A BEGINNER S GUIDE TO PLANNING In this chapter we will look at why we plan and at some of the key planning concepts. Bearing in mind that the objectives of merchandise planning are to meet the needs of our customers and to deliver profitable growth, let s start with some pertinent quotes.

A mighty maze!. But not without its plan , said Alexander Pope in 1733 Assumption is the mother of all screw ups , said one of the villains in Under Fire 2 (1995), a Steven Seagal action movie, shortly, and iron ically, before getting despatched by the hero he assumed was dead. Despite the difference in the age and providence of these two quotes they teach two important lessons. If you don t want to get lost in the retail maze, and if you don t want to screw up, make sure you start with a plan. What happens if we don t plan? Imagine, for instance, that you wanted to go on holiday but had no idea of where to go or of what the advantages and disadvantages of various locations were, not only that but you hadn t book ed any vacation time, hadn t saved any money, didn t have any idea of how much it would cost, how much you could afford to spend or the how much time it would take. It is unlikely to be a very successful or pleasurable holiday. Now imagine what would happen if a business operated in that way! It would be a very short lived business. More academic definitions of planning include : Integrated decision making . Mintzberg (The Rise and Fall of Strategic Planning) Design of a future, and of effective ways of bringing it about . Bill and Roy Richardson (Business Planning) Explaining the past which in turn helps understand the present, which helps with predicting the future, leading to more influence over future events and less disturbance from the unexpected Hardy (Understanding Organisations) Planning, then, not only helps us to avoid mishaps in the future, but also, and

more importantly, enables us to coordinate the actions and to take the decisions needed to achieve the objectives that we set based on our analysis of what is likely to happen. In our case the broad objectives are to make a profit at the same time as satisfying our customer needs and, regardless of anything else, we simply won t achieve them without a robust plan. 2.1 WHY WE PLAN 2.1.1 TO DRIVE THE BUSINESS S ACTIVITIES The business cycle is the closed loop of activities shown in the following diagram. The primary purpose of planning is to drive these activities. Planning leads to a series of actions which are executed. The results of these actions are reviewed, following which two things will happen. Firstly, you may need to react to performance and take additional actions so that your original objectives can be achieved or surpassed and secondly, you will amend future plans to t ake account of the actual effect of the first set of plan actions. And so on, and on ... 2.1.2 TO GIVE THE BUSINESS FOCUS Quite clearly, if a business doesn t have clear and measurable objectives it will be directionless and won t operate effectively. The plan specifies what these objectives are and ensures that they are consistent across all the separate business functions Buying and Merchandising, Retail Operations, Marketing, Finance etc.. At the same time, by coordinating the activities needed to achieve the objectives, planning ensures that efforts are focussed on the tasks necessary to achieve them. 2.1.3 TO GIVE THE BUSINESS THE BEST POSSIBLE CHANCE OF ACHIEVING ITS OBJECTIVES To use Pope s analogy, we may be confronted with a mighty maze but at least with a plan we stand a chance of finding our way through it. Planning describes the routes through the retail labyrinth and by warning us of the perils we face and of the potential dangers ahead it ensures that : We do keep to the right path and that any decisions we make are fully informed, not merely speculative. Any risks that we take are fully understood, enabling us to follow a particular path with a degree of confidence that the outcome will be favourable Scarce resources are used effectively, costs are controlled and time and energy is not wasted on inappropriate detours. Planning also helps to make complex businesses easier to manage by breaking the overall objectives into smaller, less challenging tasks. 2.1.4 TO PROVIDE A BASE FOR THE MEASUREMENT OF PERFORMANCE

The plan is the benchmark against which we determine if performance is good or bad. If we didn t have a plan what would there be to review and how would we know when to react? We wouldn t know what we were expected to achieve or by when, if or when to take corrective actions, whether we d achieved what we set out to achieve or what individual contributions to performance were. 2.1 HOW WE PLAN We will be going into a great deal of detail on the mechanics of planning in the following chapters but in simple terms planning is carried out using the following process :-

The starting point is always a review, not only of current performance and future trends but also of the existing strategy, since changes to your strategic direction should always take place within the planning cycle so that the effects of any changes can be properly planned and managed. This review will lead to the creation of the plans for the business as a whole and for each relevant level of the individual business functions. These plans are then communicated between and within functions so that they can be properly challenged and any potential flaws or inconsistencies identified and removed. (We ll look at why this challenge stage is important later). Once any amendments have been discussed and agreed they are incorporated into the plans, which are then confirmed and fixed. Needless to say this takes time. The whole planning cycle usually needs to start a year or more before the start date of the trading cycle being planned and will take several months to complete. At the same time, as we ve seen earlier, planning is part of the never-ending business cycle and as one set of plans are being created, another set are being confirmed while another is being executed. 2.2 WHAT WE PLAN

QUESTIONS 1. CAN I PLAN TO REDUCE THE NUMBER OF SUPPLIERS BY HALF? This week we ll cover the answers from the last issue s WHAT TO PLAN quiz. CAN I PLAN TO DELIVER A MARGIN ON SALES GROWTH OF 25%? 3. We ll give you the answers in the next issue. CAN I PLAN TO BE A FASHION LEADER? 5. CAN BEING A FASHION LEADER BE A STRATEGIC GOAL? 7. CAN I PLAN TO DELIVER A MARGIN ON SALES GROWTH OF 25%? Of course! A goal such as this is one of the fundamental outputs of the planning process it is specific and easily measurable. CAN I PLAN TO BE THE MOST PROFITABLE RETAILER? You can plan to be the most profitable retailer since published annual accounts will give you the data you need to benchmark your performance against your competitors. CAN I PLAN TO HAVE AT LEAST 20% OF FASHIONAB LE PRODUCT ON SALE AT ALL TIMES? 6. CAN I PLAN MY SALES? Yes. CAN I PLAN TO BE THE MOST PROFITABLE RETAILER? 2. it the responsibility of one or more specific people (in this case the Buying and Merchandising team and it will certainly add value to the business if it is achieved.2. be created where the objective will add value to the business if it is achieved is specific and can be easily measured is un-equivocal and not open to interpretation is the responsibility of one or more specific people could impact on the allocation of resources does not contradict or distract from other more important objectives Where an objective is not easily measurable or the responsibility for its delivery is not specific it is better to leave it as a strategic goal 2. Even unlisted companies will publish some form of trading statement. that must be managed if you want to achieve your sales plan . and should. particularly stock volume and content. CAN I PLAN MY SALES? 4.1 WHAT TO PLAN QUIZ To end this weeks column here s a small quiz. it is un-equivocal and not open to interpretation.We ll look at the detail of what is planned and at what level in the business in future chapters but in principle a plan can. Until then Happy Trading. but it is the factors which will affect sales.

yes.1. in the sense that 20% is a specific objective. Let s say that that your true objective is to increase your Intake Margin % and that the reduction in the number of suppliers.1 RULE 1 : THE PLAN SHOULD BE REALISTIC AND ACHIEVABLE The first and most important rule is that the plan should be realistic and achievable. and it should be if this is the direction you want the business CAN I PLAN TO REDUCE THE NUMBER OF SUPPLIERS BY HALF? You can but you must first be clear if it is essential or indeed sensible to do so. REALISTIC means that the plan is based on solid assumptions that take into consideration all the factors. 2. although it must be stressed that this doesn t mean the plan easy or risk free. and could in fact be counter-productive. BUT BEING A FASHION LEADER COULD BE A STRATEGIC GOAL? Indeed it could to follow. to plan to reduce the number of suppliers. both internal and external and no matter how apparently trivial. If it is set as a plan then the time and effort that will be spent deciding which suppliers to drop could easily detract from actions such as better production planning which would have a more beneficial effect on margin. If you remember nothing else. it should be planned. which would bring no benefit to the business in its own right.CAN I PLAN TO BE A FASHION LEADER? This is difficult to plan since it is very subjective there would need to have a robust measure of fashionability that could be monitored and against which you could benchmark your competitors. is simply one of several possible actions that you could take. remember this. or because you feel that it is strategically important to deal with less suppliers then. for instance if it would lead to savings in administrative costs. Your understanding of what these factors are . CAN I PLAN TO HAVE AT LEAST 20% OF FASHIONABLE PRODUCT ON SALE AT ALL TIMES? This is possible. In this example it simply isn t necessary. If on the other hand there is a tangible business benefit to reducing the number of suppliers. but it will only work if you have a clear and un-equivocal definition of what fashion is in order to classify each line and to segment your stock.1 THE FOUR RULES OF PLANNING In this issue we ll go through the four rules of planning that should be committed to memory and followed at all times. 2. SO. that will affect it.

are prepared for blizzards and other reasonably likely eventualities and make the climb at a measured pace. After all. It is realistic providing you are fit (or can get fit) and have the right equipment. Although you should be able to predict what stock and costs will be fairly accurately. It is the customer. 2. Even if you do ensure that your guesses are based on as much information as possible.1. The same is true of planning. Plans need to have an element of challenge and risk otherwise the business will not move forward.1. if we were able to accurately predict the future we d all be lottery millionaires.3 RULE 3 : A PLAN IS NO MORE THAN AN EDUCATED GUESS Planning is not an accurate science and relies as much on educated guesswork as on scientific logic. will be able to win a race unless the car is well designed and built. The best you can do when developing the plans is to accept that things are likely to change and to have contingencies identified for when they do. your sales plan is based on your assessment of how the customer will respond to the products on offer. It is not unusual for new information which affects the plan to become available shortly after as a plan has been agreed and signed off. They will often insist on .1. otherwise the skills of the driver will be wasted the car is likely to spend too much time in the pits receiving emergency treatment and the race will be lost. Providing a plan is realistic there is no reason why it shouldn t be achievable. ACHIEVABLE means that the plans can be achieved in all foreseeable circumstances without the need to take any unnecessary risks. 2. rather annoyingly. 2. and we wouldn t be worried about the principles of Buying and Merchandising. no matter how good. There are very few circumstances which are not reasonably foreseeable and for which you cannot develop contingencies which can be activated if needed. You will spend all your time in the pits (and note how appropriate the common usage of the phrase is) taking increasingly panicked decisions just to stay in the race. at which point it would be impractical to revise the plans.2 RULE 2 : THE MORE ROBUST THE PLANS ARE THE EASIER THEY ARE TO DELIVER Think of planning as being a member of a Formula One racing team. The bulk of the teams efforts are focussed on making sure that this is the case.and what their effects will be is critical. Driving the car is relatively straightforward and although races are doubtless won by the skills of the drivers. supplies and s upport and it is achievable providing you set off at the right time of the year. you can only work with the knowledge you have available at the time the plans are developed.4 RULE 4 : THE CUSTOMER IS ALWAYS RIGHT Although you will plan sales and margin you only control stock and costs. no driver. If your plans aren t robust and based on good assumptions then they aren t going to survive the stresses of trading. although it is not easy or risk free. It is realistic and achievable to climb Mount Everest if you are well enough prepared. who will determine the outcome regardless of what you think.

These distractions may seem vitally important at the time but they are often counter productive in the longer term. and many of which are actually quite trivial. you do not want to be a DOPPI retailer. to make a profit and to deliver sustainable growth. Setting a markdown plan that is too low. (which could have been anticipated and planned for) having to be crisis managed. 1) PLANNING MUST BE A PRIORITY It is far too easy. In the penultimate section of our overview planning we ll look at several guidelines you should follow. You will improve your chances of future success dramatically. You are in the DOPPI ( Don t Plan.spending their money in a completely different way to that you had anticipated. as the saying goes. which can easily distract you from planning. meaning there isn t enough time to plan the next season and so on. in particular plan sufficient markdown to regularly clear . 3) GET THE PRODUCT OFFER RIGHT Don t create plans that hamper your ability to improve the product offer. marketing and from the store environment itself. There are many things. Take planning seriously and give it around 70% of your time and effort. for instance. break it. Panic Instead ) cycle pronounced dopey. and make sure you are able to quickly respond to range failures when they do occur. 4) MAINTAIN THE CUSTOMER S INTEREST NEW! is a very powerful message and customers interest is stimulated by regular injections of newness into your outlets. to forget that your objective is to drain the swamp when you are up to your neck in crocodiles. 2. especially day to day trading problems. Regardless of how well you know your customer and how good you have been in the past at anticipating their needs there will be times when you will simply get it wrong. leading to in-season trading issues. Needless to say. If you already in the cycle. Planning is rushed. Never forget that it is the product which primarily defines the customer s relationship with your brand. Make sure regular updates to all of these areas are built into your plans. which means that the plans aren t as robust as they could be. but you have to avoid doing this.1 PLANNING GUIDELINES Following these guidelines will help you to deliver plan s that are more likely to achieve the three measures of retail success (see chapter 1) to become the destination of choice. for obvious reasons. may hamper product development. There is nothing you can do to prevent this so live with it. 2) WOW! YOUR CUSTOMERS Your key objective must be to ensure that your customers expectations are exceeded at all times and to offer them best possible proposition that can be developed within your cost constraints. but also from visual merchandising. This newness comes primarily from product changes. not matter how hard this may be.

since you will have to liquidate the excess stock bought to sustain the planned sales. And finally 12) THE PLANS MUST BE REALISTIC AND ACHIEVABLE A reminder. Not only that but profits will be far lower than planned. To return to the motor racing analogy. and will be even worse if costs are incurred in anticipation of reaching the sales plan. 9) MAKE EVERY SQUARE METRE AND EVERY PRODUCT PAY Selling space is usually scarce and needs to be used wisely. Make sure each product category and each product within it is contributing positively to both the customer s shopping experience and to profitability in every outlet. it doesn t matter how well the car has been designed. how much exposure you can afford and what the options are if things go wrong.and replace old and poor performing products. Always make sure you know what the potential costs and benefits of the risk are. if it arrives at the race track without any wheels then we ve lost. over -optimism is the single biggest cause of underperformance. It s surprising how many businesses seem to follow the opposite path. 8) DON T GET GREEDY Without a doubt. Many people and functions are involved both internally and externally and a clear understanding of the critical dependencies is essential to success. 11) THINK! It is the thinking behind a plan that is most important. . Remember that the mechanics and the process of planning are only means to an end they are there to help you structure your thinking. whether because they are based on un-realistic assumptions or because of wild speculation. so make sure you do it well. then you simply won t achieve them. 7) DON T BE AFRAID OF RISK Measured risks will drive performance and growth . You must always look at the bigger picture and assess what is the best for the business and the customer. 6) BE OBJECTIVE By all means challenge but never let emotions or personal preferences sway your judgement. 10) MANAGE THE CRITICAL DEPENDENCIES Critical path management is an essential part of the development and execution of a plan. 5) USE YOUR KNOWLEDGE It may seem self evident but always build on your successes and don t repeat mistakes. don t be tempted to extend existing product categories to a point where their profitability is affected. not to do the thinking for you. Where you do have excess space find alternative uses for it. and caution and prudence are always advisable. just in case you d forgotten. If you set sales plans that are excessively high.

although it will continue to evolve following regular and thorough reviews of its consequences. The forecast (or projection) changes weekly to reflect the most up to date estimate of performance given current trading conditions and trends. determines the direction the company must take to thrive in its market place and sets the overall framework within which the plans are developed.2 PLANS AND FORECASTS A plan is a fixed entity in a dynamic world which by its very nature will not change and cannot not take into account current trading conditions. · The strategy should be relatively stable.1 PLANNING CONCEPTS We will now look at a number of planning concepts that you will need to understand 2. especially during the short term. · Planning objectives are generally more specific and measurable than strategic goals and as a result it is clear when they have been achieved. never on the plan. although it will not change once it has been agreed and fixed.1. Retailers today. Stock and intake requirements are always calculated based on the current forecast. are increasingly setting strategic goals which are measurable and can be seen to have been achieved. A plan is far more responsive and flexible and is developed to reflect current trading conditions.1 PLANS AND STRATEGIES The strategy and the plan are both outputs of business processes that take place throughout business cycle and which define the direction and objectives of the business.1.2. During the planning cycle the plan will be the same as the forecast until it is fixed. . 2. however. dealing with such wider issues as its environmental and ethical stance. The plan sets the shorter tem objectives that will lead to delivery of the strategic goal for each business function · The strategy describes the way the business will operate with relation to outside world.examples include trading from a specific square footage of selling space in a specified number of locations or becoming the most environmentally sound retailer. after which point only the forecast will change. The main differences between the two are as follows : · A strategy defines the longer term goal and focuses on the bigger picture for the business as a whole and.

These targets are general rather than specific e. The Bottom Up plans would be challenged during sign off meetings and where necessary one or the other would be adjusted.1. 2. At the same time the functional teams are bought into the plan far more than they would have been if a target had been imposed on them and will to be committed to its delivery. 2.6% on Men s Shirts .3 TOP DOWN/ BOTTOM UP PLANNING Top Down/ Bottom Up planning is the planning methodology that is used to ensure firstly that performance plans are as robust as possible through an appropriate challenge process. These detailed plans will take into account knowledge that would not be immediately accessible to senior management. Where there are differences between the functional teams estimates of potential and the managements a compromise would be reached that.4 OUTLET CLASSIFICATION . We are looking for a 5% growth in margin on sales for clothing rather than We expect to see a sales growth of 2. satisfies both sides.g. as a result. Performance forecasts are benchmarked to the plan from the point that it is fixed.The plan therefore a snapshot of the forecast that is taken at an agreed point prior to the start of season and which everyone agrees is the most realistic estimate of future performance given current knowledge. be far more robust. 3) The Bottom Up plans are compared to the Top Down targets. and secondly that there is full ownership of the plans by the functional teams that will be expected to deliver them.5% and a margin on sales growth of 3. 2) The functional teams review the performance targets and submit detailed Bottom Up plans based on their specialised knowledge of their own areas.1. although since the guideline would have been bases on input from the functional teams. significant overall discrepancies would not be expected. It works as follows : 1) Senior management give the strategic direction and overall Top Down performance targets to the functional teams. The detailed plans would not be expected to match the initial guidelines. ideally. At the end of this process the reconciled plans have been properly debated and agreed at all levels and should. but again only at a general level. These targets would have been arrived at following consultation with the functional teams. In large organisations targets may be broken down to a second level by middle managers. and which in any case they would be unlikely to have time to review or assimilate.

An LFL outlet can move to Closed or Refurbished classification Some companies will split the LFL classification to distinguish between outlets which are in newer formats to others. As a result LFL performance is a key indicator of retail health and one which is closely monitored. Refurbished. Like For Like outlets are the most important part of the retailer s outlet portfolio. It will become Like for Like on the first anniversary of its opening. A Refurbished outlet reverts to LFL on the anniversary of its re-opening after refurbishment. 3)REFURBISHED A Refurbished outlet is one that has been trading in the refurbished format for less than a year. New and Closed. LFL performance is always planned first and then adjusted for the effect of outlet closures. 4) CLOSED A Closed outlet is one which has ceased trading either permanently or temporarily as a result of refurbishment or any other reason. since this is only made when a store is opened or refurbished. both internally and externally. 3 THE PLANNING PROCESS : INTRODUCTION In this chapter we ll look in more detail at the process we will use to develop our . The performance attributable to outlets which have closed is split out to ensure that growth is accurately planned and reported. They require no significant capital investment to maintain.Outlet Classification is determined by trading status of an outlet and is used for development of outlet planning and performance reporting The most commonly used classifications are Like for Like (LFL). 1) LIKE FOR LIKE (LFL) An outlet becomes Like For Like when it has been trading in an unchanged format for at least a year. 2) NEW A New outlet is one that has been trading for less than a year. and should therefore represent the element from which the maximum returns are generated. refurbishments and openings.

This process starts with the business strategy that is determined by the main board and the high level business plan that comes out of this strategy which provide the overall direction to the business. and ensures that the plans are properly reconciled across these two functions. It ensures that the critical path from strategy planning to range delivery is effectively defined and managed. The planning process itself is part of the overall operational process for the business shown in the following diagram. provides the framework for plans to be properly debated and agreed. which can be broadly classified as Buying and Merchandising. The initial bus iness plan is the starting point for detailed planning by the individual business functions. Retail Operations and the . We know from the previous chapter why we plan. It determines the tasks that everyone has to complete and specifies the outputs from each task. The planning process is the mechanism that helps to make sure that we DO develop realistic and achievable operational plans that are based on solid assumptions and which are consistent with the business strategy.merchandise plans. The planning process has three main functions : It defines the disciplines that enable the business to create robust and effective plans. In particular it links together all of the key planning activities across Buying & Merchandising and Retail Operations.

range and option plans and are targeted with delivering product profitability. longer term objectives for the company and unites not only the employees but also the external business partners in the delivery of these . when the individual functions attempt to achieve the plans they have set.1 STRATEGIC PLANNING Many thousands of words have been devoted to strategic planning in other textbooks so we ll only touch on it from a retailer s perspective here. Retail Operations develop the outlet plans and are targeted on delivering outlet profitability. It sets out overall. describes the WHY while the plans determine the HOW. Support Functions (IT. in essence.) develop the resource plans which will support the agreed Buying and Merchandising and Retail Operations plans at an acceptable cost. Marketing. but without a strategy our plans would have no focus and would exist without reference to longer term goals. We ll look at these when we cover the detail of each process step. The detailed plans created by the separate functions are consolidated and reconciled. after appropriate debate. The strategy. into the final business plan which is the basis for in-season management of the business. Logistics etc. in principle. A good strategy is a statement of the company s principles and goals which everyone connected to the company should. HR.Support Functions Buying and Merchandising develop the department. The strategy describes the binding philosophy for the business and sets the framework within which the short term plans are developed. 3. Firstly let s look at why we need a strategy. NOTE ON DEFINITIONS An OPTION is a unique product line A DEPARTMENT is the key planning level for the business An OUTLET is anywhere you sell your products & could be a store. we could. In-season management drives actual performance which becomes the starting point for the development of the business plans at the start of the next planning cycle. a catalogue or an internet site Pay particular note to the inter-dependencies between various parts of the process and between Buying and Merchandising (indicated by the large white arrows on the diagram. Can t we just manage our business by setting plans from one season to the next? Well. understand and com mit to.

With this in mind the general rules for a strategy are that it should be: ROBUST The strategy should be thoroughly examined and debated and must clearly identify the opportunities. UNIVERSAL The strategy should cover the full breadth and scope of the organisation and match the organisation s activities to its environment and market. in most cases.1. constraints and issues associated with each strategic option. although this isn t always the case. a strategy would have been developed when the business is started and would have evolved as the business evolves and grows. risks. Changes will be needed. for instance if the current strategy is not delivering the required results or to reflect changes in market conditions or the emergence of new opportunities. more concerned with making minor adjustments than with making radical changes. FLEXIBLE A strategy should not static and must be able to evolve over time. CHALLENGING A strategy should aim to create opportunities for growth by building on and stretching the organisation s capabilities. As a result strategic planning normally takes place with reference to the existing strategy and is. A weak strategy will inevitably end up needing a full overhaul which will cause disruption for you and confusion for the customers. Needless to say development of a robust strategy is dependent on a thorough understanding of these two elements and we ll cover how we get this understanding in later chapters. although it should only change after stringent review and never without good reason. starting with the plans.objectives. CONSISTENT . should be subservient to the strategy. 3.1 STRATEGY GUIDELINES The first thing to remember is that the development of a strategy from scratch is something that existing retailers shouldn t need to do. All operational activities and decisions. For a retailer the two big drivers of the corporate strategy are its customers and the market and environment within which it operates. At the same time since success is so dependent on exceeding the customer s expectations at all times a strategy that holds this objective at its core is essential. In principle.

Many others will be far less structured and will simply involve a gathering of the senior managers to discuss and agree the direction forward.2 THE STRATEGIC REVIEW Before we look at the specifics of the Product Strategy a very brief word on the strategic review process. Outlet and Marketing together with the support strategy which will enable this proposition to be delivered effectively and efficiently.1. Firstly it will be used to determine whether the current strategy is still valid for the coming year and where it isn t to make the necessary amendments. Secondly it will be used to identify any new risks and opportunities that will impact on the business. The strategies for all other functions should be focussed on supporting these two areas. The strategy should define the target customer along with the key competitive differentiators that will ensure that this customer is attracted and retained. if not all. Where retailers are concerned a strategy needs to cover the three key elements of the retail proposition Product. You cannot have a premium product offer and a budget service proposition. Regardless of the method used the review would generally cover some. for instance. The outputs of the review are then . Some larger companies have separate strategic planning departments who spend the year gathering the information needed for the strategic review. Results to date. Retail Operations the Outlet strategy and Marketing the Marketing Strategy.The strategy should ensure that all functions of the business are working towards consistent objectives. We ll deal with the Product strategy in more detail in the next section. Customer and market data Resource and capital utilisation & management The review will normally have three main objectives. 3.compared to expectations. Buying and Merchandising will be responsible for developing and delivering the Product strategy. It is worth noting that regardless of what others might think it is the Buying and Merchandising and Retail Operations strategies that are central to a retail business. both overall and of key strategic initiatives. Finally it will be used to determine the new initiatives and actions that are needed to help the company achieve its strategic goals. These key elements of the strategy rather unsurprisingly fit with the three main functions of the business. A formal strategic review will normally be conducted no more than once a year. of the following: Operational and strategic strengths and weaknesses.

1 The business plan The business plan describes the actions by which the strategy will be delivered and specifies the expected cost and results of those actions The following diagram shows the process by which the business The initial business plan. 3. A Business Plan will typically contain the following: 1) The key performance targets. Outlet and space changes. Minor changes between the initial and the final plans are common because new information can easily emerge in the time it takes for the detailed plans to be developed but largely because of the involvement of the functions in the development of the initial plan the differences should not be significant. for one or more of the foll owing The % year on year change in average stockholding (at cost or in total) Average number of weeks cover Stock turn Maximum closing stock in any week Availability . trading margin and profit. is created with inputs from each function. Each function will develop detailed plans based on the initial guidelines. in total and by product group or division. set by Outlet. Like for like performance targets will always be stated.communicated to the wider business and become the focus of activity for the coming year. Return on Asset and Stock Turn. Sales and Margin per Square Foot. which should obviously take the strategy as its starting point. for the year including the expected value and growth in sales. separately 2) The assumptions on which the planned performance is based including the underlying economic market conditions. This both ensures that the business plan is as realistic and robust as is possible and that the teams are already bought in to its objectives.1. The business plan will then be finalised once these functional plans have been completed and reconciled with the original expectations. These are usually intended to deliver an improvement in the Return on Asset and to ensure working capital is more effectively used and could include targets. marketing initiatives. DC or in Total. along with key trading ratios such as EBITDA. This functional input is an essential part of top-down/ bottom up planning (as discussed in Chapter 2). indeed one of the key responsibilities of the functional heads where planning is concerned is to consolidate the views and feedback from the functional teams who will ultimately be responsible for the delivery of the plan. product developments etc 3) Stock objectives. Markdown %.

2 THE PRODUCT STRATEGY The product strategy sets the framework within which the Buying and Merchandising function operates and is a key input into merchandise (and outlet) planning. visual merchandising. When the customers were presented with the two products with the correct labels attached (i. the Category Assortment and the Sourcing policy. historically. In our example the customer is happy to buy more expensive products from you because they believe you offer better value than your competitors. B s products with B s branding) then they gave product A the highest quality rating. your Price. The way customer s perception can differ from reality can be found in a survey conducted some years ago. anecdotally. well known on the High Street for better quality products. It is possible. advertising. even if the products themselves may be comparable.g. INNOVATION AND QUALITY POSITIONING Your price. the outlet environment and customer service all influence the way the customer will see you. The mix of options on sale. When the labels were swapped so that product B was labelled as retailer A. products from a number of High Street retailers were independently assessed for quality and then presented to a consumer panel for their feedback. This anomaly is achieved by careful use of the things which influence perception. 3. probably had some basis in fa ct. The independent quality assessment determined that there was no discernible difference between the products sold by retailers A and B. underwear. the panel gave . In this survey several similar. or as providers of average or exceptional quality products? It is what the customer believes you represent that is key here and this is determined more by what they see than by what they do. as high or low innovators. for instance. In bigger businesses there may be an overall product strategy together with sub-strategies for each separate division. Innovation and Quality positioning.1 PRICE.4) The key strategic and tactical initiatives that will be taken in the coming year 5) Resource requirements 6) Risks. Do you want to be seen as a value or a premium retailer. e.2. It would typically cover at least three areas. for your customer s to describe you as a value retailer even though you may actually sell a high proportion of premium products. although the selling price of A s products was higher. Our prices will be 10% below those of our competition for all comparable products and sets out the customer perception you are aiming to create to give you the best competitive advantage in your market environment. A s product were labelled with A s branding. Retailer A was. a perception that. Your positioning statement is often referenced to your competitors.e. constraints and contingencies 7) Source and uses of funds 8) Cash flow 3. innovation and quality positioning are statements of how you want to be perceived by your target customers with respect of these three areas.

The category assortment also helps you prioritise your present resources and to develop possible opportunities for the future.the product they thought was from retailer A the higher quality rating. The essential categories are those that are central to your customer s perception of your offer.2 THE CATEGORY ASSORTMENT A key part of the part of the product strategy is the definition of the product categories that your customers will expect you to stock. The category assortment specifies what these categories are and ranks them according to their importance to the customer with respect to your outlets. Each category will have an optimum space requirement and the sum of the category optimums determines the size of the ideal outlet. you have become well known for selling a particular category then it will be seen as essential by your customers.3 SOURCING The sourcing policy outlines the principles by which your suppliers are selected and managed and sets out the practices. for whatever reason. such the use of child labour or unsafe . even though in pure analysis it might be classified as optional. The category assortment is important during outlet planning since it is used to determine how space is allocated. If. The optional categories are those that are nice to have and which the customer will consider as a bonus . These trademark categories. The business needs to provide the resources to properly plan. and sourcing opportunities are available. Any speculative resources you have available could be used to develop optional categories. If on the other hand your brand is called Shirts -RUs then the customer wouldn t expect to see a range of trousers. with those that a higher ranked getting first priority. which could deliver additional revenue to the business.2. especially skills and space. would generally be channelled towards the essential product categories.2. In the final test both products were unlabelled and the panel couldn t tell the difference between the two! 3. Given that not all outlets will be able to prov ide each category with the optimum space the essential categories are ranked according to their relative importance to the customer so that space can be allocated in priority order. If you do not provide an acceptable range of products within each of the essential categories the customer will feel that your offer is lacking and is almost likely to shop somewhere with a more comprehensive assortment. The assortment can be broadly split between essential and optional categories. Which categories are essential and which are optional depends on what the customer expects. which is itself influenced by your brand positioning. If you position yourself as a women s fashion retailer you will be expected to stock a full range of clothing and accessories. Categories such as shoes and cosmetics could be treated as optional. as they might be termed. 3. Space must be found in your outlets to display all the essential categories. in particular people. display and manage each of the essential categories. The customer s expectations are also dependent to an extent on your trading history. Space prioritisation using the category assortment is discussed in more detail when we cover Outlet Planning. The bulk of current resources. These categories can be provided if resources. should be treated with respect if you want to retain your existing customer base.

any failure to achieve the standards set out in your policy can seriously affect your brand image. detailing the information you would expect to share. the way you will deal with disputes etc. covers those areas that are the direct responsibility of Buying and Merchandising together with Outlet Planning which is included because of the important interdependencies it has with Range Planning.1 MERCHANDISE PLANNING Merchandise planning consists of the µpre-season¶ activities which must be completed before the season starts. 3. both in principle and practice. The diagram below highlights the process elements which make up merchandise planning and management on the top-line process flow chart from earlier in this chapter. even though it is the responsibility of the Retail Operations team. and which must. 3.working conditions by your suppliers or the use or acceptance of bribes by your staff. The sourcing policy doesn t replace legal terms and conditions but is complementary to them and defines the broad boundaries within which the formal contracts will operate. For many businesses the sourcing policy is now a public statement of intent which is open to detailed scrutiny in the press. in other words the main focus of this book.3 MERCHANDISE PLANNING & MANAGEMENT The Merchandise Planning and Management process. more importantly. The detailed activities which make up the top line process will be described next. Nowadays. It may also set out the type of relationship you expect to have with your suppliers. The flow chart below shows these activities in the approximate order in which t hey happen. Even though it is not binding the sourcing policy is becoming increasingly important to the retailer both because of changes in legislation and because of the need for retailers to be seen. while the table .3. be seen to be implemented. as ethically and environmentally sound. which are unacceptable.

market. of course. are shown below.1 IN-SEASON MANAGEMENT In-season management includes all those activities that will. You don¶t. buy and distribution of each option that is selected as part of the range is determined The weekly performance. The activities that take place between planning and in-season management. all of which deal with supply chain management. by week and in total Space. or could. by season if relevant.that follows gives brief description of each activity. with each sign off taking place in line with the planning calendar 3. stock and intake of each option is planned Each Plan is signed off by senior management. by total and by department The optimum offer and range size for a department for each outlet is determined The range content is planned and the performance. again followed by a brief description. be carried out once the season has started. trend and customer data is analysed to identify growth opportunities and potential risks and constraints DEPARTMENT PLANNING OUTLET PLANNING RANGE WIDTH PLANNING RANGE PLANNING OPTION PLANNING PLAN SIGN OFF Department and sub-department performance and stocks are planned. Although these activities are shown as dependent on Option and Range Planning they usually have to start before planning has been completed and often well before the plans are signed off .1. go straight from planning to in -season management ± you have to get the products to the customers and first have to ensure that the planned ranges do arrive at the right outlet at the right time. RESEARCH AND ANALYSIS Performance. performance and expenses plans are set for each outlet.

forecasts are adjusted in line with current trends and actions are taken to maintain or improve performance YE Finally in this chapter. The timeline is also indicative rather than specific. and all the activities that precede it.DISTRIB TION PLANNING ORDERING PRODUCTION PROGRESSING DISTRIBUTION IN-SEASON MANAGEMENT 3.2 T E ME Distri ution planning is part of range planning and is where the distri ution and target stock holdings by outlet for each line is determined Orders are raised in line with the Option Plan and the agreed production programme if relevant Products are produced in the quantity and to the specification on the order Each product is progressed through the supply chain from origination to delivery Stock is allocated and replenished to the outlets in line with the distribution plan Performance is analysed. It¶s not unusual for © PR C & DELIVER PR R MMING       ¨ §  ¦ ¥ ¤£ ¢¡  ¢  Production schedules for each product that is manufactured µto order¶ and deli ery schedules for all products are agreed with the supplier . may need to start much earlier than shown here to achieve a February range launch date in the following year.1. for instance. contracting. On a long lead time departments. we¶ll look at the timeline for the planning and in -season activities throughout the year. For sake of simplification not all the process steps or tasks are included here. The following diagram shows the rough sequence and approximate duration of each of the main merchandising activities.

The best thing is that you can make as many withdrawals as you want without affecting your capital. Think of it as a high interest bank account into which you make regular deposits of new information and where every deposit you make increases the value of the account by much more than the amount deposited ± as if you put £100 in a real bank account and were credited with £150. 3) awareness or familiarity gained by experience of a fact or situation As we can see from this definition. interpret and use knowledge is one of the cornerstones of success but what IS it. It increases over time and once gained never disappears. It is that seemingly in -built ability to know which fruit is edible and which is poisonous. and it certainly isn¶t the thick tomes of analysis and reports that some peopl e mistake it for but are really just one of its¶ many sources. At any point in the year you will probably find yourself managing the current season. finalising the plans for the next season and starting the planning for the one after that. Knowledge is that ephemeral something that helps us to understand and operate within our environment. this can become very confusing! Chapter 4-The importance of knowledge INTRODUCTION In this chapter we will look at the lifeblood of any business ± Knowledge ± which as a wise man knows is Power. . ‡ It enables us to anticipate and fulfil our customer¶s needs mor e effectively and helps us to match what they want with what it is possible to provide. In a business context knowledge is primarily concerned with helping us to thrive and prosper in a competitive market place.department planning to start a year in advance of the start of the season being planned. The important thing to note here is that planning activities take place simultaneously with in -season management. the ability of a business to accumulate. Without a doubt. The Oxford English Dictionary describes it as follows : noun 1) information and skills acquired through experience or education. Not only that but you will start to plan for a future season when the one on which the plans will be based has barely started ± AW 2009 planning will start not long after the AW 2008 actual season has started for example. Believe me. 2) the sum of what is known. Not only that but the more information you have in your knowledge account and the more experience you have. the faster your account grows. knowledge is more than just the gathering of information.

The fact is that you some of your best knowledge will come from the unlikeliest of sources so keep your eyes and ears open at all times. Data is the pieces of this jigsaw while knowledge is the finished article. If you are new to this game success will depend as much on trial and error as anything else. But stick with it. m eaning µThe chance encounter with something wonderful¶. it does get easier. products and services that we need to continuously evolve. Inaccurate or incomplete data can easily lead you towards the wrong conclusions and can cause costly mistakes. so you first have to work out which to keep and which to discard.. since without it we will not be aware of the best practices. Given the amount of data you will often have to deal with.1 GAINING KNOWLEDGE Now that we have an idea what knowledge means let¶s look at what we have to do to get it. interpret it and make your conclusions. To add to the pressure this game is not played in isolation. Knowledge depends on a large amount of µraw¶ data which comes from many. The following are some general principles you can apply on your search for knowledge. Needless to say. Gathering this data is relatively easy whereas turning it into the information that you can deposit in your knowledge bank is far less straightforward. Put the jigsaw together in the wrong way and you could head off in the wrong direction or into dangerous territory. So it is with knowledge. Fortunately the skills you need develop quickly with practice and you will soon find yourself at the point where you are able to see patterns in data almost by instinct. should be guarded well and used wisely. many sources. 2) IDENTIFY THE COMMONALITIES . ‡ It is fundamental to business development. Imagine a huge. since with it we can predict and manage market cycles and more easily identify emerging trends. complex jigsaw which when completed will reveal a map to hi dden treasures. 1) KEEP LOOKING : THE TRUTH IS OUT THERE For those of you of a literary persuasion the word is µSERENDIPITY¶. if nothing else. You then need to manipulate the data into a useable form. but as you gain experience the quicker you will be able to reveal the hidden map and the more likely you will be able to get to the treasure first. opportunities and threats. When you start out extracting the knowledge from the data will take a lot of hard work and analysis. there are many possible solutions and many of the pieces laid out in front of you will not be needed. Remember that any actions that are taken without sufficient knowledge are experiments ± and as likely to fail as they are to succeed. Your competitors are also trying to find the same treasure so you need to finish the map before they do. You will spend time investigating blind alleys.‡ It gives us competitive advantage (and for this reason. This is not always easy and you will be regularly confronted with questions such as ³What does it mean when market research shows that the customers µprefer¶ black while trading reports show that they are buying white?´ Another analogy may help to understand how knowledge is gained. 4. But be careful!. although you will hopefully learn from them. the essential starting point is good quality data.) ‡ It is essential to risk management. You will make mistakes. Unfortunately you have no clues as to what the finished jigsaw will look like. your first step is usually to decide what to use and what to reject.

get on the bandwagon) so the more something is talked about in the media and the market the more it is likely it is that it will happen. The phrase µa self fulfilling prophesy¶ applies here. in general. Two of these are the extension of the new colour across your fashion ranges. if one well know fashion pundit states that next season¶s big colour is green. those found in trend data can only help you to decide which actions should be considered. or the introduction of more fashionable products if your current ranges are more mainstream. The more you are able to link a particular action to a particular result the more the same action is likely t o deliver the same result in the future. 4) FIND THE GAPS Finding the commonalities and exceptions in the data is one thing but that only reveals what is al ready there. Using our example of the colour trial again lets say that one of the ten products that you trialled worked really well. Any conclusions are risky and need to be treated cautiously. which can then be taken. Future trends gain their own weight the more people µsupport¶ them (or to be more prosaic. The same principles apply to trend data but in a slightly different way. The founder of the company linked the fact that younger people listened to music with the fact that there was no way for . If you are a fashion retailer. although there is a general problem with that colour it does work in certain circumstances. These commonalities are important because. You trial a currently successful product in a new colour and it doesn¶t work. anticipating this effect and ensuring that you do have green represented in your ranges helps you to maintain your image in the market ± the trick is to know how much of a representation since there is no guarantee that green products will actually sell. The best example of successful gap analysis is the Sony Walkman. Let¶s take a simple example. This type of analysis is very subjective and more about observation and instinct than anything else. Equally important is to find the things that aren¶t. it¶s safe to deduce that the customers don¶t like this colour. So far so interesting. the new colour had been trialled on ten new products you would first have to assess if there was a problem with the products themselves before making a judgement on the colour. Exceptions won¶t always lead to immediate actions but they will always give you new insights into your environment. this could indicate a number of possibilities. Where facts are concerned scientific principles apply. the press will be running µBe seen in green¶ features and the customer will expect to see green products in the shops.A great deal of knowledge comes from the common threads you will find within the data. If. they cannot predict the outcome. or a risk. soon all the designers will be incorporating green into their collections. Taking a new colour as our example again. on the other hand. Unlike the commonalities found in hard facts. 3) LOOK FOR EXCEPTIONS In amongst all the commonalities there will be several things that are odd or exceptional. In some cases the cause and effect occur so consistently that you will be able to predict the outcome of an action with certainty. which you can then manage. You look deeper and realise that the style that has worked is much more fashionable that those that didn¶t. The gaps in current knowledge can help you to find the next trend or product before it becomes obvious to anyone else. If you then try nine other successful products in the same colour and they also don¶t work then. Depending on your current ranges. So. if you have them. It is well worth seeking these exceptions out and trying to understand what caused it since it may well reveal a hidden opportunity. This could be something such as a line that performed significantly differently to your expectations or to its¶ peer group or a piece of market research that seems to contradict the common understanding. Where the cause and effect aren¶t so predictable you need to look for other factors that may be influencing the outcome. the more you hear or see evidence of something the more likely it is to be true (or likely to become true). since you know that there is nothing wrong with the products themselves. although the rewards if you do get it right can be huge. This rule applies equally to the hard facts revealed by performance analysis and to the speculation of market predictions.

for example. To explain what we mean by this let¶s say that you plan to include a direct repeat of a previous season¶s best selling product in the current season¶s range. This is particularly true where product performance is concerned since products and markets evolve and nothing is ever exactly the same. can quite easily re-appear in the future. There may not be many new products of the equivalent of the Walkman out there but there are plenty of smaller gains to be made. it¶s just that sometimes its¶ use may not be immediately apparent so hold on to it for later. at which point you will be able to draw on your knowledge and know how to act. Apparently useless knowledge gained today may become useful some time in the future. It is of such importance that we will be covering the techniques and principles used in much more detail in a separate chapter in a later chapter. while you must assess the potential performance of the best selling product in the current season with reference to the past. in the general media and on the internet. None of the data pointed to the need for a product to fulfil this need but he instinctively knew that it existed. since things have a way of coming around again. This means continually reviewing and updating your knowledge bank and µarchiving¶ the knowledge that is no longer relevant ± don¶t discard it completely. Knowledge is found both in analysis of the past and in research into the future The past is understood predominantly by analysing performance data. The conditions you have identified as the cause of exceptional performance in the past and which may not have been important at the time. Market analysis relies on both factual and subjective sources and helps us to understand the market sector in which we operate and to respond to shorter term threats and opportunities and. The repeated product is now part of a different range ± where there may be other lines which are more appealing to the customer ± and is being sold in a market where your competitors may have introduced similar products. You can¶t simply take the last season¶s performance and use it to extrapolate what will happen this season. Needless to say the availability of accurate and timely data is critical. Even his company disagreed but he went ahead with his vision and the rest is history. weather and trading conditions that may have influenced performance. While past performance is an extremely good indicator of what is likely to happen in the future it is not definitive and things do change. 5) INVEST FOR THE FUTURE No knowledge is without its use. Lets now look at where find knowledge. since the quicker you are able to adapt to new knowledge the better. in many ways. You usually have to use your judgement decide how much account to take of history. 6)STAY CURRENT Knowledge does date and you need to make sure that yours is always as current as possible. Facts come from competitive surveys or published statistics while a more subjective viewpoint can be gained by analysing the comments and articles found in trade journals. Performance analysis is.them to carry this music about with them. So. while an understanding of the present and the future is gained from market analysis and trend prediction. you must also take account of the changed dynamics of the present. It tells us where we are. You also need to understand the context in which things happened and it is worthwhile keeping a diary of the events. where we¶ve been and where we are likely to end up if same trading conditions are repeated. the bedrock of our knowledge since it reveals is the incontrovertible truths supported by the facts of performance. You should also keep an open mind and try not to get hung up on the past. .

marketing etc. i. we just have to chose the one we want and make it happen´. 4. ‡ Range developments. just because the competition is doing it doesn¶t mean that it¶s working and secondly. You could find direction for the evolution of your proposition such as new products. but with two importa nt provisos. the fact that the competition is already doing something means that by the time you copy it it will be too late. ³All futures are possible. If the competitor is more aspirational than you then they are generally going to be more innovative than you are and more likely to be doing things that you may want to do in future. DIRECT COMPETITION Analysing your direct competitor¶s proposition ± its¶ product.1 OTHER RETAILERS You obviously cannot conduct open surveys and have to be quite circumspect when looking at the competition but both direct competitors.2 CONSUMER AND MARKET RESEARCH While consumer research.2. If the competitor is less aspirational than you then they may well be copying the things that you did last year or stocking similar products to those in your ranges at cheaper prices. In most businesses the jobs of performance and market analysis and trend prediction are individual responsibilities while larger companies may devolve the responsibility for market analysis and trend prediction to specialist teams. Specialist forecasting agencies can be consulted and market and consumer research commissioned but in the end we usually have to make our best judgement based the data available.Trend prediction is used to give us a vision of the potential future. Firstly. ‡ Range mix & product choice. It is almost entirely subjective ± often no more than an informed guess ± and relies heavily on experience.e. Things to look at in both cases include : ‡ Pricing ± particularly of competitive products.e. i. 4. those which directly compete with you fo r the same customer in the same market sector. pricing.2. ‡ Visual merchandising ‡ Availability and size support ± if size is relevant are all the core sizes in stock of all the lines. improved store environment or service proposition. A wise man once said. ‡ Markdown & promotional activity ± especially on competitive lines or ranges. Where this is happening you need to review your own proposition to ensure you are maintaining differential and to take steps to remove any overlaps. INDIRECT COMPETITION What you can learn from retailers you do not directly compete with depends on whether they are targeted at more or less aspirational customer than you are. We¶ll briefly look at the possible sources. 4. either that which is specially commissioned or that which is generally . Despite the potential for error trend prediction is necessary since without a vision of the future the business will not evolve. and indirect competitors. ± can help you formulate short term tactics that could help you to steal their customers.2 MARKET KNOWLEDGE Market knowledge comes from many sources and you will need to chose what is relevant to you. those which operate in the same market sector but which do not attract the same customers. In any case we often control our own destiny more than we might believe. can provide useful inputs.

Ask someone what they would do if they had £100 to spend and they will give you an answer that they believe to be true. especially for µemotive¶ products such as apparel. and in some cases detailed. are often hugely influential in determining future trends they are generally not accessible to mere mortals and we must generally rely on the many reports in the media for informatio n. product. That said. and in many cases unwearable. especially the informed comment and the factual and technical articles found in more specialist journals or on the internet. provides good background. and are often one of the best sources for news on technological improvements. the media. the economy. will be edited and targeted at specific audiences and will bias its¶ content to its¶ audience. since they will often deal with them. 4. 4. Factual research. plays a very important role in starting and establishing trends. Most shows tend to take place well in advance of the season. especially the µglossies¶. could well do something completely different. knowledge about diverse areas including new trends.4 MEDIA The media.2. an understanding of your customer¶s needs is gained from a mix of performance analysis and research. Remember that all media.5 TRADE SHOWS AND EXHIBITIONS Every industry is well provided by trade shows and exhibitions. or rather their contents.2. product developments. are exclusive to the clothing market.2. There are a number of good market surveys. creations to a motley audience of B-list celebrities and the occasional genuine movie star. They can be costly but the best agencies can save you money. component and raw material sourcing and product trends. the bulk of the exhibitors at which. some of whom may be competitors. where top models parade a fashion designer¶s unaffordable. Suppliers can provide a good insight into competitive behaviour. it must be remembered. Their main drawback is that they have multiple customers.2. 4. all of whom will get the same basic message This can reduce differential .7 FORECASTING AGENCIES Forecasting agencies are specialist companies. technology and the market environment. not research alone. can be useful. Trade shows have one drawback for many visitors is that they are often trade only and many exhibitors will only allow visitors on to their stands with a formal invitation to prevent their ideas being copied. dependent on their priorities and feelings at that time.3 SUPPLY BASE Your suppliers are a very good source of knowledge. Despite the circus that surrounds them many designers. Actually give the same person £100 and. mostly fashion related. although their larger customer s will generally be given a preview. time and leg work by drawing on a wider range of sources than you might have access to. which give general insights into the market and consumer behaviour but the more specific the research is the more useful it is likely to be. such as wardrobe surveys. Some exhibitors will use the major trade shows to launch their new products. such as those provided by Mintel. which ask µWhat did you do?¶ are more reliable guides to action since qualitative research. especially that which is produced for mass consumption.2. whose job it is to predict what the next season¶s trends will be. . although in the end it¶s up to you to interpret the information they give you. and they are useful for finding new product or trend ideas and sourcing opportunities. and should be treated cautiously. 4. 4. in fact many smaller retailers book their ranges at these shows. The reason for this is that no matter how well a question is framed it is very difficult for anyone to predict what their actions would really be in the future.available.6 DESIGNER SHOWS Designer shows. which asks µWhat are you going to do?¶ is often too subjective. and providing you have a good relationship with them they are usually very happy to share it. are focussed on selling products to new or existing customers.

and potential. wh at it is that influences them to make a purchase. as discussed in the last chapter. The objective of customer analysis is to enable you to enhance your proposition. which are often built around personal feedback. Chapter 5 : Understanding your customer 5 INTRODUCTION One of the cornerstones of knowledge is a clear understanding of your current. These offer services ranging from a simple database facility.2. she replied. The author was visiting a store and asked the manager which product area her customer¶s least liked. in fact. While it is doubtless useful for identifying any issues or opportunities in the current proposition the more pertinent questions to ask are often not µWho is my customer?¶ but µWho isn¶t?¶ or µWho do I want my customers to be?¶. and without a consistent understanding of who the customer is throughout your organisation.In addition to the traditional agencies. Remember at all times that your customers are real people not just statistics and cannot be represented using graphs. If you want to exceed your customer¶s expectations you need to truly appreciate their motivations and emotions. what their likes and dislikes are and. as it were. customer¶s needs and preferences. think and feel. charts and tables of number.1 THE BUYING DECISION Let¶s start by looking at the factors involved in the buying decision ± to buy or not to buy.8 OUTLET FEEDBACK Feedback from your outlets can be useful since the retail operation team have daily contact with your customers.´«. You will only be able to grow your business if you understand the needs of the people who are not currently shopping in your outlets. which allo ws you access to trend and competitor images together with general market data. through to a full forecasting service tailored specifically to your needs. by the way. ³Dresses´. and there is no guarantee that a person will repeat past behaviour regardless of what they say they will do. You want to understand how they live. especially for less essential products. most importantly. showed that the Dresses were. In this chapter we will look at the ways in which we can try to define and understand our customers and how we can apply this knowledge. While it might seem very simple the decision to buy something is often ver y complex. Customers are complex creatures and while it is relatively simple to describe their current behaviour and preferences using performance analysis and market research. There¶s a true story to support this. People evolve. we have to rely on our abilities to make the best guess we can from the information and data available. attitudes and circumstances change. ultimately. No matter how beneficial complex modelling techniques are in grouping common behaviours. While anyone who visits your outlet is a potential customer it is your current proposition that will determine who this is likely to be. there are also several internet companies. however. Again what you get out of this service depends on your interpretative skills. predicting what they are likely to do in future is much more tricky. Without this knowledge. if you try to relate this discussion to . I don¶t like it at all´! The second drawback is that the customer who shouts the loudest is the one that is most likely to be heard. The first is that the feedback is not always objective since the store staff do sometimes colour their observations with their own feelings and prejudices rather than reporting what they see and hear. the manager explained that it was because . and it certainly isn¶t dependent on the money you have in your pocket ± it¶s easiest to understand the complexities involved. A quick look at store performance. You will often receive feedback from a store that on the face of it indicates that there is a major problem or opportunity but which turns out to be based on the demands from one very vocal and persistent customer. the Dress range is terribl e. let alone a suitable offer or proposition. attract new customers and improve market share. the store¶s biggest sellers When asked to explain the contradiction. 4. although there are two drawbacks which can be avoided with care. 5. there is no way that you will be able to develop an effective business strategy.

Firstly. a product which you see as expensive may be regarded as affordable by someone else.2. The more the you want something the less important afford becomes and the more likely you are to justify the purchase. secondly you need to determine the common characteristics of the market segments to which your customers belong. 5.1 The changing customer . Desire is very subjective ± as the saying goes. rather than your preferred outlet. believing that a particular product is going to improve your life makes it much easier to rationalise a buying decision or to justify spending more that you might have planned.personal experience. In summary then. Where numerous outlets provide a similar item at a similar specification at a similar price then you will chose the outlet in which the other aspects of the proposition best suit your needs (e. for instance. cannot simply sell good quality. 5. If an essential purchase is urgent then you are more likely to use the most convenient. when in many cases the products were no different to others available in the market. especially underwear. Shopping for non-essentials is much more fun. rather than merely functional. customer service. one man¶s meat is another man¶s poison ± and based on factors which are often very difficult to measure or to pre-determine. such as food and some clothing. but wrongly. Regardless of their target customer a clothing retailer. The differences between you and your competitors do not have to be real. The importance of perception is regularly exploited to create and enhance competitive differential using marketing and PR. The thing to remember here is that the customer will always believe what they want to believe. it must also be suitably stylish or fashionable. fo r instance. From a retailer¶s perspective this means that in many product categories success is determined by the degree to which they understand and are able to target the customer¶s emotional. therefore. Essential purchases. Remember this when you are analysing performance or reviewing ranges and be sure to ask yourself µWhat does the customer feel when they buy this product¶. Their perception of your product or brand is often as. As a result customers were willing to pay a premium for what they happily. but these beliefs can be very powerful. if not more. and finally you need to describe the profiles of each of the customer types that you serve. Branding is often very important in establishment of desire and some people will be happy to pay a premium for a certain brands when equivalent products can be bought much cheaper elsewhere.g. Marks and Spencer were believed to sell better quality clothing. emotion and perception play a critical part in the customer¶s buying decision. often regardless of the facts or the best efforts of th e retailer. What makes a product desirable is itself difficult to quantify. important than its¶ actual characteristics. you need to understand the mood of the general population. affordable. The less essential the product is the more emotional the purchase decision becomes and µwant¶ usually has to balanced with µafford¶. Here the customer is likely to have a minimum quality and functional requirement and will tend to shop at a outlet that provides the item at this specification at a price that you are willing to pay. For many years. After all. Wearing a £100 pair of Armani jeans will make some people feel better than if they were wearing a £50 pair of Levis even though the difference between the two is difficult to see to the casual observer. Men¶s shirts or denim jeans are good examples of this where a designer brand label can double or triple the price of an item. environment etc. are not definable simply on the basis of price. Since the worth of a product is determined by its desirability and this desirability is specific to the individual. µExpensive¶ and µcheap¶. clothing. Many non-essential purchases are made because the purchaser feels that the product will enhance their appearance. usually have to be bought regardless. believed to be a better product. appeal or social standing. There is still a fine balance to be maintained. merely commonly held beliefs. even if they will simply describe the reason for the purchase as µI liked it¶. convenience. Every customer has a price limit beyond which justification of the purchase is simply not possible and some products will be very desirable but still out of reach. Not only that but you will generally be more fulfilled when you buy something because you want to rather than because you have to.). where µwant¶ is determined by the desire for a product and µafford¶ is determined by the money available. needs.2 Building customer understanding You will come to an understanding of your customer in three stages.

They know what they want. Once each segment has been defined (and named) further. attitudes.2. and are willing to find it. As much as we would like to think of ourselves as individuals our preference are often determined by what we see and read. Statements such as µGroup A is more likely to exhibit this behaviour than group B¶ will be more common than µGroup A will exhibit this behaviour. Always bear in mind there are few µblack and white¶ distinctions between different groups of people and segmentation often relies on relative rather than absolute differences. especially f or essential products. Likewise an individual can fall into different groups for different product sectors and while this doesn¶t affect the groupings it can make data collection and analysis very complex.e. since this reflects the public mood. Using segmentation you can define where you operate within the market in relation to the competition and to more precisely describe the characteristics of the customers within your specific segment. films etc. even from budget retailers. probably because they are easy to specify and quantify. More subjective methods of segmentation such as lifestyle (e. These emer ge as a result of economic and societal developments and are dependent on many diverse factors. ‡ Customers are fickle and will readily sh ift allegiances if they are not satisfied. The method that I have found to been most effective uses price and service and fashion attitudes. 5. lifestyle or socio-economic group. research can be carried out with small groups of respondents from each segment to give them colour and depth so that you can describe the characteristics of each segment in much more detail.g. behaviour etc. These are simple and understandable and attitudes tend to be consistent for each segment regardless of age. A retailer can capitalise on this by linking themselves to a particular lifestyle. including the increased availability of information and the changes in consumer legislation. easier.000 respondents. You can usually identify what these characteristics are through analysis of the media. ‡ The influence of media is pervasive and consumer tastes are increasingly defined by press. TV.There will always be a number of characteristics which apply to all consumers. although maintaining a lifestyle positioning can be involve heavy investment. those with more than 1. while group B will not¶. ‡ Buying habits and lifestyle choice are interlinked and the customer increasingly defines who they are by what they own. Segmentation exercises are often supported by extensive quantitative research projects. At the same time media and advertising create aspirational style icons whose actions influence the general audience as well as their fans and admirers. they are not particularly useful since they are not good indicators of behaviour ± an older person can behave in the same way as someone younger. Each respondent is asked a series of questions covering demographics. ‡ Customers are time poor and will do what they can to make shopping.2 MARKET SEGMENTATION The market is simply too big to describe as a whole and you must first segment the population into manageable groups which share similar behaviour and attitudes. product use. This is not strictly µscientific¶ and while the definitions will be supported by research and analysis wherever possible they can also be arrived at . They will only remain loyal to one retailer or brand if we put in that extra bit of effort to make them feel special and wanted. i. We¶ll use these as examples to look at how segmentation works ± although you may use other models in practice the principles are the same. young professional. This data is then analysed or modelled using mathematical techniques to create segments with similar patterns of response. qualitative. It is important that the segmentation model you use is easy to build and understand Although age and socio-economic groupings are often used as the basis for segmentation. The following are examples of common characteristics which are pertinent at the time of writing : ‡ Today¶s customer is much more knowledgeable and discerning. even if we don¶t. though specific research and analysis can be used to support your hypotheses. For a retailer this means that the proposition must match the promise ± there can be no compromises. ‡ Customers generally have minimum expectations of the quality and service that they expect. and are less prepared to tolerate shoddy goods or poor service. home maker) are generally best used for describing the customer types within each segment.

Communications to this customer need to be as personal and as exclusive as the products ± price will not be mentioned. image and status and these factors are more important that the price or the product itself. which is why clearance events are great excuses for customers to meet their aspirational shopping needs at a price they can afford SEGMENT DEFINITIONS 1) THE PREMIUM CUSTOMER The premium customer shops for exclusivity. They are the type of people who always want. Note that there will always be an overlap between sectors ± the informed customer will share some characteristics with the cash strapped and premium customers. Price attitude is also aspirational. while high earners can be bargain hunters in others. especially for special occasions. for instance. and can afford. Many customers aspire above their means and will quickly change segment as soon as their disposable inc increases. service. . 5. quality. They tend to be very selective in what they buy and although they will have a budget the product is generally more important than the price.through informed discussion. Inevitably they prefer to shop in a high specification environment with exceptional. The broad characteristics for each segment in our models are given in the next issue of Retail Angle. They occasionally aspire to and buy premium brands. 2) THE INFORMED CUSTOMER For an informed customer µvalue¶ means a combination of price. A Premium customer for instance has high service expectations. although not always assisted. These segments are not quantified and the diagram is not intended to show the size of each segment.1 Price & Service Attitude The customer¶s price and service attitude is defined by how sensitive they are to price. such as branded clothing.2. what their service expectations are and their willingness to compromise on product or service in order to get the price they want.2. the best of everything. Price attitude is not strictly dependent on income since low income earners will be premium customers in some product sectors. merely what their attitudes are likely to be. low price sensitivity and a low willingness to compromise on product qualities. design and functionality. and will always visit premium stores during clearance events. The table below shows how customers have been grouped and labelled according to these factors.

efficient. They will compromise to a certain extent but not will always expect keen pricing to make this compromise. As a result you have to b e very careful when carrying out research to ask questions that cover the full range of products you stock and not to base your . Most will have higher aspirations which they will act on as soon as their financial circumstances change. such as fashionability will also need be emphasised. Fashion attitude can also be affected by disposable income and a person might aspire to be a fashion leader in all sectors but can only afford to satisfy this aspiration in one. Despite its¶ name fashion attitude applies equally to all product areas. As with price attitude.The informed customer expects a comprehensive range of products. Service and environment are rarely considerations. Communications will tend to concentrate on pricing although other factors. for instance.2. 3) THE CASH STRAPPED CUSTOMER The cash strapped customer has a limited budget but is still discriminating when it comes to product choice. 4) THE BARGAIN HUNTER Bargain hunters are totally driven by price to the extent that they sometimes appear to be more interested in the µbargain¶ than in the product itself. These customers are willing to queue and are happy in a pile it high sell it cheap environment.2. They will expect a good choice of product which is within their budget and although they are less concerned about service and store environment than the informed customer they will still expect an efficient point of sale. They are major markdown shoppers and will always seek out the best possible offer. informed service with assisted selection when needed and prefer to shop in a well designed but un-threatening environment. fashion attitudes can vary by product type and a person could be more of a fashion leader for apparel but more fashion neutral for high tech products. Again the diagram is not representative of the size of each segment and the differences between the groups are relative. Remember though that although wealth is not always a factor most bargain hunters are not in this segment by choice.2 FASHION ATTITUDE Fashion attitude is defined by the customer¶s attitude to innovation and their willingness to take risks. The table below shows the customer groupings based on these factors. 5. Communications to this customer tend to focus on information or image rather than price. Seconds and special buy products are gratefully accepted if the price is right. A fashion neutral customer will be less interested in innovation and less likely to take risks than a fashion follower.

to an extent. but will do so with caution. bra nds and even outlets. they are equally happy searching out these products from little known and unusual sources. and desired. and while they want to see innovations they are generally one or two seasons behind the innovators and will only buy the latest items when they become more widely accepted. They are willing to experiment. This grid plays an important role in the development of your overall business and product strategies since it enables you to quickly see where you are.3 THE SEGMENTATION GRID Using price and service and fashion attitudes as axes you can now create a market segmentation grid which can then be used to plot your current. They prefer anonymity to visibility and will always chose evolution over revolution.2. They tend to be more conservative or classic in their choices and are more likely to stay with what they know than to experiment ± these are the customers who will.segmentation on a single response. Image and. from your understanding of each segment. 3) FASHION LEADER Fashion leaders (or victims?) are the innovators. It¶s worthwhile noting that µFashion Leadership¶ often works at a personal level. since there is usually at least one person in each peer group who is their elected in self-appointed fashion leader and who will affect the purchases of the rest of the group. the type or branding is very important and regardless of the outlet or the presentation the fashion leader expects the product offer to be exciting. They always wants to be the first with the new products and while they are willing to pay a premium to achieve this.2. to which they will be loyal for as long as their needs are met . 2) FASHION FOLLOWER The fashion follower is the core customer for many retailers. They will have preferred styles. As a result of this price sensitivity a person¶s fashion attitude can appear to change over time when all that has happened is that a latent desire has been released. Fashion leaders tend to be influential on fashion followers since their use of a new product helps to extend its acceptance into the mainstream. if they can. 5. price and fashion positioning in the market relative to your competitors. where you want to be and. while they like continuity they don¶t do boring and want a good mix of classic and up to date products that enable them to reflect their own personality. SEGMENT DEFINITIONS 1) FASHION NEUTRAL Innovation passes the fashion neutral customer by and they only become aware of it when it knocks on their door and tells them things have changed. only ever drive one brand of car. Fashion neutrals need safe environments where they feel reassured and unthreatened. to define what you need to do to get there and what the implicat ions of this journey . changing only when they have to. At the same time. Fashion followers need stimulating and entertaining environments that help and direct them to make their own choices.

Since customer profiles are for internal use you could even name each profile after the real or fictional person that it most closely exemplifies.2. This method is useful since discretionary spending is heavily influenced by life stage. together with a story board for the College Slacker is shown. As with the overall segmentation customer profiling is developed using a mixture of analysis.3 CUSTOMER PROFILING Customer profiling is used to more precisely define your customers and focus your proposition. how they entertain themselves. Hence µJames¶ (as in Bond) could be the suave. quotes from customers and other aids should be used wherever possible to build a µstoryboard¶ of each profile. The number of profiles you need and how you define them depends on the type of market you operate in and the complexity of your product offer ± it is much harder for a department store offering a wide range of products to define the profiles of its¶ customers than it is for a branded sportswear manufacturer. Each customer can have many facets and it is not unusual to need sub-profiles based on the type of products they are shopping for. if appropriate. for instance. At the same time a persons life stage tends to change over time.3. what their likes an d dislikes are. with or without children etc. your current market position is as shown above and you decide that you want to service a higher proportion of Fashion Leaders you know. Life stage has been used as the basis for profiling and three main profiles. showing. while µMadonna¶ could be the older but still trendy and active woman. Each profile can be as detailed or as sketchy as you want although it should be easy to interpret and act on as you don¶t want it to contain excessive amounts of superfluous detail which might distract or confuse. It helps if you give each profile a name that helps you to visualise its characteristics. Each customer profile retains the characteristics of the overall market segment to which they belong but has specific needs which to be met. Young Executive and Family Man have been defined. working or retired. It can describe where they work. Profiling creates a composite picture of each type of customer which helps you to understand what they will want to buy and how they will want to buy it. studying. College Slacker. 5. could be µSporty James¶ at one time and µParty James¶ at another. watch and listen to. research and observation. where they are likely to live. sophisticated male. You should also plot the distinctions and similarities between each profile. There will be no right or wrong answers and you will probably have to go through the profiling process several times before you are happy with your definitions. Visual cues. People who have recently married are likely to spend a larger proportion of their income on setting up their home than single people for instance. what they are likely to earn. the customer evolves from one to another. that your product ranges are going to have to become more innovative than they are at present. Knowing that your customer has strong views on the political situation in the Lesser Antilles isn¶t likely to be much use when all you want to do is sell them a pair of socks. from your definitions. The example uses a man¶s clothing retailer operating predominantly in the Informed Fashion Follower sector with customers ranging from young college goers through to older executives. 5. what they read. and developing a broad proposition that satisfies their needs over a number of life stages can be a way of retaining customers. Note that the statements made in real profiles as well as in this example are intended be indicative . If. for instance.2.1 CUSTOMER PROFILING EXAMPLE This example gives an idea of the type of things that would be covered in a profiling exercise although they aren¶t as extensive or as detailed as they would be in reality. A profile comparison. from single to married or from studying to working for example.will be. Another example of customer profiling is to use µlife stage¶ which describes whether a customer is single or married. which products and brands they are likely to use and what their purchase drivers are and so on and so on. Once again there are no right or wrong answers and you need to develop profiles that are applicable and meaningful to you. while people with children will have different proprieties to those that don¶t. µJames¶.

FAMILY MAN 28 ± 45 Established mid management. FHM Magazine. Goes out to eat or to cinema when can get a babysitter. Chinos. watches and plays sports.£40k Married with 2 children. £25 .£30k Flat sharing but in process of buying own home with long term girlfriend. Total Film. but we would expect them to drive a similar type of car and be interested in µserious¶ news. Steady income. Wants to look stylish in what they wear. Prefers long haul holidays to more exotic locations. Clothing. Has Likes good food. COLLEGE SLACKER STORYBOARD COLLEGE SLACKER AGE 18 ± 25 Student. T-shirts. Holidays Considers entertainment a necessity Second hand BMW or company Mondeo The Guardian. £12k . Prefers natural fibres and more muted tones. Takes a villa in Spain and maybe a week skiing OCCUPATION INCOME LIFESTYLE HOBBIES AND INTERESTS Likes going out to pubs and clubs.32 First promotion.rather than definitive ± every Family Man will not drive a Volvo Estate and read the Guardian for instance. Beckham Quality and fit important. Not sure what the current fashion are. first job. Linked In Doesn¶t have much spare after paying the mortgage and other bill but will spend what he has on a treat like a flat screen TV Holidays are a necessity. first job move. Not too worried about quality. in digs or flat sharing. Doesn¶t really use the Internet any more Tracksuits and t-shirts round the house. interested in sport but is too busy ferrying children around Household especially technology. Sports kit Smart Casual. Face Book MEDIA & INTERNET WARDROBE Casual. You Tube. Total Film & GQ Magazine. polo shirts. Very value conscious but will pay more for the right product. Jeans. Gardening World. jeans. Suits and formal shirts for work CHOICE FACTORS Likes µstreet¶ clothing. Jeans and casual shirts for going out. Watches and sometimes enjoys it. Takes one package holiday per year but considering world trip in gap year YOUNG EXECUTIVE 21. casual work Less than £12k Living at home. Suits and formal shirts for the office Quality and value important. Own house and large mortgage. holidays CAR None. Bill Gates DISCRETIONAL SPENDING Entertainment. Still sports and plays casually. cinema & to do the gardening and DIY occasional theatre. Skis in winter. Volvo Estate The Guardian. second hand banger Radio 1. clothing. Tries to save but never has much success. Happy to wear current fashions Bond ICON .

µI want to buy some clothes¶ or very specific. for planning and buying ranges and for planning the layout of an outlet and. for example. This means that the outlet should be easy to navigate with clear groupings of complimentary products. These are defined. . They are not likely to visit a furniture retailer to buy clothing.The Shopping Mission & Purchase Drivers Two more concepts relevant to your understanding of the customer are the µSHOPPING MISSION¶ and µPURCHASE DRIVERS¶. convenience or choice. The more general the mission the more likely they are to browse before buying rather than heading straight to a specific department looking for a particular product.2. The shopping mission influences which retailers a customer will visit since they will only go to those that are specific to their mission and which meet some other pre -determined criteria such as affordability. 5. In addition the process of defining what the Shopping Missions and Purchase Drivers are will often reveal issues and opportunities with the current ranges as well as possible range developments. A retailer¶s job is to ensure that each shopping mission that a customer is lik ely to have when they visit one of their outlets can be successfully completed as quickly and as easily as possible. for instance. Once they are in an outlet the shopping mission will determine how the customer will shop it. as with everything else about the customer. or to visit a high price designer store if they are on a tight budget. Each product range should be wide enough to give the customer a reasonable chance of buying the product they are looking for and should be displayed and should be organised in a way that makes selection simple and intuitive. using a mixture common sense and analysis and are the starting points for determining the hierarchical structure of performance data. µI want to buy the latest Madonna CD¶.4 The Shopping Mission A shopping mission is the general or specific purchase objective a customer has in mind when they visit an outlet which can be very general. We aren¶t including general browsing here ± the intent of a Shopping Mission is to actually buy something. for instance.

for example. and to ensure that they contain sufficient variants of each product type to enable the potential purchaser to make a choice. If you do stock cotton shirts in a variety of designs and styles but only in lilac and white colour ways then there is still a chance that the customer will make a purchase since the desire for blue or green is only a preference rather than an absolute requirement.6 Defining the Shopping Mission and The Purchase Drivers Defining the shopping mission and the purchase drivers involves no more than an open discussion between interested parties. man¶s. bearing in mind your market segment and target customer..g. For more details on attributes see chapter 6. colour. style (plain or button down collar) and price. for instance the range would need to include a variety of options in different fabrics. polyester). ‡ You then take each primary mission and break it down into its components. could be gender (e. probably. In order to maximise sales (and customer satisfaction) it should be clear from this example that yo u need to identify what the purchase drivers for each product type are and then to ensure that an appropriately wide set of variations of each of these attributes are covered in each range. as in the case of Madonna¶s latest CD. each product to have a full size set available and displayed in a logical order. design (stripe. In this example that might be at the front of the shop or at least in the µPop Music¶ section alphabetically filed under µM¶. however. t-shirts. As an example let¶s say the purchase drivers for a customer buying a shirt are fabric (e.2. The customer will expect. check). To satisfy the maximum number of shirt customers. If you stock a full colour range of cotton shirts even if it is only in button down collar stripes then the customer is likely to be satisfied. If their essential requirements are covered. fabric. as is often the case with clothing. such as its¶ brand. cover all possible variations of all purchase drivers as the ran ge would be far too large ± imagine trying to stock every possible colour ± and you need to concentrate on the most important variations of the purchase drivers that the bulk of your customers considers most essential. You will need a facilitator and. If your range contains no cotton shirts then you will almost certainly lose this customer ± they simply will not be willing to compromise and buy a polyester shirt . then the retailer needs to organise the ranges in a way that is logical to the customer. ‡ The first stage is to define the primary mission a customer is likely to have when they visit your outlets (actual or proposed). dresses) but most .g. Think in terms of the way that that the bulk of customers will expect to shop your outlet they visit it. denim. plain. however. then the retailer must ensure that the specific product is available in an obvious location. If a shopping mission is more likely to be a little bit vague. a chairman to cast the deciding vote in the case of disputes but beyond that its just as case of sitting down together and working through the process below. designs and styles.5 Purchase Drivers A purchase driver is any attribute of a product. not just to contain striped button -down collar cotton shirts in blue. retail operations. colours.g. marketing and the customers themselves can be involved.How these principles are applied depends on the product category. This particular customer will only ever wear cotton. which influences a customer¶s purchase decision. if you are a department store the primary objectives could be to buy any of the categories you stock. style etc. cotton.g. women¶s) or product type (e. Although the key season¶s looks and colours need to be represented there is unlikely to be a specific product that must be available in the range and there is no one way that the ranges need to be displayed. Buying and merchandising. Think of purchase drivers as a check list of attributes that are ranked. however. from essential to optional. price. The components of a shopping mission for clothing. functionality. colour. e. Where a shopping mission is likely to be very specific. These are usually self evident and there can be one or more depending on the type of retailer that you are ± if you are clothing retailer then the primary mission is to buy clothing.2. 5. they will be happy to compromise on the more optional factors. to gen der and then product type. fashionability. If a customer is not able to find a product with the required variation of an essential attribute then they will not buy. prefers blue or green and has no preference regarding design or style. 5. You cannot. in the cus tomer¶s mind.

The principles in both instances are more or less the same but we¶ll look at them separately and then discuss how we measure the results below. . whether through a segmentation exercise. cheaply and at low risk. A Menswear customer looking for a shirt will not fulfil this mission by buying a pair of trousers. rather than to visit a generic µT -Shirt¶ area and then look for men¶s T-Shirts. for instance. You may decide for example that the secondary objective of Men¶s Clothing shopping mission is product type. The shirt customer could chose a shirt based on its¶ style. ‡ All branches of each mission should be explored right down to product. while that for Women¶s Clothing is . Formal or Casual). As a result you can often (although obviously not always) implement changes quickly. for example. on your understanding of your customer. in the end. The retailers who use this ability are. regardless of its¶ importance.3 USING CUSTOMER KNOWLEDGE As we said in the introduction the knowledge you have gained on your customer. The main advantage for a retailer is that it is relatively easy to trial something such as a new store layout or a new product range in a sample of outlets before committing to it across the whole business. colour. through your understanding of their shopping missions and purchase drivers or through other research and analysis. ‡ Shopping missions and their associated purchase drivers are best represented in an hierarchical table. 5.g. likely to be the most successful. How you break down each mission depends. unsurprisingly.people would expect the offer to be split by gender. A man shopping for himself will expect to visit the menswear area and then to look for a particular product type. At some stage you will reach a point where there are a number of possible choice that the customer could make to satisfy their mission. These are your purchase drivers and each one should be listed. ‡ Each branch of the mission should represent the specific and unequivocal route by which the customer will fulfil their mission. is used to both to evolve and improve an existing proposition to better match the needs of current customers or to attract new ones and to develop a new proposition that will meet the needs of a new target customer. ‡ Each shopping mission can branch according to different criteria. end use (e. fabric or functionality. as is shown in the example below.

5.3.1 EVOLVING AN EXISTING PROPOSITION The degree of change you need to make to an existing proposition depends on the gaps or opportunities that have been revealed, and on your objectives. ‡ If you are happy with your existing customer base you will only need to revitali se those aspects of the proposition, such as brand image or store environment, which have been identified as missing or unsatisfactory . Changes can be as subtle or as radical as required ± the store environment could need a complete overhaul or nothing more only a lick of paint and new signage for example. ‡ If you want to build market penetration you will need make whatever changes are necessary to attract new customers or to take a greater share of discretionary spending from your existing customers. This usually involves amending or extend the category assortment or launching a new sub-brand under the main brand umbrella but could also involve changes to the store environment, the service proposition or the marketing message. ‡ Having determined the objectives the changes should be costed and financial and other targets, such as the should be set. These would commonly include the additional sales and the expected changes to the customer base margin that the changes need to deliver to be deemed successful. ‡ Nothing remains other than to execute the changes and measure the results. 5.3.2 DEVELOPING A NEW PROPOSITION The following applies regardless of whether you are new entrant into the sector or an existing retailer developing a new concept that targets a different segment of the market to that which they already serve. ‡ Chose the market sector, e.g. clothing, and the market segment, e.g. informed fashion follower, that you will operate in and decide on the specific customer profiles, e.g. µCollege Slacker¶, that you want your proposition to attract. ‡ Quantify the size of the segment and determine the commercial factors involved in serving the chosen customer profiles in this segment. The µInformed Fashion Follower College Slacker Clothing¶ segment is likely to be fairly large and although it will only deliver low to average margins because of potential price sensitivity of this customer this could be offset by relatively low set up and maintenance costs. ‡ Develop and cost the proposition that will appeal to the target customer. In this instance everything will have to be done from scratch (although you may chose to µlearn¶ from existing operators in the sector). You will need to decide on the type of outlet category assortment, set the price posi tioning, design the outlet, environment and service, create the tone of voice for communications and marketing etc. ‡ Based on your expected share of the market and on the projected costs determine the financial expectations. ‡ Once more all that now needs to be done is launch the proposition and to measure the results. 5.3.3 MEASURING THE RESULTS The following flow chart shows the broad steps in developing a new or amended proposition. We¶ve already looked at the first three steps and are now going to look at what happens after the proposition has been launched or the changes have been executed.

Once the customer has had chance to react to the new or changed proposition we can measure the financial performance and look at who the actual customer is compared to our target. This is where it gets interesting. Let¶s look at the new proposition we used as an example above. Unless you have got it very, very wrong it is likely that the bulk of your are, as expected, informed fashion followers. However it is quite possible that instead of a µCollege Slacker¶ the proposition appears to have attracted a µFamily Man¶. What do you do? Some people would straightaway wail that the launch had been a failure and that proposition needed to be changed. But before you can deem anything a failure you must firs look at performance. If results are good and the targets have been achieved or exceeded then you simply have to change the definition of your target customer to µFamily Man¶. Only if results are poor will you need to revisit the proposition. The fact is that it is better to rate the success of a new or changed proposition on the on the basis of performance rather than on its ability to attract a specific type of customer. Even though the store environment, product offer, marketing etc. are all designed according to what you think is required by a particular customer profile, who cares if the end result attracts a different profile so long as the outlet is successful. 5.4 UNDERSTANDING YOUR CUSTOMER : SOME FIN AL WORDS We may think we know our customers but unfortunately serving their needs can be as much about trial and error as science. History is scattered with examples of how the customer has confounded expectations and not behaved as we have expected, with both good and bad results. Sometimes we succeed and sometimes we fail regardless and doubtless there are many examples buried in the archives of retailers and the memories of their managers. It¶s not just in retailing that this happens and brands and manufacturers can make equal and often more damaging errors in their assumptions about the customer ± look up the Ford Edsel or New Coke on the internet by way of example. The lesson is that regardless of how much you think you understand your customer they¶ll always, and with complete disregard for the facts, prove you wrong. CHAPTER 6: ORGANIZING INFORMATION - HIERARCHIES AND ATTRIBUTES 6 INTRODUCTION In the next few chapters we will be looking at performance analysis, but before we can cover the main topic we need to understand how the performance data we will use should be organised. It may seem self evident, but it is essential that this data is structured, and readily available, in a way that helps, rather than hinders, performance analysis. Where this isn¶t the case, and it isn¶t in a surprising number of businesses, performance analysis is less efficient and rigorous than it should be and the actions that

derive from it aren¶t as effective.. At the same time, our ability to succeed is made significantly easier if data is organised in a way that helps us to identify and anticipate our customer¶s needs. What we don¶t want is for the data user (that would be you) to have to spend more of their time wrangling the data into a useable form than they do actually analysing it. Problems can easily be avoided if some fairly simple concepts are understood and some basic rules followed. Performance data predominantly comes from product transactions captured in a variety of outlets over time (conveniently corresponding to the µRight Product, Right Place, Right Time¶ rule) and in this chapter we are going to look at how HIERARCHIES and ATTRIBUTES can be used organise this data in a way which is both customer focussed and supportive of effective and efficient performance analysis. 6.1 DEFINITIONS 6.1.1 HIERARCHIES The information hierarchy is a strict one parent, many children structure. Each parent can have one or more children while each child can only have one parent. Each child is in turn the parent of children in the hierarchy level below, while each child has a relationship with all levels above them in the hierarchy. The hierarchical relationships are shown in the following diagram. A retail organisation will need three hierarchies to organise its data, one f or Product, one for Outlet and one for Time. The product and outlet hierarchies can have as many levels, branches and members in each level as required but need to be consistent with the actual organisational structure so that performance can be attributed to the individuals responsible for delivering it. Different µmembership rules¶ can be applied to each branch of the these hierarchies to accommodate business needs. The first branch of the product hierarchy for a clothing retailer, for example, could be gender (Men, Women) while the next branch could use end use (Formal, Casual) for Menswear and Product Type (Dresses, Skirts etc.) for Womenswear. There is less flexibility with the Time hierarchy since it is governed by clock and calendar although you will need to make sure it supports both merchandising and financial requirements. 6.1.2 ATTRIBUTES An attribute is any characteristic of a product, an outlet or a period of time, such as the material from which a product is made, the geographical region to which a outlet belongs or the annual event that falls on a specific date.

Attributes µbelong¶ to the members of the lowest level in a hierarchy, usually the SKU in the product hierarchy and the outlet in the Outlet hierarchy. There are usually systems constraints on the number of attributes you can use. Attributes are primarily used for Range and Outlet analysis, although they are also used to provide data

so that each child performance is a subset of a parent. They provide a more flexible way of consolidating data than the hierarchies and can be used to analyse data within and across the hierarchical structure. You could analyse the µCotton¶ sales for the business regardless of whether the product was Men¶s or Women¶s. Attribute analysis tends to be produced as required and for varying parameters rather than as part of any regular set of reports.1. while a µDC Stock Location¶ attribute can be used to automatically direct a product to a particular storage location in the DC. move a child to a new parent in which case. Attributes are also used to trigger certain actions. in principle (some systems don¶t make it easy) be possible to analyse performance for any level of one hierarchy at any level of the two others. most commonly at the point of sale or in the Distribution Centre.g.3 CAPTURING AND REPORTING DATA Performance data is collected for each transaction and referenced to the lowest level in each hierarchy. the performance history owned by the child and all hierarchy levels below it will also move. You can. 6. for example the hourly sales of a specific product for a outlet hierarchy member. Performance data is always owned by its originating transacti on and cannot be transferred ± a sale always belongs to the product in one outlet where it took place. usually SKU or Unique Product Code in the Product hierarchy.for other business functions such as Finance. however. A µVAT Code¶ attribute will determine whether VAT is applicable to a transaction. type and complexity of the business. The stock file is updated at the time of the transfer and history is not moved. Stock data is owned by the lowest level members of the outlet hierarchy and can be freely transferred between members at that level e.2. for instance. Performance is reported either within the hierarchy structure. It should. 6.1 THE PRODUCT HIERARCHY The Product hierarchy determines how product information is structured and extends from the company down to SKU or Unique Product Code with the number of levels between depending on the size. the outlet in the Outlet hierarchy and the hour in the Time hierarchy. or across the hierarchy using attributes. or the monthly sales in a specific outlet for a particular product hierarchy member. in most systems.2 PRODUCT 6. from one outlet to another. .

SKU AND UPC ‡ A Plain Short Sleeve Cotton Shirt with contrasting collar and sleeve is a PRODUCT. Hierarchy levels above department will represent a more general component of the shopping mission or are µreporting levels¶ set up to match a management tier in the buying and merchandising organisation. The sub-department designation is specific to the department and can be different even for departments in the same hierarchy branch. ‡ A Plain Short Sleeve Cotton Shirt with contrasting collar and sleeve in Blue.2.The product hierarchy must organise information in a way that enables you to plan. A department will be a fundamental component of the Shopping Mission and while its¶ name may be different in different companies.3 PRODUCT ATTRIBUTES Product attributes are primarily used for range planning. Green or Red is an OPTION ‡ A Blue Plain Short Sleeve Cotton Shirt with contrasting collar and sleeve in size µM¶ is a SKU. The Option or SKU s the primary planning and reporting level for product management. The sub-department could be µFabric¶ for the Shirt department. Below department there may be a sub-department (and in some cases an extra layer below this) which represents the PRIMARY PURCHASE DRIVER for that department. therefore. The key level of the Product hierarchy is the department. Most systems create a UPC automatically but it is generally only used for analysis for time critical products. or when each size variation of a specific colour has a different cost and original selling price. particularly food. as would be the case with curtains or bedding. OPTION.2 DEFINITIONS : PRODUCT. is always the main performance reporting level for the business and the level which µowns¶ merchandise planning and management. and µStyle¶ for the Trouser department. buy and manage product ranges that meet the needs of your target customers and must. Most non -food retailers will never need to look below SKU. Higher levels will be able to view plan and forecast data but will not be able to directly change it. 6. be consistent with the customer¶s Shopping Mission. for example in clothing. Option will be the primary level when the cost and original selling price of all SKUs which belong to it are the same. for example. SKU will be the primary level wh en either there is a single SKU per option. The UPC is created according to the date that the SKU was delivered or to an entered field such as µSell By Date¶. 6. Below SKU you can also have a Unique Product Code (UPC) which is represents a time specific occurrence of a particular SKU. As a minimum you would want to set up . This the purchase driver for that most influences the customer when they are buying products from that department. To maintain data integrity it is usual to prevent p and forecasts from being entered or manipulated at any level other than department.2.

EXAMPLE PRODUCT ATTRIBUTES PURCHASE DRIVERS Price Band. Item Weight. Season Code (e. Shipment Method. An option¶s Identity. is to map out every one of your target customer¶s shopping missions and define all of the purchase drivers for each mission as described in the last chapter. Instead of simply using Fabric for the sub-department for instance you could use a combination of Fabric and Design e. Polyester Plain. You can use hybrid sub-departments which combine multiple purchase drivers where appropriate. You will find this very useful when looking for product duplication when planning your ranges ± if two products have exactly the same attributes the chances are they are. Promotional) Item Dimensions. Discontinued).g. if you haven¶t already done so. On-Sale Date. The department level would usually set as the last unequivocal component of each shopping mission ± Men¶s Shirts in the example we used ± although you also need to follow the hierarchy µrules¶ given below.g. Full Price. Tax Code. Size Country of Origin. In addition you would need attributes that identify the age and seasonality of the product. will change automatically once the season to which it applies has ended and the product is discontinued. Innovation (New/ Old). while Colour and Identity are set for an Option and will apply to all SKUs belonging to it. Cotton Stripe. Fashionability.attributes to identify all purchase drivers together with any other product characteristics that are vital for range planning or to other functions such as sourcing. Brand. while the Store Profile to which a product belongs will be amended as needed. as far as the customer is concerned. Regional Code OTHER RANGE PLANNING AND DISTRIBUTION SEASONALITY AND AGE OTHERS Not all attributes used will be applicable to all product types e. Status (e. Polyester Stripe . It should be possible to identify a product solely by its¶ attributes. If relevant. Size. Purchase Method. Functionality. Most will become fixed once an option has been created although some can be changed by the user or will change automatically. µFabric¶ will not be relevant to an Electrical department. for instance. Many of the decisions are very subjective and therefore open to personal bias and there can be a great deal of debate before agreement is reached. Regardless of the difficulties you might face in defining the h ierarchy it is essential that the finished article is robust and customer focussed ± if it isn¶t you are much less likely to be able to exceed your customer¶s needs. AW08). EXAMPLE ATTRIBUTE VARIANT PRODUCT TYPE Shirt PRICE £30 FABRIC Cotton FEATURE Button Down Collar DESIGN Stripe COLOUR Blue It may seem like a very straightforward task but you would be surprised at how long it can take to define and agree the product hierarchy and the product attributes. Off-Sale Date. Page Count etc. Distribution Profile (determines which outlets should receive the item). t he same. Clearance. The Product hierarchy is developed top down. The starting point. decide which is the primary purchase driver for each department ± remember this can be different for each department ± determine the important variants of this purchase driver and set them as the sub-departments.g. is set for each SKU. distribution or logistics. SS08. Cotton Plain. Identity (e.g. Remember each attribute has to be attached to each SKU and if you have too many product set up will be a pain. Colour. Fabric. for instance. Range Name Catalogue or internet retailers will also need attributes such as Page.g. Product attributes are attached at the relevant component or the product and will apply to all subsidiary components . Spring/ Summer. Regardless of what your system allows don¶t get carried away and only specify an attributes if you are really going to need it. Supplier. Packaging Type. Style . Autumn/ Winter. Storage Method. Risk.

g. The department level is always the level above the purchase drivers so all we need to do is determine the primary purchase driver for each department (e. PRODUCT HIERARCHY EXAMPLE To show how the shopping mission translates to a product hierarchy let¶s look at the clothing example we used in the previous chapter. As you can see the product hierarchy is almost complete. Below sub-department will always be product through to SKU. Note that although there is not a similar split in Women¶s . Add additional reporting levels above department as required.etc. Design for Men¶s Shirts and Product Type for Women¶s Formal Wear and to add any additional reporting levels we need above the department level. In addition a reporting level µProduct Group¶ has been added to split Men¶s Wear into Outerwear and Accessories. This doesn¶t represent part of the Shopping Mission and has probably been done because there are separate managers for each of these two area. The resulting hierarchy could look like this : All of the components of the shopping mission have been matched to a hierarchy level.

as was demonstrated in the example above. It is also useful. 1) THERE SHOULD BE NO AMBIGUITY IN HIERARCHY MEMBERSHIP The branch of the hierarchy that a product belongs to should. Where you do have ambiguity problems can usually be avoided by careful management.clothing there still needs to be a Women¶s Wear product group (which is no different to the Women¶s Wear division) to comply with the hierarchy rules. fabric colour etc. While it is unlikely that these will be the primary purchase drivers in any case always check that you are not building a hierarchy that is only relevant to the current season. validly. 5) THE BUYING AND MERCHANDISING STRUCTURE SHOULD BE SUBSERVIENT TO . In our example you would need to adhere to precise definitions of what was Casual and what was Formal. it is quite clear that a Man¶s Plain Shirt belongs in to the Plains Sub-Department of the Shirt Department in Men¶s Outerwear whereas in the Women¶s hierarchy a Plain Blouse could belong to the Blouse subdepartment of either the Formal or the Casual departments. 4) THE HIERARCHY SHOULD BE CONSISTENT WITH BUSINESS REPORTING AND OUTLET PLANNING NEEDS The department is a principle reporting level for the business and if the main trading reports end up containing too low a level of detail because there are too many departments then they will not be fit for purpose ± which is usually to provide a summary of performance. It may be impossible to avoid some ambiguity. 3) THERE MUST BE THE SAME NUMBER OF LEVELS IN ALL BRANCHES THE HIERARCHY Each branch of the hierarchy must have the same number of levels. Where there is a conflict between a rule and the µpure¶ interpretation of the shopping mission use common sense to agree on the most sensible solution. or the possibility of conflict over which branch of a hierarchy should manage a product. then there is the risk of duplication. In the hierarchy example above. and a product can belong to more than one branch of the hierarchy. since similar products could be planned by different branches of the hierarchy. Bear this in mind (in conjunction with Rule 6) when developing the hierarchy.5 PRODUCT HIERARCHY RULES These rules must be applied wherever possible to the hierarchy to make it workable. Where this isn¶t the case and whole ranges are. For this to be effective the bulk of a department¶s products need to be displayed as a single continuous whole in each outlet. The problem is easily fixed by adding a µdummy¶ component to the branched that need it. Where it is. for instance. In the worst case this ambiguity can confuse the customer and cause them to abandon their shopping mission. ideally. particularly if the shopping mission branches according to subjective rather than absolute criteria. although not essential. such as colour. not be questionable. At the same time the department is used outlet space planning and management. displayed in more than one location then two departments are needed and there is a probably a flaw in the shopping mission which you need to resolve. This can be a problem when you need to add a reporting level to one branch that is not strictly required in another or when one shopping mission is far simpler than others. can fluctuate significantly from one season to the next.2. 2) THERE SHOULD BE CONTINUITY IN THE STRUCTURE In order to be able to develop your plans based on a consistent history a department or a subdepartment should represent a component of the shopping mission that will continue to be relevant for several seasons. 6. if the hierarchy aligns with the way that market data is reported since this enables market share to be more easily assessed. The rule is most applicable at sub-department level where the importance of each variant of some purchase drivers. to determine which department a particular Blouse should belong to. covering the style.

It is easier to match the location hierarchy to the retail operations organisation since the customer is only really interested in the outlet itself not in how they are managed.e. It is far better to develop the product hierarchy using the principles outlined above and then to bring the organisational structure in line. While all levels above outlet in the location hierarchy are usually reporting levels you will still have to follow Rule 3 and there must be the same number of levels in each br anch of the hierarchy. If a department contains too few products relative to its turnover then it is unlikely to be productive. a catalogue or an internet site or a storage only location such as a distribution centre.3.THE HIERARCHY. 6. therefore. to be low. for instance.3 OUTLET 6. for example. It can be easily remedied (bearing in mind Rule ) either by creating the department at a higher level in the shopping mission for this branch of the hierarchy or by creating a Product Group managed by a single team. The department may contain relatively few products which could not be separated. EXAMPLE . reserved or faulty stock. This situation often happens when Rule 5 is ignored and the hierarchy is made to fit the existing people organisation ± this happened in a catalogue retailer who wanted to create a department for vacuum cleaners which contained only 8 products because there was an incumbent buyer for this area. This isn¶t always practical or desirable. An outlet can be any unique location from which a product is sold. NOT VICE VERSA While the buying and merchandising structure and product hierarchy must be consistent the overriding objective is to service your customer¶s shopping mission and y should never base the hierarchy on the organisation unless you are certain this objective is met. the resource cost per product is likely to be high (assuming each department requires a department to run it) and the contribution per product. to show whether the stock held is free. 6) THE DEPARTMENT SHOULD BE A SENSIBLE SIZE You need to consider three sizing issues when defining a department. such as a µbricks and mortar¶ shop. The higher the contribution of a department the bigger the risk to the business if it department underperforms and it may be better to split the department between separate teams to reduce this risk. The Outlet hierarchy is built bottom up from the outlet. Although the effort to run the department will be relatively small. A catalogue or internet retailer will probably need a µchapter¶ or page level. ordering and replenishment is ± the less manual intervention that is required the more products can be managed. is the department productive and does the department¶s size represent any risk. The important thing is to examine the alternatives carefully and if you have no choice but to leave the department as it is to make sure your best team is looking after it.1 THE OUTLET HIERARCHY The Outlet hierarchy determines how outlet information is structured. is the department manageable. or may represent such a definitive component of the shopping mission that to split it would be likely to create more problems than it solved. while large format retailer may need floor or floor zone. If the outlets hold physical stock it is good practice to have a hierarchy level at the very bottom of the hierarchy to monitor stock condition and status i. Additional hierarchy levels below outlet will be used as required. with outlets being grouped according to commonalities such as geographical location or publication. The Outlet itself is the main planning and reporting level in the outlet hierarchy and is the equivalent of the department in the planning hierarchy. If you think a department will be unmanageable with the current resources it has available (usually people) then you will need to allocate more resources or to create additional departments that are not strictly consistent with the shopping mission. Whether a department is manageable depends on how many products it contains and on how µautomated¶ planning.

Like for Like.4 TIME 6. Time Zone etc. The time hierarchy is strictly defined by clock and calendar but must support both merchandising and finance calendars.1 THE TIME HIERARCHY The time hierarchy defines the way performance is planned and analysed in the time dimension and extends from hour to year. Note that a branching hierarchy is needed for Phase and Season.3. ‡ Trial Outlet ± Set to flag that the outlet is used for trialling new products. the structure of which is shown in the following diagram. School Holiday Start & End etc.6. Franchise. Clearance etc. ‡ TV & Marketing Region ± used to measure advertising & marketing effectiveness. ‡ Distribution Profile ± corresponds to the distribution profile attribute set for a product or option. performance analysis and for distribution management. ‡ Outlet Type ± Normal. ‡Language. 6. ‡ Promotion Profile ± set to determine which promotional campaigns the outlet will participate in. Modernised etc. are used in many companies for performance reporting the key level planning and performance reporting level is usually the week. Closed. . Examples of Outlet attributes include : ‡ Opening Date ± the date the outlet first opened ‡ Opening Hours. While the day. ‡ Outlet Status ± New. ± attributes required by multi-national businesses. Attributes which identify the age. type and status of the outlet are generally supported and automatically maintained by most systems although others may not be. and even the hour. Outlets will only receive those items which have a matching distribution profile.4.2 OUTLET ATTRIBUTES Outlet attributes are used for outlet planning and operations.

since most payments fall due on a monthly cycle. FINANCIAL HALF. This extra week falls into the final period in the year. MONTH. Every fourth year the merchandise year needs to contain 53 trading weeks to realign it with the true calendar. FINANCIAL YEAR The calendar month is the principle time dimension for financial planning. FINANCIAL QUARTER. The trading week commonly starts at start of business on Sunday or Monday and ends at close of business on the following Saturday or Sunday. Sensible retailers avoid this confusion by reporting weekly performance according to the merchandise calendar. Where this happens the last few days of the old year will be reported as Week 53 and the first few days of the new year as Week 1. MERCHANDISE QUARTER. The merchandise half always covers the main selling period for a specific season¶s merchandise and is the principle time dimension for outlet planning. A merchandise quarter. six and twelve calendar months. MERCHANDISE HALF. half and year comprise respectively three. SEASON The season (or full selling period) is used to manage product seasonality and is the principle time . half and year comprise respectively three periods. six and twelve periods. MERCHANDISE YEAR A period comprises four or five weeks which broadly align with a calendar month and is used for merchandise planning and analysis.DAY The trading day WEEK The trading week and the principle time dimension for planning and performance analysis for buying and merchandising. The financial quarter. PERIOD. There can sometimes be confusion if the financial reporting systems treat the first and last week of the calendar year as part weeks.

Authorisation is often required to complete a transaction which requires a . We will look at how the season is used in more detail in the chapter on Product Seasonality. 6.4. are met. Phases are mostly used by clothing retailers to manage range renewal and to maintain freshness in their offer.). Spring/ Summer and Autumn Winter. Each season covers the weeks during which merchandise with the corresponding seasonal Identity (see Product Attributes above) is on sale. such as a promotion or customer returns. Transaction attributes are either entered at the point of sale or applied automatically if certain conditions. 6. location and time hierarchies.4. Not all systems support time attributes. PHASE Each season can have between two and four phases which identify the weeks when specific ranges or collections will be on sale. Evening) and Holiday Dates (Easter etc. both of which will be between 26 and 40 weeks long and which overlap both each other and the start and end of the merchandise year. 6.dimension for range planning. Each calendar year will contain at least two seasons. Afternoon.3 TIME HIERARCHY RELATIONSHIPS The following diagram shows the relationships between the various elements in the Time hierarchy.4 TIME ATTRIBUTES Time attributes are used to analyse performance in the time dimension for non-hierarchical periods and special events. such as a product belonging to a promotion. The season can start at any time and usually finishes at the end of the related merchandise half but in some cases can extend into the new merchandise half to allow the residual performance of seasonal product in the new half to be measured and included in the seasonal total.5 Transaction attributes Transaction attributes are attached to each separate product on each transaction enable us to analyse particular transaction events . across the product. Examples include Trading Period (Morning. from the first time any of those products are available in any outlet to the point when the product is finally reclassified as discontinued.

the most common of which are Actual. The three commonest transaction attributes are : Returns Code Identifies the reason why a customer has returned an item. These metrics are divided into those that are captured for each transaction. Target.1. referred to. Note that because the selling price of an item can differ by time or by outlet the value of a transaction for the same number of units of the same item can be different at a different times and in different outlets Sales at cost is recorded at the average cost price of the item at the time of the transaction excluding tax. curiously enough as Actual/ Forecast. Planning metrics are discussed in the relevant chapters. Forecast.1 SALES The quantity. 7. Adjustment Code identifies the reason for a stock adjustment. inclusive or exclusive of tax. ‡ During the planning cycle many performance metrics are entered by the user and as a result the calculations shown below do not apply. is often used for analysis and planning. Discount Code identifies the reason why an additional discount has been given. When a return is recorded sales and stock are adjusted as follows : . NOTES ‡ Each metric can have a number of µdimensions¶ depending on its¶ source. Promotion Code identifies the promotional scheme that an item belongs to (whether or not the promotion was activated for that item). A combination of the Actual and Forecast figures. there are variations and it is always worth confirming what your own company uses. either in good or faulty condition.1 TRANSACTION METRICS 7. and those that are calculated from this captured data. for the items after any promotional costs and other discounts that can be captured on the system have been deducted. Sales value is the actual cash paid.transaction attribute to be entered. Chapter 7 Performance Metrics INTRODUCTION In this chapter you will find a brief definition of the most common performance metrics you are likely to encounter. Although these definitions are fairly standard throughout the industry.1. 7. either a sale or a stock movement. This particularly relevant where the current or last year period concerned is not yet complete but you will often see µActual/ Forecast¶ figures that refer to actual data. The level to which transaction attributes are supported depends on your Point of Sale system. value or cost of goods sold net of any customer returns. value or cost of goods returned by the customer.2 CUSTOMER RETURNS The quantity. Last Year and Plan.

Returns at cost is recorded at the average cost price of the item at the time of the transaction.7 STOCK ADJUSTMENTS .g.1. The point of sale system you use will determine how discounts are captured.3 PROMOTIONAL COST VALUE Promotional Cost value captures the value of discounts given during promotional events and is the difference between the sales value that would have been achieved if an item had been sold at its¶ current selling price. 7. Note that the promotional benefit will only be given to the customer if the conditions of the promotional scheme are met and as a result not all transactions for items which are part of a promotion will attract a benefit. and the sales value that was actually realised after the value of the promotional benefits has been deducted.6 INTAKE The quantity. discretionary discounts given by the store manager and discounts given to loyalty club members.1. Promotional cost and promotional benefits are discussed in more detail in the chapter on Promotions and Other Events. 7.‡ If the return is in good (saleable) condition) sales are decreased and stock is increased by the amount returned. Intake at cost is recorded at the cost price applicable to each delivery.1.1. Discounts need to be recorded separately since they although they affect margin delivery and impact on intake requirements in the same way as promotional cost and must be planned they are not usually within the control of the buying and merchandising team and therefore not a key performance measure. ‡If the return is faulty or un-saleable then sales are decreased and faulty stock is increased by the amount returned. A return to a supplier may by shown as negative intake or as separate metric. 7. Promotional Cost has no effect on the stock value.1. value or cost value of stock held by the business. the cash value of the return to the customer. Returns value is recorded at the price paid when the items were originally sold i. 7. value and at cost are all rolling balances where : CLOSING STOCK = OPENING STOCK + INTAKE ± SALES ± OTHER ADJUSTMENTS. Stock units. value or cost of goods received from a supplier by an outlet. swiping a staff discount card) are deducted at the point of sale and are usually governed by some authorisation rules to prevent abuse. Discounts can be entered manually or calculated automatically based on eligibility criteria (e.5 STOCK The quantity.4 DISCOUNTS VALUE Discounts are any additional reductions in the price paid by the customer over and above any promotional benefit they may be due including staff discounts. Intake value is recorded at the plan selling price. 7.e.

value or cost adjustments made to the stock file as a result of write offs or other stock movements not otherwise recorded.02 8.800 57.1 INTAKE MARGIN % The Intake Margin % is the margin percentage you will achieve when a product sells at its¶ original selling price.255 5.02 20. Stock adjustments are often used as µbalancing items¶ when a product¶s status or stock identity changes.2. CALCULATING INTAKE MARGIN FOR AN OPTION OPTION INTAKE MARGIN % = (ORIGINAL SELLING PRICE LESS TAX ± DELIVERED COST PRICE) ÷ ORIGINAL SELLING P RICE LESS TAX EXAMPLE ORIGINAL SELLING PRICE ORIGINAL SELLING PRICE LESS TAX COST PRICE INTAKE MARGIN % (17.255 1. with the relevant reason and authorisation code.00 53. 7.2 CALCULATED METRICS 7.255 ± 1. Shrinkage % is usually stated as a percentage of the intake units or intake value for the merchandise half.0% CALCULATING INTAKE MARGIN FOR A HIERARCHY LEVEL INTAKE MARGIN % = (INTAKE VALUE LESS TAX ± COST OF INTAKE) ÷ INTAKE VALUE LESS TAX EXAMPLE INTAKE VALUE INTAKE VALUE LESS TAX INTAKE AT COST INTAKE MARGIN % (4.000 4.800) ÷ 4.The quantity.02 .7% 7.8 SHRINKAGE Shrinkage or Stock Loss is used as a measure of operational efficiency and is the difference between the stock counted during a stock take and the system stock at that time. Promotional and other Discounts and Stock Adjustments have been taken into account CALCULATING MARGIN ON SALES FOR AN INDIVIDUAL OPTION OPTION MARGIN ON SALES = ACTUAL SELLING PRICE LESS TAX ± DELIVERED COST PRICE OPTION MARGIN ON SALES % = OPTION MARGIN ON SALES ÷ ACTUAL SELLING PRICE LESS TAX .175 CALCULATION RESULT 20.00 ÷ 1.175 CALCULATION RESULT 5.8.2 MARGIN ON SALES VALUE Margin on Sales is the margin value or percentage that will be achieved after Markdown. 7. breakages and errors in recording sales or intake and is usually recorded as a Stock Adjustment. Shrinkage can be caused by theft.000 ÷ 1.00 17.1.00) ÷ 17. at the time of the stock take.2.

0 5.010 47. by convention shown as a positive value. It is always reported in the week in which the price changes are actioned.0 15.000 8.62 8.EXAMPLE ACTUAL SELLING PRICE ACTUAL SELLING PRICE LESS TAX COST PRICE MARGIN ON SALES VALUE MARGIN ON SALES % CALCULATION RESULT 16.62 5.000 ÷ 1.00 13.000 Where there is undelivered commitment of products which are being marked down this commitment is brought in to the business at the original selling price and an immediate markdown is taken at the time of intake.500 4.175 13.510 ± 4.00 (13.4 MARKDOWN % Markdown % shows the ratio of Markdown to Sales.00 16.3% CALCULATING MARGIN ON SALES FOR A HIERARCHY LEVEL MARGIN ON SALES VALUE = SALES VALUE LESS TAX ± SALES AT COST ± STOCK ADJUSTMENTS AT COST MARGIN ON SALES % = MARGIN ON SALES VALUE ÷ SALES VALUE LESS TAX EXAMPLE SALES VALUE SALES VALUE LESS TAX SALES AT COST MARGIN ON SALES VALUE MARGIN ON SALES % 8.1% Note that some companies calculate Margin on Sales % on the VAT inclusive sales value 7.000 5.62 ± 8.0 1.00 ÷ 1.175 CALCULATION RESULT 10.0 X 1.500 4.62 . 7. Although a Markdown will decrease the value of the stock holding it is. If there is a net increase in the value of stock due to price increases then a negative Markdown is reported.62 41. MARKDOWN % = MARKDOWN VALUE ÷ SALES VALUE .3 MARKDOWN Markdown is the difference in the value of stock before and after a permanent price change. MARKDOWN VALUE = (CURRENT SELLING PRICE ± NEW SELLING PRICE) X OPENING STOCK EXAMPLE CURRENT SELLING PRICE NEW SELLING PRICE PRICE CHANGE PER ITEM OPENING STOCK UNITS MARKDOWN VALUE 5.2.510 10.010 ÷ 8.00) ÷ CALCULATION RESULT 20.510 4.

the Promotional Cost % shows the true percentage discount that was given during the promotional event.2.0% 7.600 ÷ 20.7 PROMOTIONAL COST % Promotional Cost % shows the promotional cost value as a percentage of the sales value that would have been achieved if all items sold during a promotional event. The Average Depth of Markdown % is calculated by dividing the stock value immediately prior to the first event by the total markdown taken during all event.000 3.2.6 AVERAGE DEPTH OF MARKDOWN % The Average Depth of Markdown % is the average percentage reduction in the original selling price that is made over multiple markdown events. 7.600 38. has been sold at full price.600 7. PROMOTIONAL COST % = PROMOTIONAL COST VALUE ÷ (SALES VALUE + PROMOTIONAL COST VALUE + DISCOUNTS VALUE) % EXAMPLE SALES VALUE PROMOTIONAL COST VALUE CALCULATION RESULT 850 100 .EXAMPLE SALES VALUE MARKDOWN VALUE MARKDOWN % CALCULATION RESULT 10.000 4.5% Markdown % is conventionally only reported for the merchandise half or season so that the full effects of the price changes on performance are taken into account.250 12.600 7.000 + 3. or when measured for promoted lines only. EXAMPLE CURRENT SELLING PRICE NEW SELLING PRICE PRICE REDUCTION DEPTH OF MARKDOWN % 4 ÷ 20 CALCULATION RESULT £20 £16 £4 20% 7.5 DEPTH OF MARKDOWN % Depth of Markdown % is the percentage reduction in the current selling price of the option that is made in a single markdown event. At option le vel.000 1. EXAMPLE OPENING STOCK VALUE MARKDOWN VALUE FIRST EVENT MARKDOWN VALUE SECOND EVENT TOTAL MARKDOWN VALUE AVERAGE DEPTH OF MARKDOWN % 4.2. whether they were included in the promotion or not.000 CALCULATION RESULT 20. as opposed to the headline discount that is offered to the customer.

000 ÷ (850 + 100 + 50) 1. although the result will be the same.000 ÷ 100 10. DISCOUNTS % = DISCOUNTS VALUE ÷ (SALES VALUE + DISCOUNTS VALUE) % EXAMPLE SALES VALUE DISCOUNTS SALES VALUE BEFORE DISCOUNTS DISCOUNTS % 850 + 50 50 ÷ (850 + 50) CALCULATION RESULT 850 50 900 5.0 CALCULATION UNITS 100 VALUE 850 100 50 10.000 10. Cover is calculated differently depending on whether you are using Units or Value. especially those with a very fast stock turn such as grocers will use Days Cover. Some retailers.000 10.8 DISCOUNTS % Discounts % shows the percentage reduction in the price that is given to the customers on top of any promotional benefit. Weeks Cover is also a very useful measure of relative demand.000 2.000 7.10 AVERAGE WEEKS COVER The Average Weeks Cover for a period longer than a week (or day) is calculated using the total sales and the sum of the weekly closing stocks for the period. EXAMPLE SUM OF CLOSING STOCK PERIOD SALES CALCULATION CLOSING STOCK WEEK 1 + CLOSING STOCK WEEK 2 ETC. RESULT 12.2. Average Weeks Cover is mostly used to show relative demand over the period concerned. and. UNIT WEEKS COVER = CLOSING STOCK UNITS ÷ SALES UNITS VALUE WEEKS COVER = CLOSING STOCK VALUE ÷ (SALES VALUE + PROMOTIONAL COST + DISCOUNTS) EXAMPLE SALES PROMOTIONAL COST DISCOUNTS CLOSING STOCK WEEKS COVER (UNITS) WEEKS COVER (VALUE) 1.9 WEEKS COVER Weeks Cover is the ratio of stock to sales at the end of a single week and shows how many weeks the same level of sales could be maintained if there was no further intake.2.2.DISCOUNTS VALUE SALES VALUE BEFORE PROMOTIONAL COST AND DISCOUNTS PROMOTIONAL COST % 850 + 100 + 50 100 ÷ (850 + 100 + 50) 50 1.6% 7.0% 7.500 .0 10.

STOCK TURN = 52 X (ANNUAL SALES ÷ SUM OF CLOSING STOCKS ) STOCK TURN = 52 ÷ AVERAGE WEEKS COVER EXAMPLE SUM OF CLOSING STOCK FOR YEAR ANNUAL SALES STOCK TURN (METHOD 1) AVERAGE WEEKS COVER STOCK TURN (METHOD 2) 52 X (2.0 Method 2 can be used to calculate the prevailing annual Stock Turn using the data for ANY period 7.12 FORWARD COVER Forward Cover is used in conjunction with Weeks Cover to determine if the business is holding sufficient stock. for example.800 ÷ 2. The result is the same.11 STOCK TURN Stock Turn measures the number of times throughout the year that stock is completely replaced in the outlets.2. It can be calculated using units or value and shows : ‡ The number of weeks of future actual or forecast Sales Value. It can be calculated in two ways.0 CALCULATION CLOSING STOCK WEEK 1 + «. EXAMPLE SALES UNITS CLOSING STOCK UNITS FORWARD COVER WEEKS WEEK 1 200 750 3.800) 33. It is usually represented either as a percentage of that .800 2.0 4.500 4. WEEK 4 300 280 The Closing Stock of 750 units will cover sales performance for 3 more weeks on the basis of the forecast performance for those weeks Since the Forward Cover calculation looks at future performance which can be both actual or forecast it must always be calculated retrospectively and can change until all the future weeks it covers are actual performances. if weeks 2 to 4 are the actual performances. Markdown.AVERAGE WEEKS COVER 12.8 7.0 WEEK 3 250 100 ETC. It is a critical measure of business health since it reflects the speed at which the business turns its assets into cash.600 4.2.0 in week 1 above will only be the µtrue¶ figure.13 TERMINAL STOCK Terminal stock is the value or unit stock remaining of a specific stock identity at the end of the corresponding season or merchandise half. CLOSING STOCK WEEK 52 RESULT 33.600 ÷ 33. Discounts and Stock Adjustments Value that can be covered by the Closing Stock Value at the end of a week.0 13.000 ÷ 2.600 52 ÷ 13. ‡ The number of weeks of future actual or forecast Sales Units and Stock Adjustments Units that can be covered by the Closing Stock Units at the end of a week. The Forward Cover of 3. Promotional Cost.2. 7.0 WEEK 2 200 550 2.

RATE OF SALE = SALES UNITS ÷ OUTLETS WITH STOCK ÷ WEEKS ON SALE EXAMPLE SALES UNITS OUTLETS WITH STOCK CALCULATION RATE OF SALE WEEK 1 200 100 200 ÷ 100 ÷ 1 2. EXAMPLE SALES UNITS OPTION 1 OUTLETS WITH STOCK OPTION 2 SALES UNITS OPTION 1 OUTLETS WITH STOCK OPTION 2 TOTAL SALES UNITS TOTAL OUTLETS CALCULATION RATE OF SALE WEEK 1 200 100 100 75 300 175 300 ÷ 175 ÷ 1 1.71 WEEK 2 200 80 120 75 320 155 320 ÷ 155 ÷ 1 2.2.00 WEEK 2 200 80 200 ÷ 80 ÷ 1 2.14 RATE OF SALE Rate of Sale is the average unit sales per option per outlet per week for all outlets stocking the option.50 WEEK 3 250 100 250 ÷ 100 ÷ 1 2.000 ÷ 505 ÷ 3 1. Since it removes the effects of distribution it is a better measure of option and product performance than absolute sales. This calculation works even if there are multiple options since the Outlets with Stock shows how many instances there are of an Option in an Outlet.season¶s sales or as a percentage of the total closing stock in the µterminal week¶ TERMINAL STOCK % = (IDENTITY CLOSING STOCK ÷ IDENTITY SALES) % TERMINAL STOCK % = (IDENTITY CLOSING STOCK AT LAST WEEK OF SEASON ÷ TOTAL CLOSING STOCK AT LAST WEEK OF SEASON) % 7.17 AVERAGE 650 280 350 225 1.32 For the purposes of calculating the Rate of Sale an Outlet is deemed to have stock even if it is only holding a single unit. FULL PRICE SELL THROUGH % = (FULL PRICE SALES UNITS + PROMOTIONAL SALES UNITS) ÷ TOTAL BUY UNITS EXAMPLE CALCULATION RESULT .15 FULL PRICE SELL THROUGH % Full Price Sell Through % shows the proportion of the Total Buy Units sold at full or promotional price during the full season. Full Price Sell Through % has a direct relationship with Markdown % .98 7.2.06 WEEK 3 250 100 130 75 380 175 380 ÷ 175 ÷ 1 2.50 AVERAGE 650 280 650 ÷ 280 ÷ 3 2.000 505 1.the lower the former the higher the latter.

100 1.000 ÷ 1. promotional.000 ORIGINAL S.2. and Option Availability %.000 7.000 19.200 72.16 AVERAGE SELLING PRICE The average original.000 ÷ 3. full price.00 £8.000 26. AVERAGE ORIGINAL SELLING PRICE = TOTAL INTAKE VALUE ÷ TOTAL INTAKE UNITS AVERAGE FULL PRICE SELLING PRICE = FULL PRICE SALES VAL UE ÷ FULL PRICE SALES UNITS AVERAGE PROMOTIONAL PRICE= PROMOTIONAL SALES VALUE ÷ PROMOTIONAL SALES UNITS AVERAGE MARKDOWN PRICE = MARKDOWN SALES VALUE ÷ MARKDOWN SALES UNITS AVERAGE NET SELLING PRICE = TOTAL SALES VALUE ÷ TOTAL SALES UNITS Note that Sales Values are recorded after Other Discounts have been deducted.000 19.000 UNITS 3.P.TOTAL BUY UNITS FULL PRICE SALES UNITS FULL PRICE SELL THROUGH % 7. EXAMPLE INTAKE FULL PRICE SALES MARKDOWN SALES TOTAL SALES VALUE 30.000 750 ÷ 1.000 1.17 AVAILABILITY Availability is used to measure distribution effectiveness and to identify the possible causes of underperformance or missed potential.000 3.000 2. MARKDOWN S.00 £9.000 7.000 RESULT £10.5% The stock availability immediately prior to a clearance event is sometimes known as the Final .000 92. CALCULATION 30.2.000 7.000 110% AVERAGE 1. STOCK AVAILABILITY % = (ACTUAL STOCK UNITS ÷ TARGET STOCK UNITS)% EXAMPLE ACTUAL STOCK UNITS TARGET STOCK UNITS CALCULATION STOCK AVAILABILITY % WEEK 1 750 1.0% 7.P NET S.850 ÷ 2. markdown and net selling prices. There are two availability measures.850 2000 1. Stock Availability % which shows whether the core sizes of an option are in-stock throughout its¶ primary lifecycle. FULL PRICE S.000 ÷ 2.P.000 26.67 7.50 £7.000 ÷ 3.000 1.000 10. which shows whether an outlet is holding the planned number of options.P.000 75% WEEK 2 1. The average price is therefore that which was actually paid by the customer.100 ÷ 1.200 ÷ 10.

3. Sales and margin per foot are only measurable at the level at which floor space is allocated. and of the productivity of individual categories within the outlet.20 VARIANCE % Variance are used for many performance metrics to show the percentage difference between two performance elements or periods.18 SALES AND MARGIN PER SQUARE FOOT The sales or margin realised per square foot or square metre of selling space per week and used to monitor outlet productivity. VARIANCE % = ((A ÷ B) ± 1) %. . Final Availability is the inverse of the Full Price Sell Through % OPTION AVAILABILITY % = ACTUAL OPTIONS IN STOCK ÷ PLANNED OPTIONS IN STOCK An option is µin stock¶ if the stock held is above a specified minimum 7.2.0% 7. OUTLET TRADING SURPLUS = MARGIN ON SALES ± OUTLET COSTS 7. where A is the measure you want to compare to B EXAMPLE THIS YEAR ACTUAL SALES VALUE LAST YEAR ACTUAL SALES VALUE ACTUAL VARIANCE TO LAST YEAR % ((1000 ÷ 800) ± 1) % CALCULATION RESULT 1. PARTICIPATION % = (CHILD VALUE ÷ PARENT VALUE) % EXAMPLE DEPARTMENT SALES COMPANY SALES DEPARTMENTAL PARTICIPATION % (750 ÷ 10. e.Availability and is a measure of risk ± if it is too low full price sales may not have been potentialised.000) % CALCULATION RESULT 750 10.3 PERFORMANCE MEASURES SPECIFIC TO CATALOGUE RETAILERS 7.21 PARTICIPATION % Variance are used for many performance metrics to show the percentage participation of a child within its¶ parent or grandparent e.g.1 GROSS DEMAND The quantity or value of goods ordered by the customer but not yet accepted for processing.19 OUTLET TRADING SURPLUS Outlet Trading Surplus is the margin delivered by each outlet after direct costs and is used in some businesses to monitor the outlet contribution. usually Department level or above SALES (MARGIN) PER SQUARE FOOT = SALES (MARGIN) ÷ SQUARE FOOTAGE ÷ WEEKS 7. Actual performance compared to Last Year or Actual performance compared to plan.5% 7.000 7.000 800 25.g.2.2..2. Departmental Sales as a percentage of Company sales.

value or cost of goods ordered by the customer that have been accepted after credit checks. value or cost of goods which will be dispatched to the customer as soon as stock is available.7 NET DISPATCHES (SALES) The quantity. 7.2 NET DEMAND The quantity.3.4 GROSS DISPATCHES The quantity.3. value or cost of goods dispatched to the customer which have not been returned and for which payment will be taken. 7. 7.3. HELD ORDERS The quantity. . value or cost of goods dispatched to the customer and subsequently returned.6 RETURNS The quantity. value or cost of goods dispatched to the customer.3.

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