bulk size.
v Mail order catalog: Non-store selling through the use of literature sent
to potential customer. Usually has a central distribution centre for
receving and shipping direct to the customer.
v Specality Discounter –Category killer:
Offers merchandise in one line ( eg. sporting goods, office supplies;
children merchandise ) with great depth of product selection at discounted
prices. Stores usually range in size from 50,000 to 75000 square feet.
( refer article Xerox material for other Popular formats)
Emergence of region specific formats: In deptl store format, while most A
class ciites and metros have larger stores of 50000 sq ft sizes, stores in B
Class towns have stabilized in the 25000- 35,000 sq. feet range. Most
players have started operating these 2 formats across various cities,
which has helped them to standadise the merchandise offering across the
chain.
Entry of International Players: A large no. of international players have
evinced interest in India despite the absence of favourable government
policies.
Mall Devlopment: Modern malls made their entry into India in the late
1990s with the establishment of cross roads in Mumbai and Ansal Plaza in
Delhi. According to a market estimates,close to 10mn sq. feet of mall
space is being developed across several cities in the country.

Emergence of organised retailing:

Organised retailing in India represents fraction of total retail market. In
2001, organized retail trade in India was worth Rs. 11,228.7 billion. The
modern retail formats are showing robust growth as several retail chains
have established a base in metropolitan cities, especially in south India,
and are spreading all over India ata rapid pace. However, space and
rentals are providing to be the biggest constraints to the development of
large formats in metropolitan cities since retailers are aiming at prime
locations.
In urban India, families are experiencing growth in income but dearth of
time. More and more women are taking up corporate jobs, which is
adding to the familiy’s income and leading to better lifestyles.Rising
incomes has led to an increased demand for better quality products while
lack of time has led to a demand for convenience and services.
The demand for frozen, instant, ready to cook , ready-to-eat food has
been on the rise, expecially in the metropolitan and large cities in India.
There is also a strong trend in favour of one stop shops like supermarkets
and department stores.
Rural India continues to be serviced by small retail outlets. Only 3. 6
million outlets cater to more than 700 million inhabitants of rural inida.
Here, provision stores, paan shops and ration shops are the most popular
vehicles of retailing. Apare from this, there are periodic or temporary
markets, such as haats, peeth, and mealas,that come up at the same
location at regular time intervals.
The Mckinsey report predicts that FDI will help the retail businesses to
grow to US $ 460-470 billion by 2010. There has been a strong resistance
to foreign direct investment (FDI) in retailing from small traders who fear
that foreign companies would take away their business, lead to the
closure of many small trading businesses, and result in large scale
unemployment. Therefore, govt has discouraged FDI in retail sector. At
present, foreign retailers can enter the retailing sector only through
restricted modes. Global players in the retail segment have been entering
the market for a while now. Players that entered before the easing of
restrictions on FDI in retail had to come through different modes, such as
joint ventures where Indian partner is an export house (e.g Total Health
care); franchising/local manufacturing/sourcing from small scale
sector(e.g MC Donald’s, pizz hut) cash and carry operations (Giant) and
licensing (Marks and spencer’s)
Organised Retailing: challenges:
Legal procedures such as time consuming process in title clearance ,
requirement of numerous lease deeds in the case of multiple ownership,
and difficulties in conversion of normal land into commercial use are some
of the basic difficulties impairing the development of organized retailing in
India. To open a larege store an organization has to acquire as mnay as
10-15 clearences from several government agencies, which involoves a
lot of time and resources. 
Even local laws do not permit opening of stores beyong 7.30 pm(for
example in Delhi) and on Sundays and holidays. It stands contrary to the
strategy of modern retail centres, as they attract shoppers on weekends
and late hours on weekdays and offer a whole new shopping experience,
which includes entertainment, and food courts under one roof. Shoppers
stop which pioneered modern retailing in India, has recently obtained
permission to extend shopping hours upto 9.30 p.m on all days including
national holidays for its outlet at New Delhi’s Ansal Plaza.

Chennai has experienced the organized retail boom. This is despite its
perception of being a traditional, conservative and cost conscious market.
Food world, Music world, Health and Glow, subhiksha a nd the like are a
fe of the successful names in the retail business that started their chin of
stores from chennnai. Factors such as reasonable retail prices, strong
presence of MNC, healthy industrial growth, increase in the number of
double-income households, growth of middle class have all led to the
growth ans sustenance of this Industry in Chennai

Retail Industry is also facing problems on account of labour laws, which

do not facilitate part-time employment in the organized sector.

--------------------

Retail Location and Retail Layout:

Retail Location:
Location is the most important ingredient for any business that relies on
customers. It is also one of the most difficult to plan for completely.
Location decisions can be complex, costs can be quite high, there is often
little flexibility once a location has been chosen and the attribute of
location have a strong impance on retailers overall strategy.
Importance of Location Decision:
Location is a major cost factor because it :
Involves large capital investment
Affects transportation cost
Affects human resources
Location is majore revenue factor because it
Affects the amount of customer traffic
Affect the volume of business
A location decision is influenced by the flow of pedestrian and vehicular
traffic, which determine the footfalls in a retail store. Footfalls refers to
the no. of customers who visit a store in a defined time period.
Levels of Location Decision and its Determining Factors:
level of location Decision
city
Area within city
site selection

1. Selection of a city:
Factors to be considered for selection of a city:
- Size of the city’s trading area: A city’s trading are is the geographic
region from which customers come to the city for shopping. A city’s
trading area would comprise it suburbs as well as neighbouring cities and
towns. Cities like Mumbai and Delhi have a large trading are as they draw
customers from far off cities and towns.
- Population or population growth in the trding are: A high growth in
population in the trading area can also increase the retail potential.
- Total purchasing power and its distribution: Cities with a large
population of affluent and upper middle class customers can be a
attractive location for stores selling high priced purchasing power and its
distribution among a large base of middle class is contribution to a
retailing boom around major cities in India.
- Total retail trade potential for different lines of trade: A city may
become specalise in certain lines of trade. Moradabad has become
important location for brassware products, mysore-silks.
- The retailer also consider, number, size, quality of competition before
selecting a city.
- Development cost
Margin Free Market, the kerala based retail chain(grocery and toilertry
product targeted middle and lower class) located 250 stores in small
towns in kerala.
II. Selection of an Area or Type of Location within a city.
Evaluation of the following factors required:
- Customer attraction power of a shopping district or a particular
store(commercial street-Bangalore, Chandni Chowk in Delhi)
- Product lines carried by other stores, number of stores in the area. 
- Avaiablity of access routes- There should not be traffic jam and
congestion
- Nature of zoning regulations: Retailers should examing the plans of
zoning commissions and municipal corporations regarding the
development of shopping centres, residential areas, flyovers.
- Direction of the spread of the city. For ex. Mumbai’s suburabs and Navi
Mumbai are growing at a fast rate

III. Selection of a specific Site:

1. Adequacy and potential of traffic passing the site: The volume of
vehicular traffic and pedestraian shoppers who pass by the specific site
shoud be assessed since they represent the potential customers.
2. Ability of the site to intercept the traffic following past the site. The
vehicualar or pedestrail traffic moving past the site would be attracted
only if it represents the segment the store is targeting.
3. Complementary nature of adjacent stores: a store selling school
uniforms would have greater potential if adjacent stores sell school books,
stationary etc.
Type of Retail Location:
1. Free standing location : where ther are no other retail outlets in the
vicinity of the store and therefore depend on its own pulling power and
promotion. Dhabas on highways.
2. Neighbourhood stores: located in residential neighbourhoods and serva
a small locality. They sell convenience products like groceries.
3. Highway stores : located along highways or at the intersections of two
highways and attract customers passing through these highways. Fast
food restaurants,dhabas with good parking facilities.
4. Business associated location: These are locations where a group of
retail outlets offering a variety of merchandise work together to attract
customers to their retail area but also compete against each other for the
same customers.
This can further be classified into two:
a) Unplanned business districts
An unplanned business district is a type of retail location where two or
more retail stores locate together on individual consideration rather than
on the basis on any long-rang collective planning. we may find 4-5 shoe
stores, 3-4 medical stores in a cluster, but no grocery store. Connaught
place in New Delhi
i) Downtown or central Business District: A CBD usually have a trade area
that varies according to the size of the city or town. CBD s in major metro
like Delhi, Mumbai even draw custmers from far off places. In major
metros like Delhi and Mumbai we find two or more CBD’s each serving
different segments. Commerical street-Bangalore, Chikpet in Bangalore
Chandni chowk –Delhi.
ii)Secondary Business District: They are composed of an unplanned
cluster of stores often located on a major intersection of a city.
Koramangala in Bangalore.
iii) Neighbourhood Business District: Stores located in Neighbourhood
business district forma small cluster and serve neighbourhood trading
area. (cities and towns)
iv) Suburban business District: Stores located on the town’s periphersy
have lower rents, often rely on traffic generated by the downton and may
sometimes offer parking facilities . The malls in Gurgaon near Delhi are
good examples.
b) Planned Shopping centres.

PLANNED SHOPPING
A planned shopping centre consists of a group of architecturally owned or
managed stores, designed and operated as a unit, based on balanced
tenancy and surrounded by parking facilities.
Regional shopping centre malls:
Regional shopping centres or malls are the largest planned shopping
centered; often they are anchored by two or more major department
stores, have enclosed malls, serve a large trading area and have high
rents.( cross roads in Mumbai, Ansal Plaza in Delhi, Spencer Plaza in
Chennai, Metropolitan Mall in Gurgaon.
Neighbourhood/community Shopping centre:
-usally have a balanced mix of stores including a few grocery stores a
chemist, a variety store, and a few other stores.
Specialized Markets: In India most of the cities have specialized market
famous for a particular product category. For ex: Chennai-Godown street
is famous for clothes, Usman street for jewellery, T. Nagar for ready
made garments.
Periodic Markets: Another peculiar type of market found in India is the
periodic market, which is established at particular places on a particular
day in a week. Most of these markets operate in evening hours. These
market are mostly associated with the name of the day it is held on.

Type of consumer Goods and location Decision:

1. Conveneince Goods –low price, purchased frequently- convenience
stores located in central business districts, such as low priced, ready to
wear have a limited mobility to generate their own traffic.eg. Subhiksha
has an expansion strategy of setting up one outlet within every 3-4 km.
2. Shopping Goods- involve more intensive selling effort – suits,
automobiles and furniture- shoppers stop and Westside prefers to locate
in Central business districts or major secondary business districts.
3. Specality Goods- imply products with high unit price, brought
infrequently, require special effort – may use isoloated locations because
they generate consumer traffic.

Trading Area:
A trade area is a contiguous geographic area from whicha retailer draws
customers that account fro the majority of a stores sales. A trade are a
may a part of a city, or it can extend beyond the city’s boundaries. A
trade area can be divided into 2 or 3 zones.
Trade Area Analysis: It is necessary to estimate market potential,
understand consumer profile, competition etc. GIS ( Geographical
Information System – combine digitized mapping with key locational
data )used for this purpose. A saturated trade area offers customers a
wide variety of merchandise, which also ensures impressive profits for
retailers in the market.
Site Selection Analysis: A retailer has to consider the following factors
while selecting a site.
1. kind of products sold:
*conveinece goods – quality of traffic most important – large window
display area is usually a better site.
* Shopping Goods – quality of traffic most important-The emergence of
several apparel factory outlet within a short stretch on the on the Delhi
jaipur highway is driven by this factor
* Specality Goods- may desire to locate close to the shopping goods
store.
2. Cost Factor in Location Decision: Traditionally retail community own
the place. Space cost (comibination of rent, utilities, leasehold
improvements, general decoration, security, insurance, and all the related
cost of having a place to conduct business operation) is important factor.
3. Competitor location: Intense competition in the area shows that new
businesses will have to divide the market with existing business.
4. Ease of traffic flow and accessibility ( studying flow of traffice,noting
one way street, street widths, parking lots)
5. parking and Major Thoroughfares : the way parking lot is laid out, the
direction of the travel lanes and spaces,landscaping. The ideal ratio for
food stroes is in the magnitude of 7-8 cars per 1000 sqare feet of food
store.
6. Market Trends: Discussions with the business owners and officials are a
good source of information. Make use of information available through the
chamber of commerece.
7. Visibility: It is important when a shopper is trying to find the store for
the first or second time. The questions relevant to this factor is : who will
be the store’s neighbour, what will be their effect on store sales, how
much space is needed.

Selection of a particular shopping centre or Market Area:

The following consideration influence the selection of a particular shopping
centre: 1. Merchants’ Association: can strengthen business and save
money through group advertising, insurance plans and collective security
measures.
2. Responsiveness of the landlord: Prospective retailers expect landlord’s
acknowledgement on the following issues: placement and size of signs,
maintenance and repairs, and the adjacent retail space.
3. Zoning and planning: The zoning commission will provide the latest “
mapping” of the retail location and surrounding area under consideration
- Are there restrictions that will limit operation; - will construction or
changes in city traffic or new highways present barriers.
4. Leases: Before entering into any lease agreement, retailers should
collect information on future zoning plans and decide how long it will be
viable to run business at a particular location.
5. Building Layout: Age and condition of the building, adequacy of all
mechanical system, remodeling needs, storage availability, security
needs, restrictions on alterations and improvements to the property.
Location Assesment Procedures:
- To determine the best possible retail location for the prospective retail
outlet.
1. Checklist Analysis: simple framework regarding geo-demographics,
shopping behaviour, competition, cost and accessibility to the particular
site.
2. Analogue Analysis: It attempts to predict the economic performance of
a particular site by assessing its potential against the already running
stores.
3. Financial analysis: regarding devloopment and operation of an outlet,
comparing the development cost , capital investment on site, building and
variable cost against expected returns.
4. Regression Modeling: developed around a no. of determinants such as
demographics, accessibility, competitive environment, trade area
characteristics, to estimate the potential turnover of the prospective
outlet.
5. Retail Area Development: There are 4 important interest groups that
can work individually and in partnership to overcome challenges and
obstacles in the development of new retail markets. 1. public
2.Developers 3. The Government 4. Retailers.

LAYOUT

o Layout – the logical arrangement of the physical facilities of a business

that contributes to efficient operations, increased productivity, and higher
sales.
l Study: Look and feel of employees’ work spaces is third most important
consideration (after salary and benefits) when deciding whether or not to
accept or to quit a job.

LAYOUT: EXTERNAL FACTORS

l Size must be adequate to accommodate business needs.

l Appearance must create the proper image or “personality” for the
business in the customer’s eyes.
l Entrances must invite customers to come in.
l Create effective window displays and change them often; they can be
powerful sales tools.
l Must comply with Americans with Disabilities Act (ADA).
l Pay attention to the business sign, the most direct method of reaching
potential customers.
A BUSINESS SIGN

l Tells potential customers who you are and what you’re selling.
l Must comply with local sign ordinances.
l Should be visible, simple, and clear.
l Should be changed periodically to avoid becoming part of the
background.
l Should be legible both day and night.
l Must be maintained properly.

BUILDING INTERIORS

l Ergonomics is an integral part of any design.

l Proper layout and design pays off in higher productivity, efficiency, or
sales.
l Proper lighting is measured by what is ideal for the job being done.
l Careful selection of colors can create the desired impressions among
customers and employees.
l Appealing to all of the customer’s senses can boost sales.

THREE RETAIL LAYOUT PATTERNS

l Grid
l Rectangular with parallel aisles; formal; controls traffic flow; uses selling
space efficiently.
l Supermarkets and self-service discount stores.
l Free-Form
l Free-flowing; informal; creates “friendly” environment; flexible.
l Small specialty shops.
l Boutique
l Divides store into a series of individual shopping areas, each with its own
theme; unique shopping environment.
l Small department stores.
LAYOUT GUIDELINES

l Know your customers’ buying habits and plan your layout accordingly.
l Display merchandise as attractively as your budget will allow.
l Display complementary items together.
l Recognize the value of floor space; never waste valuable selling space
with non-selling functions.

Module- 6-RETAIL MARKET SEGMENTATION:

Market and Market Segmentation:

A market is the group of potential customers with similar needs who are
willing to exchange something of value with sellers.
Market Segementation is the process of dividing the heterogeneous total
market into small groups of customers who share a similar set of wants.
Marketer Approaches:
The Marketer has the option of either approaching the entire set of
customers with a uniform marketing approach or adopting a differentiated
approach for different set of customers.
The proliferation of distribution channels and retail formats is increasing
competition and forcing retailiers to focus their selling efforts on select
group of customers. Marketers usally identify niches by dividing a
segment into sub segments. Retailers may divide the segment of working
women into two sub-segments, those with children and those without
children. Segmentation helps the retailer to customize the product or
service and tailor its promotional campaigns.

Benefits of Market Segmentation:

1. Development of Marketing Mix: It helps retailer in developing a
customized marketing programme in terms of product offering, pricing
stragegy and promotional programme.
2. Store location Decision: The retailer outlets can be located where there
is a concentration of the target population
3. Understand consumer behaviour: It helps a retailer to gain insight into
why the target group acts the way it does.
4. Merchandising Decisions: Merchandising is essentially the skill that
decides which item will on the shelves. An understanding of the target is
essential.
5. Promotional Campaign
6. Positioning- The shoppers stop and crossroads have targeted the upper
income class while Westside has targeted the larger base of middle and
upper middle class.
Segmenting, Targeting and Positioning (STP)
Retail marketers are required to recognize th 3 stages of market
segmentation: STP.
Segmentation process begins with the aggregation of customers into
groups to maximize homogeneity within, and hetrogenity between
segments. Once the market segments are identified, detailed profile of
customers in each segment should be developed.
After the markets are segmented, the retailers have to decide which
segments to target and focus on how many segments to targets. The
retailers have to evaluate the attractiveness of each segment by
estimating its size, rate of growth etc.
After the target segments are identified, the retailer has to develop its
positioning strategy. For effective positioning, a detailed understanding of
the needs of the target segments is necessary. Market research may be
carried out to get such an understanding.

CRITERIA FOR EFFECIVE MARKET SEGMENTATON:

For market segmentation to be effective, the identified segments may
satisfy the following criteria.
1. Homogenous within- The segments into which the market is divided
should be homogeneous within. The customers in a segment should have
similar needs and wants and follow similar buying behaviour as much as
possible so that their needs can be addressed through a uniform
marketing programme.
2. Hetrogenous within: The customers in different segments should be as
different as possible with respect to their needs and buying behaviour.
This will help a retailer to focus its effort on its identified target segments.
3. Substantial: The market segment that a retailer plans to tartget must
be large enough and have enough discretionary income to help the
retatiler to be profitable. Stores like Bombay stores and lifestyle, which
target higher income groups should ensure that ther is ia significantly
large population of such high income groups in their trade area before
locating a store. respect to their needs.
4. Actionable: The segmenting dimensions should be useful for identifying
customers and deciding on Marketing mix variables.
5. Accessible: The target segment must be reachable so as to serve them
effectively. A mall in a city suburb, like koramangala in Bangalore must be
accessible to its target population.
6. Measurable: The size, purchasing power, and the characteristics of the
market segment must be measurable. The retailer needs to determine the
size of the target segment and estimate its purchasing power to develop
an effective marketing programme.

DIMENSIONS OF SEGMENATION:
In segmenting the total market, the retailer must first decide which
combination of segmenting dimension to use. A few dimensions are
demographic; others are geographic, psychographical and behvaioural.
1. Geographic Segmentaion:
-market is divided into geographical units such as nations, regions
countries, cities or neighbourhoods.
- Retailers in India have often segmented markets by cities and focused
on metro and large cities. 
Globus – Chennai and Indore ( metropolitan and Mid sized city)
Suhiksha – Chennai at short distances , serving the nearby colonies
A study done by Technopak in India among segments SEC A and SEC B
revealed that while the four regions – north, south, east and west – had
consensus on top – spending priorites , their preference order (table).

West
North
South
East
Grocery
Eating out
Books and Music
Personal care
savings
Grocery
Personal care
Eating out
Books and music
Savings
Grocery
Eating out
Apparel
Books and Music
Savings
Grocery
Apparel
Savings
Personal Care
Eating out

2.Demographic Segmentaion:
- market is divided into groups based on demographic variables such as
age, religion, gender, income, social class, family size, occupation,
educational level and marital status.
- retailer segment the market on variables which relflect interest, need
and abilty of the customer
- In India, ,most markete Research agencies prefer to segment on the
basis of socio-ecnomic class(SEC A , SEC B, SEC C) rather than incomer
per se.
a) age: The KSA Technopack study states that youth 15-24 years in India
is emerging as a core target customers for lifestyle products (personal
care, music, book and magazines)
b) Occupation: Employed women has more spending habits than
housewives.
c)Family income: McDonalds, shoppers stop, Reebok , marks and specer
etc sell an extensive range of premium brands can segment market on
demographic basis focusing on family income. They can target
professionals, married aged between 30-45 years old with young children,
and with incomes more than Rs. 4,00,000.
d)Retailers can target bachelors or families. McDonald’s has positioned
itself as a family joint which provides a relaibale and safe dining
experience while Nirula’s position itself as providing pleasant experience
and fun. 
Social class and preferences

Upper Elite Class:

-People who have inherited wealth (0.1%)
- prefer antiques, jewellery, homes, vacations, higher education, beauty
treatment
Lower Upper class
- earned wealth due to their exceptional ability
- prefer to sepend on cars, big home, good schooling, education for their
children
Upper Middle Class:
-career Oriented professionals
- prefer to spend on Books, Education, cloths, furniture,home appliances
etc
Working Class:
-blue –collar class of society
-prefer unbranded goods , cheap food , liquor etc
Middle Class:
- average pay white –collar class
- prefer to spend on popular products, cars, branded goods, good homes,
college education
Lower Class:
-prefer to spend on necessities from local market and local unbranded
goods

Psychographic Segmentation:

- divides buyers into different groups based on their lifestyyle,personality,

or values
- Life style is a distinct mode of living . It gets reflected by various
acitivities performed( work, social, and hobbies) interest( family, job, and
fashion) and opinion(politics, education and social issues)
Indian coffee house provides good quality coffee at a very modest price.
It targets customers above 40years interested in discussing politics,
intellectual issues or business matters while sipping coffee.
On the other hand, café coffee Day and Barista target youngsters from
high income families looking for fun, with their up-market décor and
attractive layout.

Values: Values are determinants of attitudes and behaviour, and provide

a stable and inner oriented understanding of consumers. For example, an
individual may value ambition and honesty, which in turn determines his
attitude and lifestyle.
eg1: Benetton, the apparel retailer, has targeted customers who value
protection of environment.It encourages recyclable packaging and re-fill
services. Benetton also contributes a fraction of its profits to environment
related issues
eg2: Retailers like Plane M encourage their staff to greet the customers
and suggest support in product selection.

Values and Life style segmentation(VALS):

VALS begins with people instead of products and classifies them into
different types, each characterized by a unique style of living. It then
determines how marketing factors fit into their lives. This perspective
then determines how marketing factors fit into their lives. This concept is
pioneered by SRI International, a consulting firm in California. This model
was later modified in 1989 and renamed VALS –II, which segmented the
American consumers into 8 consumer profiles.

VALS segmentation Applied to India

The self – driven materialists:

- people who are ambitious
- they are not reciprocative to disounts and and do nto indulge in
excessive buying
- 14% of the population of SEC A and B lies in this group

The Independent Explorer:

-compriece fiercely independent group
- They believe that branded products offer more benefits than unbranded
products
- 24% of the population lies in this group. (18-24 and 25-34 age group)

The Passive Traditionalist:

- People who are the epitome of tradition and conservatism define this
group.
- prefer to buy brands that their families bought and are not open to
purchasing any foreign brands. (age group 35-49)
The Enthusiastic Experiments
- enthusiastic in nature
- These people are ardent followers of fashion, trends and fad.
- They are the consumers who are ever ready to try out new brands.
- 14.1% of the population belong to this category
- 
The Opinionated Realists:
- self centred and consider no one else but themselves
- do not experiment much but believe that branded products do offer
better quality than unbranded ones
- large group of 21% very evenly spread out in the age groups 18-49
The Mature sensibles
- Believes in traditional values and systems like joint families and are
religious, though they do not follow rites and rituals regularly
- polite and well mannered people
- not easily influenced and as a result are not reciproacative to discount
and sales.
- cautious and logical in their approach

Behavioural segmentation:
customers are divided into groups based on the way they respond to, use
or know a product. Products and services are purchased for a variety of
reasons. Marketers can compile information on behavioural variables such
as occasions, benefits, user status, usage rate etc.

Reasons /occasions for purchase:

Many Indians paint their houses before deepavwali festival leading to
higher sales of purchase. A retailer may segment on the basis of purchase
occasions.
Frequency of Purchase: Some customers purcase vegetables on a weekly
basis; others purchase it every day.
Quanitity of purchase: In rural India, many customers purchase goods on
daily basis in small quantities; a retailer may target such customers.
Product Usage: Markets can be segmented on the basis of usage-heavy
drinkers drink beer regularly on a daily basis; some others drink on
weekends; others are occasional drinkers.
Loyalty status: Most large retailers including shopper’s stop and Lifestyle
have cards for regular shoppers on which discount and other benefits can
be availed.
Buyer readiness stage: some customers may be innovators and early
adopters of sophisticated telecome product; others may be laggards
Source of Purchase: Some customers may prefer purchasing in a
neighbourhood business district; others may prefer purchases in a small
during weekends.

MARKET TARGETING- CHOOSING THE SEGMENTS TO FOCUS:

While choosing target segments, a retailer has to measure the
attractiveness of the segment, and its capacity to serve the segment. In
evaluating segment attractivness, a retailer has to estimate the size of
the segment, its purchasing power, its growth rate, presence of
competition etc.
eg: cross roads in Mumbai identified its targetclientle as the upper
middle-class customers projecting daily walk-ins of about 10000
people.To serve the target customers visiting the mall, a small floor was
devoted to each of the four shopping categories.- women, kids, men, and
home finishings. McDonalds and Pantaloon were place in front of the mall.
A retailier should ensure that the customers patronizing the store mix
well. Retailiers focusing on the elite upper class segments should not
simultaneously try to attract lower class segments. Similary the retailer
targeting trend youngsters should not simultaneously target the
traditional shopper.

CUSTOMER PROFILE:
After deciding on target segments, a retailer must develop detailed
profiles of customers in the identified target segments. Market research
may be necessary to develop profile.
Customer Demographics:
Data about the target segment may be collected on demographic
characteristics such as age, sex, income levels, educational background
and professional background.
Family Decision making:
In such situations, different family members can play different roles as
initiators, influencers, deciders, buyers, consumers and evaluators.
Pshychographics:
The retailer has to profile consumers’ lifestyle and values. The various
activities pursued by target segments such as sports, adventure, worship
etc., as well as their interest, hobbies,opinions and values may be profiled
to get a better understanding of the target segment.
The customers of café coffee Day are youngsters who like to move around
in groups, live a fast active life, and entertain friends
Purchasing Behaviour of the Target Population:
The retailer should also develop a detailed understanding of the
purchasing behaviour of the selected target segment. It should compile
information regarding purchase motivation,the cultural influences on
purchasing beahviour.
Purchase Motivation:
The decision to buy or not to buy often comes from what one anticipates
as the consequences of one’s decision. The retailer should understand the
purchase motivation of the target segment. For example, a young man
may buy a fashionable brand of shirt from shoppers’stop to announce to
his collegeues and friends that has come of age.
Purchasing Process:
-many people buy grocery items from shops located near their house on a
rotating credit facility.
- consumer durabales and jewellery many consumers depend on retailers
with whom their family may be dealing for generation.
source of purchase:
Customers’ choice of shopping locations depends on time utility and place
utility. Time utility refers to availability of products and services at
convenient hours or in case of urgent requirements. Place utility refers to
the benefits of shopping at particular shopping locations due to availability
of a wide range of products, low prices, shopping ambience or
entertainment option(variety, price range, parking, quality, entertainment
options,services provided)

SURVEY OF BUYER’S INTENTIONS:

The retailer can develop an effective merchandising plan and other
elements of marketing mix if it has detailed information on requirements
of its target segment regarding choice of products, price they are willing
to pay, type of packaging they prefer, the promotional mediums to which
they are exposed, type of promotional campaign that will influence them,
their purchasing behaviour etc.,
Retailers can collect information regarding ( frequency of customer visit,
shopping pattern, store selection criteria, spending per visit, planned vs
unplanned shopping, store loyalty)
Retail attributes and their importance to customers
Retail attributes
Very high
High
Medium
Low
Not at all
Price
Quality
Brand
Variety of merchandise
Salespersons
Special offers
Promotional offers
Packaging
Location
Guarantees/adjustments
Store décor
Payment terms
Styles
Models
Information
Infrastructure facilities
Speed
Ambience

Such a research will help the retail organisation understand whether its
target segment is price sensitive, it is looking for good quality or location
of store is most important. It will help identify primary segments that
offer the most promising opportunities in accordance with the retatiler’s
strengths and situational constraints.
MARKET SEGMENTATION IN INDIA:
Today most marketers in India use segmentation models based on
demographics, geo demographics, SEC data, and benefits and usage.
eg:1McDonalds focuses on middle and upper class families in the uraban
market. McDonalds also introduced the vegetarian product to target the
large population of vegetarian in India who avoid non vegetarian diet on
account of religious and health beliefs.
eg2: Nescafe launched its own retail outlets offering various variants of
coffee in the North Indian market to develop the taste of the consumers
who are habitual tea consumers . By providing coffee at low price in an
attractive setting, it attempted to convert them into consumers of coffee.
Malls like city centre and Metropolitan mall in Gurgaon have introduced
the cineplexes to attract customer segments which view shopping as an
entertainment. The growth of concept stores is highly seen in foreing
countries. eg. Marks and spencer operates food-only stores in UK.
However in India, there is a reverse trend of brands moving out of their
concept store to large formats. (In the year 2002, DCM Benneton India
repositioned itself from a casual wear brand to wardrope option. Also
launched ‘Baby- on-Board’store, which targets mothers-to be and kids.)
The launch of concept stores did raise questions of feasibility consider the
nascent stage of retail industry in India. Madura Garment’s brands Van
Heusen, Louis Philippe and Allen solly which have had their conept stores
for sometime, are now coming together under the planet Fashion
Umbrella.
The growth and development of multiplex theatres in India represent an
interesting experience in segmentation. Multiplexes in India have
capitalized on an inclusive tendency to motivate and assemble diverse
audiences in terms of their motive and assemble diverse audiences in
terms of their movie preferences.
Segmentation has also caught the fancy of cyber café owners in India. A
study by KSA Technopak states that the players in India have started
segmenting the cyber cafes primarily into two categories: one for utility
oriented customers- the middle and junior level business executives and
the other the experiential kind which will offer allied service for non-
business users.
An extremely effective segmentation and targeting experience in India
has occurred in case of the petrol retail sector. The product offering has
widened to include blended fuels, branded fuels, lubes, groceries and
more. The outlet itself is expanding to include grocery stores, cafes, bank,
ATM and internet kiosks. These changes gave the customer reasons to
build preferences among the three companies (IOCL, BPCL, and HPCL)

MODULE-7
PRODUCT AND MERCHANDISE MANAGEMENT

Introduction:
Product and merchandise management is the key activity in the
management of retail business. It has immense cost and profit
implications. A related issue is the management of retail brands and the
decision to offer retailers private labels along with or instead of national
and local brands. 
While product management deals with issues related to the kind of
products sold by the retailer, merchandise management concerns itself
with the selection of the right quantity of the product and ensuring its
availability at the right place and time. Merchandise plan is drawn in keep
in mind that influence shopping behaviour and the strategic and cost
concern of the retailer.

Role of Product management in Retail Business: 

Products are critical to a retail firms existence and profitability. Product, in
retailing context, are defined as anything sold and purchased in a retail
transaction. Hence it could constitue goods, services, places and events
etc. 
Identification of the products to be sold forms the core component of the
retailer’s business plan. Product management by the retail firm is critical
to the satisifaction of consumer needs. Selection of the product is
designed to meet some unmet needs of the customer. For example every
shopiing centre,whether planned or unplanned, has atleast one eating
outlet, a grocery shop, and a chemist shop.The PVR cinemas in Delhi have
begun offering NACHOS a popular Mexican Snack, from their outlets.
product management is also an implementation of the segmentation
strategy of the retailer who attempts to attract the target segment the
product profile and specific pricing strategies.
Levi’s strauss opeined its first jeans boutique for young women. The
company then plans a gradual dividing of the sexes in toher stores with
many just for women, many for men.
Pantaloon store consists of three floors. The ground floor caters to
women, offering fashion and leather accessories, cosmetics, perfumes
etc.
The first floow caters to both women and childer ( ladies apparels, teens
apparels) and the second floow caters to men which includes formals,
smart casuals, denims, etc.

The product selection Proce3ss:

It involves a review of the performance of the existing product range.
These relate to the type of products to be retailed, life cycle of the
products, trends in the product category and its strategic fit with the retail
business. Product range review assist retailers to go in for possible
decision such as
1. Deletion of the product
2. Increase in variety and range
3. Identification of new suppliers
4. Additiions to product featueres
5. Review and revision of promotional campaign’

BRAND MANGEMENT AND RETAILIING:

Of the top 10 stongest brand in the world five are retail brand. Brand
management posess several challenges to the retailer. The key issues
are:
1. Brand management of the retail outlet, and
2. deciding whether or not to opt for the strategy of self own branding.
The 10 stongest brands in the world:
cocola, McDonalds, Sony, Nikee, Microsoft, Wal Mart, Ford, Levis, Gap and
Amazon
A retailers brand is valuable since it enhances reach and endurance with
the consumer and ensures a s more focused strategic plan. The elements
of store brand are
1. Format 2. Location 3. Visual Merchandising 4. Experience 5. Price 6.
Product assortment 7. Service

Own Branding:
Own branding occurs when a retailer sells products under the retail
organisations house brand name. Own branding can be of two types,
integranted own branding(occurs when the retailer also manufactures the
branded retail products eg.Raymonds, Bose, sony retai outlets) and
Independent Brand(occurs when the retailer procures the products from
other suppliers though, they are sold under the label of the retail house
eg. grocery, garments, shoes ).
Significance of Own Branding:
Private labels have showed an increase interm of both value and volume
across countries. Private label share of the product categories such as
ffod, drink, personal care ranged between 5% and 20% in value terms in
most countries. A well run private label brand enhances store profitability
by increasing pressure on branded manufactures.

MERCHANDISE MANAGEMENT:
The primary function of retailing is to sell merchandise. One of the most
strategic aspects of the retail business is to decide the merchandise mix
and quantity to dbe purchases.
Merchandise management is the process by which a retailer attempts to
offer the right quantity of the right product at the right place and time
while meeting the retail firms financial goals. Merchandise management is
the analysis, planning, procurement, handling and control of the
merchandise investment of a retail operation

Component of merchandise management:

Analysis, Planning control, Acquisiton, Handling.

Merchandise planning: consist of establishing objectives and devising

plans for obtaining merchandise well in advance of the selling season.
Merchandise Control involves designing the policies and procedure in
order to determine whether the stated objectives or goals have been
achieved.

The merchandise Mix represents the full range of mixture of products a

retailer offer to its target customers. Merchandise mix management
covers a host of variety of aspects;
Merchandise variety –number of different of product lines that a retailer
stocks in the store.
Merchandise assortment refers to the number of different product items
the retailers stocks within a particular prouduct line.
Merchandise support deals with the planning and control of the number of
units the retailer should have on hand to meet the expected sales for a
particular period.
Merchndise Budget is a financial tool for planning and controlling a
retailers merchandise inventory investment.

Merchandise Budge plan:

The four important components of the merchandise budget plan:
1. Projected sales- Expected or projected rupees volume of sales for each
merchandise or department. Sales forecasting helps the management in a
forecaste of expected sales. The product category life cycle describes the
primary form of sales pattern over a time. The understanding of the life
cycle stage of a particular product helps in developing sales forecast and
merchandising strategy. Retailers are required to incorporate the variation
on the category life cycle while developing sales forcecast. The special
categories of product lifec cycle are style, fashion, fad, staple and
seasonal.
2. Inventory plan
Inventory plan provides information regarding sales velocity, inventory
availabilie, ordered quantity, inventory turnover, sales forecast, and
quantity of order for specific SKU( stock keeping units). It helps s to
devise the stock support levels for a specific sales period. Most widely
used method to determine the stock support levels are :
a) beginning of fhte month ratio:
BOM=planned monthly sales*desired stock/sales ratio. A ratio of 1.5
indicate retailers that they should maintain one and half times that
month’s sales forecastes sales on hand in inventory at the beginning of
the month.
b)The weekd supply method is for determining stock levels that states
that the inventlory level should be set equal to a predeterminged number
of weeks supply, which is directly related to the desired rate of stock
turnover.
c)percentage variation Method is for planning necessary stock support
levels in which stock levels are adjusted based on actual variation in the
sales. This method appropriate for the product categories which
experience frequent fluctaions and high yearly turnover rates such as six
or more times a year.
d) Basic stock method is preferred when retailers belive that it is
necessary to have a given level of inventory available at all times. It is
the most compatible method for the retail stores or depts. with low
inventory turnover rates such as less than 6.0 annualy.
3. Estimated reduction
Retail reductions are classified in to three.
a) Markdowns( reductin in the original list price to encourage sale of the
producta)
b) Discounts ( reduction in the original retail price given to special
customers)
c) Shortages are reduction in the total value of inventory that results from
damages to merchandise, shoplifting, or pilferage.
4. Estimated purchase levels:
At this stage a retailer is supposed to devise an actual budget for planned
purchase. Here a retailer or planner use information compiled at the intial
statges of merchandise budget planning.
Planned purchases are calculated as follows:

Planned monthly sales +planned monthly reductions+Desired end of the

month stock
=Total stock needs for the month-planned BOM stock
Planned monthly purchase

Merchandise Planning in Units:

The most important component of merchandise planning is stock keeping
unit(SKU) plan after merchandise budget plan. Customers categorize
retail business according to the merchandise mix offered.To a great
extent, the merchandise mix defines the strategic question of retail
format. they are working in or want to work.
The impact of external factors on merchandise unit plans is as follows:
1. Target market analysis: Retailers need to incorporate demographics,
shopping behavior and psychographic data. This understanding provides a
clear explanation of the market situation and its implication for the
merchandise mix. Retailers analyse information related to their target
segments on the following basic aspects:
-who is the shopper, segments of the shoppers, consumers preference on
products, consumers complaints and suggestion, no. of non-patronizing
buyers, reasons for that, what extent the merchandise mix can influence
their patronizing beahviour.
2. Competition Analysis: It covers evaluation of the competitive retail
stroes in the trade area. The firm is expected to identify the merchandise
strength and weakeness, voids and opportunities and bases its
merchandise mix planning with required competitive edge. For instance.
Time zone retail chain operating throughout India offers all the leading
brands of watches with comprehensive ranges available in each brand.
They have positioned their retail chains against the big retailers in the
unorganized senctor on the basis of comprehensive merchandise mix,
including authorized service centre of respective brands which the
consumer expects to be located under one roof.
The merchandise plan is also determined by competitive factors like
number, types, and positioning of the anchor store and non-anchor stores
and size and nature of the market area in which the particular retailer is
operating his business.
To determine the inclusion and viability of new product in the existing
merchandise line, usually retailers examine such offers on three aspects.
Breadth: also called assortment, refers to the number of merchandise
brands found in the merchandise line. Breadth is especially a problem for
retailers selling private lable brands.
Depther of stock assortment describes a comprehensive selection of
brands, sizes, styles,colours and prices within a particular catagoryo f
product.
Consistency, the third dimension of the retail merchandise mix, refers to
how closely or compatible the product line are related interms of
consumer purchasing habits and end use.
Model Stock plan:
Model stock plan is a plan for maintaining adequate merchandise on hand.
It characterize the decisive items and their respective quantities that
should be on hand for each merchandise line the retail business is dealing
in and is developend after the retailer decides what relative importance
will be placed on each dimension of the merchandise mix. Model stock
plan is a quantitative method, which provides guidelines on the size,
color, brand dand composition of stock that specify the exact nature of
merchandise. Model stock planning comprises the following steps:
1 . Identify the consumer drive product service attribute
2. Identify the number of levels in each attribute identified For ex: Rajouri
Garden central market in west Delhi has a number of leading restaurants
like McDonaldd’s, Bikaner, sagar Ratna offering wiede variety of quality
food items to a largely Punjabi dominated area. The new retail chain, its
Only Paratnthas(Punjabi stuffed chapatti )proved to be a great success in
a short times in such a competitive market as it only excelled in a specific
product line by offeing all possible levels in that category.
3.Determing the allocation of budget or quantity required for each level.

Constraining Factores;
While introducing new offering, manufacturers, undertake greater risk,
and reatailers also develop merchandise mix under limitation on account
of space,resources etc. There are four constraining factors that influence
the design of the optimal merchandise mix:
1. Budgetory constraint : Retail format guide the adjustments to be made
on account of budget. The retailer has to work out the optimal
merchandise mix for his customer on the basis of the resourcse available.
2. Space constrain: Space available to a retailer is relatively fixed and
must return a profit. If a retailer goes for a depth or bredth, space
requirement will increase. If variety is to be stressed, enough space
requirement is needed to separte the distinct merchandise line.
3. Turnover Constraint: Turnover is an extremeldy important factor in
buying and selling merchandise profitably. Pantaloon pushes for a stock
turn of 40-50 times a year for its food and once a month for ready-to-
wear. Retailers are required to understand the sensitivity of their sales
turnover to merchandise mix they are developing. For instance, its private
labels such as top, kashish, Life and carrot cotributre 20% to the turnover
of shopper’s stop.
4. Market Environment Costraint:
It refers to the limitation on account of the target market residing in the
area within walking 0or short itme distance to the store. Retailers have to
consider the competitive environment and competitive dimension
prevailing in the trading areas. For ex: Fab India, the ethnic cotton
garment store, maintain extensive merchandise lines along with depth
and breadth for both males and females. However, the W store deal in
working women fashion based on cotton with extensive depth and
bredth.This has provided distinguished position to the 2 stores selling the
same material.

RETAILING CHANNEL:
A retailer can depend on one supplier or a combination of suppliers. There
are number of alternatives that a retailer might consider as a suitable
source of supply:
1. Manufacturers and Prmary producers:
This category sells cars, two wheelers, gasoline and other products and
consumer duarable from company owned stores. Large retailers regulary
deal directly with a product manufacturer. Manufacturers will
normallyhava sales office or a showroom either atatached to a production
unit or in a location convenient for retail custmers.
Lifestyle has focused on building direct relationship with manufacturers
rather than buying products from middlemen.This reduces margins and
enables the store to quickly pick up the products that it wants. Again it
enables it to have lower inventories.
2.Wholsalers:
Wholesalers accept small orders form retailers. They actually take
ownership of the goods between the prouducers and the retailer. They
supply the retailers from their own stocks rather than from the producers
stock, acting as agents. They usually make attractive profits from the
merchandise they selld to the retailers.
3. Agents: Provide purchasing and delivering facility to the retailers
against a negotiated commissions on the percentage to the total value of
the goods purchased. This is a very common source to retailers in the
semi-urban areas or in and around major trading centers. Retailers
depend on agents for weekly or fortnightly purchases form the major
trading centres.
4. Other Retailers: This category comprises who operate on a larger
scale.They cater to the needs of the immediate consumers along with the
small retaiers form contiguous areas, running their stores in interior
locatlities of urban areas or in the rural areas.
5. Government and semi-government source:
Public distribution system acquires its entire stock of goods from the
central government of India through various official state bodies such as
the Food Corporation of India, Mother dairy and safal.

CRITERIA FOR THE SELECTION OF SUPPLIERS:

Retailers regulary confront with the issue of locating a new supplier for
the existing merchandise or identifying a new supplier for fresh
merchandise intoroduced.
1.Product Range and quality:
Retailers will asses the product range available with the supplier and the
quality standard maintained while manufacturing or delivering.Retailers
will consider the following parameter to judge the standing of a particular
suppliers. Technical capability, design expertis, quality benchmarks,
samples and nil-effect delivery.
2.Price: Retailers will always have relative assessment of the different
suppliers while deciding the purchase. At the same time, retailers as per
the norms prevailing in their industry look forward to credit terms,
payment options, penalities, discounts and price levels and price points.
3.Delivery: In order to avoid sales loss a retailers is generally interested
in assessment of suppliers capacity to deliver ordered goods in time and
as per specification. Retailers also evaluate the performance of the
suppliers or gather information on these parameters to ascertain delivery
capacity, such as minimum order requireesments, lead times, workforce
ability and response, and ability to collaborate on consumer-led response
intiative.
4.service: This encompasses all thos facilities and support extended by
the supplier to add value to the goods, assistance in the sales of goods. It
include pre- and post –sales services by the supplier. Retailers will be
interested to assess the working of the supplier on paramerter such as
innovation,speed of new product or variant introduction, sampling service,
marketing support(advertising and promotion) and handling queries and
complaints.
CATEGORY MANAGEMENT:
Category management is the process of managing a retail business with
the objective of maximizsing the sales and profits of a category rather
than the performance of individual brands or models.
A category is an assortment of items that the customer sees as
reasonable substitutes for each other. For example, retailers in ready to
wear segment consider female and male clothing as one category.
It systemizes grouping of products into strategic units or category so as
to better meet consumer needs and achieve sales and profit goals.Today,
the relevance of category management is driven by the emergence of
multiple number of brands in each product category. For the success of
any category management, retail business requires changes in the
merchandising system and organizational commitement.
Advantages of Category Mangement:
1. Increased sales
2. Reduced Inventory management
3. Improved route and warehouse efficiency.

The Essential Elements of Effective Category Mangement:

1. Category should be arranged as if consumers could stock the shelf
themselves
2. Category composition should be on the basis of time, space and
product benefit
3. Category management shoud drive multiple item purchase
4. Category management is a dynamic, proprietary set of decision, not a
standard, universal practice.
5. It is directed to create value for the consumer rather than faciliting
relations
between supplier and retailer.
6. Category management plan should be based on the overall competitive
environment in a specific trading area.

VARIOUS REPLENISHMENT POLICIES:

1. Fixed cycle of Replenishment: Replenishment takes place at
predetermined time intervals, which are decided jointly by the retailers
and suppliers.
It is useful when:
-predictable demand and sales pattern, high transportation cost, Batch
production with large batch size.
2. Continuous Replenishment: It is decided by the supplier and rtailer.
Whenever inventory dips below the required level of purchase order is
automatically generated leading to fullfilmen.It is useful when
-unpredictable sales pattern, goods for which historical sales is not
available

FINANCIAL OBJECTIVE OF MERCHANDISING:

Merchandise planning consists of establishing objectives and delivering
plans for obtaining these objectives. The objective range from the
corporate objectives to the micro level objectives regarding the
merchandise assortment,stocking and re-order. Merchandise
management involoves decisions related to inventory which in turn is the
largest investment for any retailer. In this context the best merchandise
performance measure is the Gross margin return on inverntory(GMROI)
(Gross margin/Net sales)* (Net wales/Avg. Inventory at cost)=(Gross
Margin)/Average Inventory at cost.

EVALUATING MERCHANDISE PERFORMANCE:

Retailers usually confront situation where they have to revise (drop or
add) various SKUs, vendors or department during merchandising
management. Three evaluative procedures to review the performace of
merchandise are discussed below.
1. ABC Analysis: This method classifies the inventory into categories,
proportional to the inventory’s total cost, designated A, B, and C. or high,
medium and low rotation. At the same time ABC analysis assist the
management to merchandise by some performance measure to determine
which set of items should never be out of stock, which items should be
allowed to be out of stock occasionally, and which set of items should be
dropped form the stock acquiring lists. ABC analyses uses Pareto Principle
of 80-20, where approximately 80% of the stroes sales or profits are
derived from 20% of the products.
After ranking the entire merchandise mix on the basis of contribution
margin or sales volume, retailers should devise a plan to deal with the
respective category(A, B or C) of merchandise.
2. Self –through Analysis: is a comparison between the actual and
expected sales to determine whether early markdowns should be
introduced or whther a review of merchandise stock is called for to meet
the existing demand.An effective merchandise management system
provides a vital link between the actual customer demand, the store and
the distribution centre.

RETAIL LOGISTICS OR PRODUCT MOVEMENT:

Retail logistics is the organised process or managing the flow of
merchandise from the source of supply to the consumer –from the
producer/manufacturer, wholesaler/intermediary through to the
warehouse, transport to the retail units until the merchandise is sold and
delivered to the customer.
The retail logistics system will include the following:
-Physical movement of goodds
-Holding of those goods at SKU(stock keeping units)
-Holding of stock in sufficient quantities to meet the demand
-Management and administration of the distribution system

Importance of information in the supply chain:

The logistics system ensures that all the activities of SCM (supply chain
management-storing, warehousing, distribution, transportaion)are carried
out on logical sequence on a specific timetable.
The cost structure in retail Logistics:
Everyone in the organistaion have to consider the components of
distribution right from the manufacturer through the intermediaries upto
the time goods are sold through the retail outlet.
Total Distribution cost=Transportation cost+Fixed cost+Communication
cost+Inventory cost+Handlying Cost+Packaging cost+Management cost.

Storing and Transmitting of Information:

Datawarehouse: when customers make purchase at the retail outlet, all
the data obtained at the point of sale is put into a huge database known
as a datawarehouse. This can be used for developing and replenishing
merchandise management.
EDI(Electronic Data Interchange): is the computer to computer exchange
of business documents from retailer to vendor . Many retailer requires
vendor to make a notification of deliveries before they actually take place.
The retailers computer receivers an Advanced shipping Notice(ASN), from
the supplier in advance of shipping.This will inform the retailer what to
expect in the shipment and if accurate, the retailer can do away with
procedure of opening and checking the merchandise.
eg1: walmart has made arrangement with P&G for a commpletly vendor
managed Inventroy.Through an integrated system, p&G is able to
ascertaint he exact store status and synchronise replenishment.
eg2: Tanisq, the jewellery business of Titan Industries, is using web
based initiative, Gold mine, which provides instant connectivity between
all Tanisq stroes, C&F agents , the supply chain and manufacturing unit.
CPFR: Collaborative planning, Forecasting and Replenishment: Recent
version of EDI. The retailers will send information to manufacturer who
uses the data to construct a computer generated replenishment forecast.
Retailer Managed Production Planning(RMPP) as a model enables retailer
to have more control over the system and more visibility over the
process. The working of RMPP lies in partnership management between
vendor on the oneside and the retailers on the other.
Merchandise Flows(Movement)
When we talk of the physical flow of merchandise it could flow form
vendor to distribution centre(DC) to stores or alternatively the
merchandise flows from vendor directly to stores.
Flow: 1 Vendor to DC-function:
1. Management of Transportation to facilitate flow from vendor to DC
2. Recording receipt of merchandise at the DC & Checking to ensure its
order
3. storing 4. Getting merchandise floor ready, ie, ticketing, marking,
labeling showing price and Identification Marks etca)
The retailer can use push(Merchandise is allocated to stores on the basis
of historical demand) strategy or Pull strategy( on the basis of demand
information obtained at the point of sale)
Flow2:
The merchandise is transported from distribution centres to the stores . If
the reatailer has a chain of stores, management of such outbound
transportaion may become complex . DC may have to use sophisticated
routing and scheduling computer system.

Specific Logistic issues :

Quick response delivery stystme are Inventory management systems
designed to lower or reduce the retailer’s lead time for receving
merchandise, resulting in lower inventory investment, improving
customer service and thrhoug reduced logistical expeses. QR is derived
from JIT.

In order to streamline the operations of the movement of flow and make

more productive , retailers sometimes prefer to outsource logistical
function:
These outsourcing could be carried out in the following way:
Ø Third party logistic companies
Ø Transportaion companies
Ø Third party warehousing
Ø Integrated third party logistic services
Ø Freigth Forwards.

RETAIL PRICING:
Setting the right price will result in increased revnue to the retail firm.The
prime objective of retail pricing is to achive profitability which is influnecd
by two factors. They are Profit margin of the offering and cost of
merchandising.
Factors Influencing Pricing: 
The porters model can help to understand the influences of retail pricing.
1. customer:
Customer’s price sensitivity is influenced by many factors. For ex: Café
coffee day offer the coffee at the same price of Rs.35(minimum) in all its
branches of urban and semi urban areas, though it is a general
assumption that semi urban customers wont go for highest prices. But
inorder to maintain, its positioning strategy, coffee day maintained the
same price and attracting its target customers through its ambience.
Segmentsation of the customers can also be useful for fixing the
appropriate price. There are some customers look for the benefit of
owning the brand rather than the price. Situations also affect the pricing
policy of the firm. A store located in hill station may fix high price and the
same may be accepted by customers.
2. Suppliers:
In order to maintain image of the brand and to achieve the goal of the
firm, sometimes the manufactures direct the pricing policy of the retail
firm. The conflict between the retailer and manufacturer may arise when
the manufactuers decides to introduce a new model and that hampers the
movement of retailers old stock. Reputed Retailers have more bargaining
power when they buy bulk items from the manufacturer. Also sometimes
retailers seek, for price guaranteed ie if the prices of sold items to retailer
goes down.
3. Competitor: It affects the freedom to fix price.The range varies from
being perfect to monopoly. Retailers generally avoid price based strategy
because it may end up in price war.
4. Government: There are legal issues relating to price discrimination.
The retailer can charge different price to different customer only when the
distance is the justifying factor.
Vertical Price Fixing: The retailer to set price at manufacturer suggested
price.
Horizontal agreement: - agreement between retailer competitiors
Predatory pricing- This pricing is considerd as illegal as it intends to drive
away the competiton.

RETAIL PRICING STRATEGIES:

1) EDLP- Every Day Low Pricing: It is popularized by Wal Mart, Home
Depot. In India, this strategy is followed by Big Bazar. But the bulk
volume is necessary to negotiate with the manufacturer for price
concession so that it can be offered at reduced price to the customer. Low
prices are stable and not subject to one time sale. The strategy is that it
continues to offer products below MRP.
Advantages: Less reliance on price reduction to change, Reduced
Advertisement, Informed customer service, Better Inventory
management.
2.High – Low Pricing:
Prices that are sometimes above their Competitors EDLP. It uses
Advertisement to promote frequent sales. Also use ‘sale’ to respond
increased competition.
Advantages: some merchandise can be used to to target different
segments; Enthusiasm is created among customers(impulse Purchase),
Image of quality is created ( high price- no compromise on qulity); EDLP
is difficult to implement, so it has advantage over that.

3. Loss Leader Pricing: Fast moving products offered at low price as to

attract buyers and to persuade them to buy other products also
4. skimming: sets relatively high price for a product or service at first and
then lower price over time. Effective only when the firm is facing inelastic
demand.
5. Penetration Pricing: setting a relatively low initial entry price so as to
increase market share. The retailer has to be very careful with this
strategy as it may establish long term price expectation and that makes it
difficult to eventually raise prices. The solution is to set the initial price at
the long term price but include an initial discount coupon
6. Price Lining: refers to the offering of merchandise at a no. of specific
but pre-determined prices. prices may be held constant over a period of
time eg. 79.50, 109.50,149.50
7. Psychological pricing: intended to have special appeal to customers.
a) prestige pricing: high prices to convey distinct and exclusive image for
the product. Charging high price for a product where it is judged this in
itself give it prestige. For eg: TAJ
b) Reference Pricing: uses consumers frame of refernce that is
established through previous experience of purchasing eg: sports items.
c) Traditional Pricing: uses historical /long standing prices ( sports
products)
d) Odd-Even Pricing: eg: $ 9.95 to denote lower price or a “good deal” $
10.00 –imply high quality.
e) Multiple Unit pricing –encourage additional sales and increase profits.
Gross margin that is sacrificed in a multiple unit sales is more than offset
by the savings that occur from reduced selling and handling expenses.
f) Bundles Pricing: Practice of offering two or more different products at
one price. Used to increase both unit and rupee sales by brining traffic in
to the shop.
g) Pre-emptive Pricing: setting low prices in order to discourage or deter
potential new entrants
h) Extinction pricing: Has overall objective of eliminating competition and
involves setting very low prices in the short term in order to undercut
competition.
Tactics for fine tuning the Base Price:
-use coupon
- Rebate – is basically money returned to the buyer on the basis of some
portion of the purchase price.The buyer is required to return the empty
packaging as a proof of purchase.

RETAIL PROMOTION:
Retail promotion is broadly defined as all communication that informs
persuades, and or reminds the target market or other prospective
segment about marketing mix of the retail firm. The retailer seek to
communicate with customers to achieve a number of objectives.
a)increasing store traffic by encouraging new shoppers to visit store
b) increasing the share of wallet for all shoppers
c) increasing the sale of a given product category
The promotional elements include:
Advertising, sales promotion, Publicity, personal selling, Direct marketing,
Public relations.
Selection of Promotion Mix:
Retailers usually employ a combination of the above. The degree and
nature of usuage of each promotion method depends on the objectives of
the retail firm. For ex. McDonald’s extensively relies on advertising in
national and local newspaper. Haldiram , the Delhi centric food chain,
primarily relies on point of purchase (POP) material. Retail banking
Industry makes extensive use of all promotional methods including
television, print media. Various retail promotion methods can be
compared on the basis of the degree of control, flexibility, credibility and
cost associated with them.
Retail Advertising:
The American Marketing Association defines Advertising as any paid form
of, non personal presentation of ideas, goods, services by an identified
sponsor” Advertising is recognized as an indispensable tool of promotion.
Based on the conceptualization, advertising can be understood as follows:
1. paid form of communication
2. Non personal presentation of message (face to face direct contact with
customer)
3. issued by an identified sponsor. 
OBJECTIVES OF ADVERTISING:
To prmote new product, to support personal selling programme
To reach out to people not accessible to salesperson
To enter new market, to manage competiton
To enhance goodwill of the retail firm and to improve dealer relation
to warn the public against imitation of the retailers products.
SIGNIFICANCE OF ADVERTISING IN RETAIL SECTOR:
Its imperativeness has increased in this era of globalization and
liberalization around the worlds. Raymonds, the apparel retail chain,
primarily used television and print ad to promote expereiential aspect
associated with shopping at its stores.
TYPES OF ADVERTISING:
a) consumer oriented or persuasive Advertising: The major objective of
consumer oriented advertising is to inform consumers about the new
products,holding consumer patronage against intensified campaign by
rivals, promoting a contest or a premium offer. It helps in maintaining a
regular demand and attracts a lot of attention and preferences of the
customers. eg: Wills Lifestyle, the ITC owned apparel retail chain
b) Informative Advertising: Purchase of durable products are often too
expensive to buy, so the buyer requires elaborate information about
them. Hence the retailer and manufacturer spend a huge amount of
informative advertising.
c) Institutional or corporate Advertising: Its main motive is to build
corporate image. An attempt is made to highlight the achievements and
objectives of retail organisation. eg: HDFC bank has tied up with Business
Today the leading business magazine to sponsor 10000 copies of the
Magazine in each metro. The cover of the sponsored copies of December
2003 rated HDFC bank as the best bank in the country.Financial
Advertising: advertisement by various financial institutions like standard
chartered Bank, ICICI etc. Recently HDFC bank has evoloved a mix of
sales promotion and advertising to attract new customers.
d) Classified Ad: which are placed under specific headings and columns in
various magazines.
ADVERTISING CAMPAIGN:
An advertising campaign comprises of series of advertisements, with the
same theme over a period of time and across ads. There are different ad
copies of campaigns. They are self contained, and independent but
thematically related.
Vertical co-operative Advertising: This type is planned when the retailers
and other channel members share the advertising budget. Manufacturer
may pay upto 40% of the ad expenses. Manufacturers support most
mom- and –pop stores and independent retailers since the latter lack the
professional expertise and financial resources. eg: Cadbury India limited
has rolled out a portfolio of customized marketing and communication
intiative at the retail end. Huge retail exercise is being undertaken
especially near schools as to pentrate into the markets.
Horizontal Cooperative Advertising: This type is launched when two or
more retailers come together to share the cost of advertising leading to a
joint promoition of evens or sales that benefit both parties.

STEPS INVOLVED IN RETAIL ADVERTISEMENT CAMPAIGNS:

Selecting Advertisement objectives

Advertising budget for campaign

Designing Ad message
Running an AD campaign

Measuring AD effectiveness
Selecting Advertisement Objective: It should be compliance with the
retailers objectives. It could focus on age of the store, location, type of
goods sold, level of competition,market size.
Advertising Budget: A well designed retail ad campaign requies proper
budgetary allocation advertising. There are four methods: Affordable,
percentage of sales, objective or task method and competitive parity
method.
Designing Ad Message: The Ad must be appeal to target audience and is
conveyed through the advertisement copy. Certain factors should be
considered while designing ad copy;(Attention value, Memorising recall
value, suggestion value and conviction value) eg: McDonalds initially tried
to position its stores as a special place to visit, whth the baseline “
McDonald’s mein hain Kuch baat’ in their ad. The objective of the ad was
to attract the customers to try the McDonald’s Experinece. However over
the years, with the increased acceptance of McDonalds by customers, the
company realized there was a need to evolove comprehensive
communication strategy- to make customers a regular experience.
Selecting Media:
Media selection involoves finding the most cost-effective media to deliver
the desired number of exposure to the target audience. The effect of
exposure on audience depends on reach, frequency, and impact.
Reach: (R): It includes the different persons that are exposed to a
particular media schedule.
Frequency(F) : The no. of times within the specified time period that an
avg. person is exposed to the message
Impact(I): The qualitative value of an exposure through a given medium.
Total number of Exposure(E) : It is the reach times the average frequency
ie E=R*F. This measuere is referred as gross rating point.
Weighted number of Exposures(WE): It is the reach times frequency
times average impact ie :WE=R*F*I.
The Media planner has to figure out, with a given budget, the most cost-
effectie combination or reach, frequency, and impact.
They usually make a choice from alternative media categories by taking
into account factors like target audience, media habits, product profile,
message compatibilyt and costs. Retailers or marketers need to review
periodically the impact and cost of various media type available. In recent
years, retailers in India started using different media channels.
Popular Media Vehicles used in the Indian Retail sector:
Leaflets or flyers: They have short shelf life; so they are most useful for
marketing specific activities such as opening a new outlet.
posters and calendars:
Booklets: It is effective incase of products or services which are intense
on information, such as banking , real estate.
Direct Mail: Retailers can opt to send out regular, targeted letters as part
of their communications strategy.
Magazines: Retailers selling baby products, home fashion products can
use this medium.
Local cable channels;
Billboards: Most of the leading retailers of the city place their billboards at
railway stations or bus stands at the entrance of the city road. Eg:
Banagloare central shopping Mall bill board at the cantonment railway
station road.
Wall Paintings: It is the most traditional medial by small retailers in the
villages and townships in India.
Banners: Retailers use this for immediate benefits such as to make the
customers aware about the new arrivals, promotional schemes.
Deciding on Media Time: Advertisers face macro schedule problem and
micro schedule problem. Macro schedule problem involves scheduling the
ad in relation to seasons and business cycle whereas micro scheduling
problem deals twith allocation of ad expenditure within a short period to
obtain maximum impact.
Deciding on Geographic Allocation: The company can make a ‘National
buy’when the ad is placed in nationally circulated magazine. “local buy’
refers to radio, newspaper or outdoor sites.
Running an Ad campaign: It involves the execution of advertising
progamme which should be in accordance with the ad goals and the
budget. It is advisable to run pre-test.
Measuring Ad Effectiveness: The retailers are interested to know the
result of advertising due to the considerable amount of money, time and
resource spend on them in order to know whether the advertisement has
been successful in meeting the objectives. The test can be of two types:
pre test and post test. The following methods can be adopted: Readabilty
studies; Eye movement analysis; Recall test, Concurrent test, Response
test, Attitude change test.

SALES PROMOTION:
Sales promotion refers to communication strategies designed to act as a
direct inducement, an added value or incentive for the product to
customers.
Salespromotion provides extensive tactical measures to mareketors to
manage internal or external impediments to sales or profits. Internal
impediment(unsold stock); External impediment( competition)
Objective of Sales Promotion:
- assist the other communication activities undertaken by the store.
- to encourage new triers by offering free trial
- to encourage repeat purchase
SUPPLIER ORIGINATED SALES PROMOTIONS:
Sales promotion can originate from two sources – suppliers or retail store
itself.
In-store Activities:
Price –off Pack : The product is sold at reduced price form its normal
selling price.This is in the form of a discount.
Premiums: These are in the form of small gifts that a customer gets on
purchasing a product. Its attached to the pack or inside the pack.
Self-liqudating Premiums: Customer has to write to the supplier for the
gift, enclosing empty packets, bottle crowns etc. of the product plus some
money. Basically the customer provide some proof of the purchase. For
eg: Rin gift hunt, Rs. 5 lack worth of educational gift to children(requies
customer has to fill the form and submit to the nearby store)
personality promotions: Many companies use show –business
personalities to endorse their products.The suppliers tend to associate the
charisma associated with these personalities. For ex: T.N Shesan the
former election commissioner , was used by Safal Vegetables since he did
not appear for any other product and he had an honest and upright
image.
co-operative promotions: two or more products share and fund in joint
store promotion. Shaving foam and after shave lotion.
Sampling: Free sample, and sometimes the demonstrator may also be
present to explain the product. The product may be entirely new and
customers may have little knowledge about them.
Multipack: two or more packs are attached and sold for a better and
attractive price than the price of the items singly. Maggi noodles packet
free with the purchase of four or one gets three soaps at the price of two.
Buy one Get one free:The customer can get two units of the product at
the price of one.
Point of purchase (POP)Display Material:
Leaflets,
special fittings: Products are kept in the special racks ro stands provided
by the suppliers. For ex: racks provided by the toothbrush suppliers, dry
battery stands, glass case for watches.
Demonstrators: sometimes demonstrators used in this context. For ex: a
children’s product may use a person dressed as their logo ( eg: teddy
bear)

STEPS IN RETAIL PROMOTION:

1. Set Goals: It should be determined by the particular need of a specific
promotion scheme and contextual factors like time of the year-Diwali,
Christmas, wedding season
2. Analyse Benefits
3. Design the offer- The sales promotion can be designed around one or
combination of the following:
Premium or value Adding /Experience(dinner with celebrity)/Discount
involves price reduction
4. Identify the source of sales promotion(Inserts, flyer Distribution,
Displays, Joint promotions, Events)
5. Designing the Response and Follow up
Barista coffee company launched consumer promotion whereby on the
purchase of a Barista coffee worth of Rs.150, the consumers can avail of a
Lacoste gift voucher with Rs. 500 and a Lacoste Calendar.
Elbony, Indias premier dept store launches Elbony sale at regular
intervals announcing the attractive discounts.

PUBLICITY:
Publicity entails any communication that fosters a favourable image for
the retailer among its public. It can be personal or non personal, paid or
non-paid and sponsor controlled or non-sponsor controlled. Publicity is a
non personal form of promotion where messages are transmitted through
mass media, the time or spance provided by the media is not paid for,
and there is no identified commercial sponsor.
TYPES OF PUBLICITY:
1) PLANNED PUBLICITY: A retailer outlines its activities in advance,
strives to have media report on them, and anticipated that certain events
will result in media coverage. Community services like donations, and
social sales, and introduction of new goods or services of the activities
which lead to media coverage.
2) Unepected Publicity: It takes place when the media reports on a firm
without any advance notice about the media coverage. TV and newspaper
reporter may anonymously visit stores and rate their performance for
their coverage.
3) Complementary publicity: Sometimes media reports about a firm in a
complimentary manner with regard to the excellence of its retailing
practices. eg: HDFC

Retail promotion needs to be organised with due understanding of the

retail business and its positioning.

MODULE-8 
RELATIONSHIP MARKETING IN RETAILING

Relationship marketing refers to all marketing activities directed towards

establishing, developing and maintaining successful relational exchanges.
- Relationship marketing draws upon number of areas(customer quality,
customer service, social interaction)
- Relationship marketing implemented through various
components(rewards, customer services and involvement of customers in
planning and execution of retail strategy)
- Customer service is the vital part of Relationship Marketing

THE EVOLUTION OF RELATIONSHIP MARKETING:

Customer Relationship Management(CRM) originated in two unrelated

places.
1. USA- Database Marketing was used when the marketers directed their
efforts to increase selling effectiveness. Information Technology and
Statistical analog was also used for this purpose.
2. Scandinavia and Northern Europe – The Relationship marketing was
emphasized in B2B marketing.
In the later half of 1990, there was a shift from Database marketing to
Relationship Marketing. Marketers and Retailers started using IT to
communicate with customers and that helped them to base their product
offering.
Relationship Marketing emerged out of 2 major consideration
1. Macro level( At the macro level there was an increased necessity to
maintain relationship with employees, customers, suppliers and
government)
2. Micro level(At the micro level there was a shift from Transaction focus
to Relationship marketing
Transaction Marketing:- focuses on single sale, product features, little
emphasis on customer service and moderate customer contact.
Relatioship Marketing:-focuses on customer orientation, high emphasis on
customer service, High commitment.
Related to this is Pareto’s Law which states that 80 % of the company
revenue comes from the 20% of the loyal customers. The fact is that
acquiring a new customer cost 5 times of retaining an existing customer.
Relationship Marketing attempts to optmise the resources for the retailing
by retaining customers.

Relationship Strategies in Relationship Marketing:

1. Personalisation:
It describes the social content of the interaction between service
employees and their customers. It can be regarded as a means of
showing recognition and respect ex: Feeling of familiarity, personal
recognition, friendship and social support by retailier. Some times
retailers recognize customers calling by their name.
2. Special Treatment Benefit:
Relationship marketing does not tell to maintain relationship with all
customers. Customer focus and selectivity is the key aspect of
Relationship marketing. It emphasizes relationship with the loyal
customers. Differentiation required between loyal and the non-loyal one.
Upgradation and service augmentation are the ways to provide special
Treatment benefit to the loyal customers.
3. Communication Benefits:
Efforts must be taken to “Stay in touch” with customers- is the key
determinants of Relationship Marketing. Companies use Direct mail, e-
mail and telephone and SMS service to keep in touch with the customers.
4. Rewards:
Pricing incentives, money savings, Free gift are the ways to reward loyal
customers
Rewarding efforts must be more functional and economical.

RELATIONSHIP MARKETING IN ORGANISED VS UNORGANSIED RETAIL

SECTOR:
Organised Retailers can be classified as Instore retailer and Non store
retailer. Organised Retailer provide standardized service, large retail
format with high quality ambience, well trained sales staff, wide range of
merchandising.
Unorganised Retailers: (Kirana stores and Central Business district of a
city)
- The USP ( Unique selling Preposition) of these unorganized retailer is
locational convenience and customized service.
- They establish comfortable relationship, and the customers inform about
their changing needs on a regular basis. Sometimes the retailers are
considered to be the part of their family
- Relationship efforts of unorganized retailer is not only confined to
Grocery but also garments, jewellery and durables. Customers depend on
retailers than on brands. This is the result of relationship. 

Customer service in retailing:

-Quality and Customer service are the key elements in relationship
marketing
- The challenge is to bring 3 critical areas together ( Marketing, customer
service and quality)
- Marketers with poor quality cannot exercise Relationship
- Customer service implies timeliness and reliability of getting products
and services as per expectation.
-A small retailers provide all services which supermarket normally do not.
This has increased competitiveness in Trade( Telephone order system,
Credit facilities, home delivery). Small retailer owner himself present to
offer personalized service.

Customer service: Managing gaps between expectation and performance:

4 important dimension are need to increase the effectiveness of customer
service:
1. Understand the level of customer service expectation
2. set standards for customer service
3. Implement program for delivery service
4. Undertake communication programme to inform consumers about the
service offered.
1.Knowledge gap: Marketers need to have comprehensive knowledge
about the customers. consumer research; increased interaction between
retail managers and customers; and improved communication between
managers and employees can serve this purpose
2. Service standard: Service standard should be base on customer
perception( Consumer research findings can be helpful): For ex: Mail
order may require its employees to answer a phone call after not more
than 2 rings. The following should be considered while setting service
standard.
- commit for high service quality
-develop innovative solution – define the role of service provider- set
service goal and measure performance.
3.Performance(The Delivery gap)- In order to deliver goods and service
expected, retailers need to take the following steps:
- Give service providers the necessary knowledge and skills
-Provide instrumental and emotional support
-Improve internal communication and reduce conflicts
-Empower Employees
4.Communication:
The communication influences the quality of customer services. The
services are communicated through retailer promotional campaign.
Overstating the services offered raises customer expectations, then if the
retailer does not follow through, customer end up dissatisfied.

eg1. Club HP programme of HPCL ( besides reward points) HP believes

consumers will eventually associate ClubHP with the assurance of quick
fills, expectations, personal service, total vechile management, customer
conveience. ClubHP outlets are catagorised as “ Standard”,Mega, and Max
– depending on the levels of service and amenities available.
eg2:Bharat Pertroleum –implemented quality and quantity (Q&Q)
programme, which focuses on customer service to each customer. It feels
that customers needs to be recognized and acknowledged, greeted with a
smile, made to feel special and cared for

Loyalty Programme:
The use of loyalty proramme is evident from the fact that the corporate
expenditure on loyalty programme are booming The following are the
bases for loyalty programme.
1. Loyal customers are cheaper to serve: Retailers may not be required to
invest , maintain and communicate with customer(loyals) as they are
already predisposed to search for information ( new arrivals and services)
2. Loyal customers are willing to pay more for a given bundle of offering:
Customers normally stick into one business entity because of high
switching cost and psychological stress. They therefore willing to pay
higher prices.
3. They act as Effective marketer for the service offering: The word of
mouth marketing is very effective, and many stores justify their
investment in loyalty programme by seeking profits not so much from the
loyal customer but from the new customer the loyal one brings.

Identifying the Loyal Customer:

Identifying the loyal customer is done by scoring them according to how
often they make purchases and how much they spend. The RFM method
is used for identitying the Loyal customer.
RFM = Recencty*Frequency * Monetary
R= Recency-If the buyer bought anything in the last 6 months /1year or
so. Assigning higher score to the more recent purchase.
F=Frequency- How frequently they bought it. High frequent customer gets
high score.
M=Monetary- it indicates the amount of purhase made by the customer.
RFM has some drawbacks.
To estimate customers future profitability, simply multiply his average
periodic profit figure by the probability that the customer will be active at
the end of the period.

Requirements to be met by Loyalty programme:

Some criteria should be observed when drafting a loyalty programme.
- Enrolment must be voluntary
- Rights and obligation must be stated clearly
- Information registered must be administered in an ethnically proper
manner
- There should be proportional and undifferentiated earnings
Classification of Loyalty Programme:
I single operator , multi partner programme: eg.Tesco’s Clubcard. Single
operator programme that involves other partners. Cardholder can collect
points when buying form other partners also (Alders, marriot, and
National Tyres)
2.True coalition programme: Air miles and Nectar. The programme
management is independent of any of the partner. The partners have
contract with the operator and only have an access to data harvested by
the programme.
3. Multi –sector loyalty programme:

Use of Loyalty Card Data:- greater help to gather data about customer
- provides extensive understanding about the customer( cost insights,
customer retention rate at different spending levels.
- Used on a very selective basis in a category management
- gives information about the customer base and card holder behvaiour in
a store.
Relationship reward as part of Loyalty programme:
- Reward drives behaviour, reward that behaiour you want. So warning is
clear: Never let your best customer feel that you are withdrawing
privilege from them . Hence the reward should be desirable and
affordable.
eg: Northwest and Delta are offering bonus points if you check in for you
flight before you get to the airport. The process is simple: You log on,
plug in your flight information & reward programme PIN, and print out a
boarding pass. The bonus is 1000 points.
A prorgamme needs to have visibility, simplicity, value , trust and
communicative.

Sector Specific loyalty programme:

1. supermarkets and General retail: supermarket face intense competition
from warehouse clubs, supercentres, convenient stores. They lead most
other sectors in customer data collection, analysis and level of customer
service and innovation. General retail strive a lot to know what customers
actually prefer. They try to know more about their customers. In the
unorganized sector, there is no formal reward system, it focuses on
personalized service and preferential treatment.
2. Telecom: Non telecom also join the Telecom Battle. Internet
Telephone. eg1. Airtael prepaid recharge reward programme provides
extra talk time to the prepaid subscriber.eg2: MTNL’s reward for loyal
customers with bonus points for loyalty, usage, early payment of bills and
for using unified service.
3. Travel and entertainment: A great deal has happened in the travel and
entertainment sector, with the particular emphasis on increasing both the
visit frequency and gifts to encourage loyalty. eg.PVR(Priya village Road
show) online booking and devlivery only for the members.
4. Financial services: Industry at the peculiar stage. Credit and Debit card
are loyalty building tools. A co-branded card(partnership between issuing
bank and any commercial organisation) platinum card issued by HDFC;
Air sahara andVisa.
5. Fuel Retailing: Fuel retailing undergoes tremendous change in its
service offering. BPCL’s High performance fuel speed in 2002. Petromiles
for fueling with speed.

RETAIL RESEARCH AND RETAIL AUDIT:

RETAIL RESEARCH:
Marketing research specifies the information required to address the
marketing issues ( marketing opportunities, evaluate marketing actions,
monitor marketing performace), design the method of collecting
informations , manages and implements the data collection process,
analyses and communicated findings and their implications.
Retail research can help retailers to take important decisions such as
market positioning, which retail format will be most suitable for the
particular target market,how best to display merchandise and so on.
At the retail level, research is used for concept testing, business feasibility
analysis, identifying the correct product mix, understand ing the target
market profilce, understanding and analyzing consumer behaviour.
Qualitiative Research Methods:
It is used to find out what is in consumer’s mind. The retailer will be able
to get oriented to the range and complexity of consumer activity and
concerns. Such data may help retailer to know more about things
( feelings, thoughts, intentions, past behaviour ) which cannot be directly
observed or measured.
Focus group study is used to identify the most likely product positioning,
and to know the cues on the various features which go into the shopping
such as ambience, shopping needs and requirements, style preferences.
3 Major types:
1. Exploratory Research: defines the problem in detail, suggest
hypotheses, used for generating ideas for new product.
2. Orientation Method: getting to know the consumer’s best view and
vocabulary.
3. Clinical: Gaining insights of issues which otherwise might be impossible
to pursue structured reseach methods.
Qualitative research can take the form of Focus Group Discussion,
Projective techniques(Word assocatioation test, third person role playing,
sentence completion test)

Quantitative Research through survey:

Survey can help to understand the consumers behaviour:
current shopping patter, to know the size of the market, the retail
foramats currently being used, size of thecore target.
The survey in many forms is one of the most widely used and well know
method of acquiring marketing informations by communicating with the
group of customers through questionnaire or interview. It is efficient and
economical .

Observation Method of Research:

-used to provide information on current behaviour. The research design
can be: Casual or systematic.
It will be easy to observe the following information:
- what is the instore traffic pattern
- what is the customers reaction to the displays, visual merchandising
- what is the pattern of customers movement
- Whs is the reaction to private labels
- which are frequently asked questions by the customers
Forms of observation:
1)Direct observation: the retailer may use an observer disguised as a
shopper to observe how long customer spend time in the display area.
2)Contrived observation: Buying teams disguised as customers will try to
find out what happens during normal interaction between the customer
and the retailers.
3) Content Analysis: used to analyse the content or meessaes of
advertisement
4)Humanistic Enquiry: It involves immersing the researcher in the system
under study .The researcher maintains two dairy1) theory construction
which records in detail the thoughts , premises, hypothesis 2) A detailed
date and time sequenced notes which are kept on the technique used for
enquiry with special attention to biases or distortions
5) Behaviour recording devices: help to overcome deficiencies of human
observers. People meter, Eye movement recorders, voice pitch analyses.

RETAIL AUDIT:
It helps to ascertain the sales personnel’s efficiency at the point of sale or
to find out the average time taken on a normal day or duing the weekend.
Retail Process Audit: Such retail process audit helps to examine a store’
efficiencs in terms of operating processes or reduce the cycle time. For
instance with the help of retail process audit, the retailer can work out
ways to improve customer service delivery and to improve performance.
Retail Store Aduit: While visiting the store , the retail auditor will collect
observable information such as the shelf prices, display space, the
presence of special display and instore promotion activities.The retailers
can use retail store audit results to project and arrive at nationwide and
regional estimate of total sales, inventories etc.,.

Nielson Retail Index:

cover 4 major groups( grocery product, drug, merchandise and alcoholic
Beverages) It usually include the following variable:
- sales on the basis of retail rupees, Distribution in terms of % of all tores
- selling prices, retailer support interms of shelf spacing, special displays ,
instore advertising.
Consumer Purchase Panel Audit:
It helps to understand how much product is moving through the
distribution channel. Two method for collecting this data:
1) Home audit approach: panel member aggress to permit an auditor to
check the household stock of certain product categories at regular
intervals
2) Mail Dairy Method: the panel member records details of every
purchase made in certain categories and returns the completed dairy by
mail at regular intervals.
Examples of a few Research studies in India:
1. The A.C Nielson Shopper Trends
2. Consumer outlook 2004- study conducted by KSA Technopak has
revealed that personal credit offtake has increased from about 50000 core
in 2000 to about Rs. 1,60,000 in 2003.
3. KSA Technopak Intimate Apparel Retail study- to explore the intimate
apparel retail scenario in India
4. The BT – Indica Reseach Index of Consumer Sentiments(BT-IRICS)
used by marketers to measure consumer confidence .

Indian Retail Prognosis- ICICI Bank Research study compilation: ICICI

based on retail banking experience gives data on the Indian consumer
behaviour towards retail banking