Merchandise Management and Pricing

Merchandise Planning

- a systematic approach that is aimed at maximizing return on investment, through planning sales and
inventory in order to increase profitability.

Merchandise-Presentation Planning

O Shelving. The majority of merchandise is placed on shelves that are inserted into gondolas or
wall systems. Shelving is a flexible, easy-to-maintain merchandise-presentation method.
O Hanging. Apparel on hangers can be hung from softlines fixtures, such as round racks and four-
way racks, or from bars installed on gondolas or wall systems.

O Pegging. Small merchandise can be hung from peg hooks, which are small rods inserted into
gondolas or wall systems. Used in both softlines and hardlines, pegging gives a neat, orderly
appearance but can be labor intensive to display and maintain.

O Folding. Higher-margin or large, unwidely softlines merchandise can be folded and then stacked
onto shelves or placed on tables. This can create a high-fashion image, such as when towels are
taken off peg hooks and neatly folded and stacked high up the wall.

O Stacking. Large hardlines merchandise can be stacked on shelves, the base decks of gondolas, or
flats, which are platforms placed directly on the floor. Stacking is easily maintained and gives an
image of high volume and low price.

O Dumping. Large quantities of small merchandise can be dumped in bins or baskets inserted into
gondolas or wall systems. This highly effective promotional method can be used in softlines
(socks, washcloths) or hardlines (batteries, grocery products, candy), and creates a high-volume,
low-cost image.

Physically Handling and Securing Merchandise

In-Store Merchandise Handling

O The retailer must consider the employees’ and customers’ rights to privacy versus the retailer’s
right to security.

O Retailers must not only plan to have the appropriate amount of merchandise on hand for
customers but also ensure that the merchandise purchased for the store shelves actually arrives.

O To minimize the threat of hijacking:

O Eliminate the retailer’s name from the side of containers carrying the cargo.

O Install electronic monitoring devices on all shipment vehicles.

 O Screen all internal transportation personnel as well as third-party logistics personnel in
each market.

O Hire security personnel for each shipment.

Merchandise Handling Process

- The merchandise handling process involves developing a plan to get the merchandise carefully
into the store and place it on the shelves for sale.

Merchandise handling includes:

O Processing

O Receiving and storing merchandise

O Pricing and marking the inventory

O Arranging displays and on-floor assortments

O Customer transactions

O Delivering the goods

O Handling the goods that are returned by customers

O Taking decisions regarding damaged merchandise, and

O Controlling and monitoring losses due to merchandise pilferage

Types of Shrinkage

O Vendor collusion. Occurs when an employee of one of the retailer’s vendors steals merchandise
as it is delivered to the retailer.

O Employee theft. Occurs when employees of the retailer steal merchandise where they work.

O Customer theft (shoplifting). Occurs when customers or individuals disguised as customers steal
merchandise from the retailer’s store.

O Organized crime theft. Occurs when professional thieves steal merchandise when it is in transit
to the store, or in the store.
Securing Merchandise

Wide and varied range of products to help secure all types of merchandise:

O Clothing/apparel

O Security tags

O Hardware/Sporting equipment

O Specialty security tags

O Secure displays

O Alarming cable security tags

O Electronics

O Secure displays

O Alarming cable security tags

O Security labels

O Blister-packaged goods

O Secure hooks

O Small boxed goods and media

 O Security labels

O Display keepers

O Liquor

O Bottle security tags

O Large boxed goods

O Alarming cable security tags

 O Shopping trolleys

O Trolley security

Inventory Management

Good inventory management is all about having:

O The right amount. Stocking the right amount is really important. If you order too little,
your customers will start looking elsewhere when you’re out-of-stock of popular items.
But if you order too much, there’s a chance you’ll be stuck with lots of extra stock that
you’ll be forced to sell at clearance prices or risk having them become obsolete.

O The right price. You don’t want to be paying more for your products than you have to,
but lower prices aren’t always better.

O The right time. Knowing your EOQ lets you know the inventory level you want to
maintain. Of course you want your shipment to arrive just in time, ideally when your
previous batch is about to sell out. If it arrives too early, you’ll be looking for space to
store these items. And if it arrives too late, well, you’ll be forced to announce that
you’re out of stock.

O The right place. In selling on multiple channels, ensuring you’ve got the right amount of
products in the right place is probably a challenge you face constantly.

Pricing the Merchandise

A retailer must price merchandise in a way that besides satisfying the customers, achieves profitability
for the firm. Pricing is a crucial exercise due to its direct relationship with a firm’s goals and its
interaction with other retailing matters. A pricing policy, if not appropriate, sends a store out of
competition.

A pricing strategy must be consistent over a period of time and consider retailer’s overall positioning,
profits, sales and appropriate rate of return on investment. Lowest price does not necessarily be the
best price, but the lowest responsible price is the best right price. The difference between price and cost
is profit which can be very high when the sales person wants to exploit an urgent situation.
Specific Pricing Strategies

O Customary pricing. Occurs when a retailer sets prices for goods and services and seeks
to maintain those prices over an extended period of time.

O Variable pricing. Used when differences in demand and cost force the retailer to change
prices in a fairly predictable manner.

O Flexible pricing. Occurs when a retailer offers the same products and quantities to
different customers at different prices.

Various pricing strategies are adopted by the traditional brick-and-mortar retailers in an effort to
achieve certain pricing objectives. The pricing strategies should be in accord with the other components
of the store’s retail mix: location, promotion, display, service level, and merchandise assortment.

O One-price policy. A policy that establishes that the retailer will charge all customers the
same price for an item.

O Price lining. A pricing policy that is established to help customers make merchandise
comparisons and involves establishing a specified number of price points for each
merchandise classification.

O Trading up – occurs when a salesperson moves a customer from a lower-priced

line to a higher one.

O Trading down – occurs when a customer is initially exposed to higher-priced

lines but expresses the desire to purchase a lower-priced line.

O Odd pricing. The practice of setting retail prices that end in the digits 5,8,9.

O Multiple-unit pricing. Occurs when the price of each unit in a multiple-unit package is
less that the price of each unit if it were sold individually.

O Bundle pricing. Occurs when the retailer sell a package or set of goods or services for a
lower price than they would charge if the customer bought all of them separately.

O Leader pricing. Occurs when a high-demand item is priced low and is heavily advertised
in order to attract customers into the store.

O Loss leader – a form of leader pricing where an item is sold below a retailer’s
cost.

O High-low pricing – involves the use of high everyday prices and low leader
specials on items typically featured in weekly ads.
 O Bait-and-switch pricing. The practice of advertising or promoting a product at an
unrealistically low price to serve as “bait” and then trying to “switch” the customer to a
higher-priced product.

O Private-label brand pricing. When a private-label brand often is purchased by a retailer

at a cheaper price, have a high markup percentage, and still be priced lower than a
comparable national brand.

Pricing Constraints

O Horizontal price fixing. Occurs when a group of competing retailers establishes a fixed price at
which to sell certain brands of products.

O Vertical price fixing. Occurs when a retailer collaborates with the manufacturer or wholesaler to
resell an item at an agreed upon price.

O Price discrimination. Occurs when two retailers buy identical amounts of “like grade and quality”
merchandise from the same supplier but pay different prices.

O Deceptive pricing. Occurs when a misleading price is used to lure customers into the store and
then hidden charges are added; or the item advertised may be unavailable.

O Predatory pricing. Exists when a retailer charges different prices in selected geographic areas in
order to eliminate competition in those areas.