Retail Management ;Mini Project

Submitted by : Pranav S Nair(RA1852001010069)

Srinivas S Prabhu(RA1852001010063)
MBA-B
Category management
Category Management is the collaborative process of organising categories as independent
business units, aimed at producing business results by focusing on delivering value to a
customer. Category Management also aims to provide customers with what they want, where
they want it, and when they want it.

CATEGORY MANAGEMENT PROCESS

1. CATEGORY DEFINITION
The purpose of the category definition step is to determine the specific SKUs (Stock Keeping
Units) that make up your category. The appropriate starting point here would be to put yourself
in the shoes of your customers and ask how they would define the category.
The category definition generally asks what “consumer need” must you satisfy? The category
fulfils the need and the specific product fulfils the consumer want.
Category segmentation
There are various factors that should be taken into consideration before creating the category
hierarchy and consumer decision tree. Below is an example of what your consumer would
usually consider when purchasing a cold beverage.
That said, it is highly unlikely that there is only one consumer decision tree per category. That's
because there are different consumer behaviours based on cultural, personal, physiological and
social factors that exist within a consumer base, and for each of these segments there is a
different focus or priority.
For example, your shoppers may be price sensitive, which means price will feature higher on
their consumer decision tree. On the other hand, they may be highly visual, which means
packaging and brand becomes key in their decision-making. Meanwhile, others could be looking
for functionality and convenience. Thus packaging functionality, such as individually wrapped
products or the ability to reseal an opened product may influence their decision.Also, the
segments that exist are likely to vary by category so it's key to understand your consumer and
what's important to them.
THE CONSUMER DECISION TREE AND CATEGORY HIERARCHY
A major component in the category definition phase is developing a consumer decision tree. A
consumer decision tree (CDT) is a graphical record that assists retailers to better understand
consumer buying habits and the decision making processes followed by individuals while
shopping a Category.
The order of priority in which customers make their purchasing decisions details the various
product attributes (such as price, flavour, size, and brand). This product knowledge is then
translated into planograms that align to a retail strategy with consumer behavior.For example,
the consumer walks into a store, what happens next? Where do they go? What do they see?
What do they buy?
2. CATEGORY ROLE
A category role can be classified as the following:

• It positions the category within the portfolio of all of your categories within your store;
• It helps prioritise the category;
• It defines how you will use the category to achieve overall business objectives; and
• It helps drive tactical decisions on price, promotion, product assortment and store
location.
CONSUMER-BASED CATEGORY ROLES
There are four main consumer-based category roles that you should know.
They are:
1. Destination category role
This is a category with which the retailer wants to profile himself towards his target
consumers and differentiate himself from competition. It aims to offer superior value to
consumers and define the retailer as store of choice.
2. Routine category role
This category that aims to provide consistent and competitive value for the consumer’s
everyday needs. This category assists to develop the target consumer’s image of the
retailer.
3. Seasonal category role
This category refers to products which are not purchased on a regular basis but
occasionally. Seasonal categories play a secondary role in delivering profit but can be used
by a retailer to differentiate himself from competition during a certain period of the year.
4. Convenience category role
A convenience category completes the retailer's assortment with products that are not
usually found on a routine shopping list. This category aims to guarantee a one-stop-
shopping and plays an important role in margin enhancement.
3. INSIGHT GENERATION

Insight generation primarily involves competitor research, sales data, and in-depth
analyses so that you can make better decisions regarding the layout of a shelf.
When doing so, there are three areas a retailer must look at that will help him to optimize
his categories:

• Market data: This looks at the products that are selling well in the retailer's external
market/competitors;
• Consumer data: This looks at the internal market of the retailer, understanding
consumer preferences and behaviour, and analysing product sales; and
• Category strategy: This looks at the category definition, category role and the
tactical planning tactics that will be implemented in order to improve the overall
category performance.
The use of this data and advanced analytics will benefit retailers in almost all areas of the
business. It will help to identify gaps between the current and desired state of the category
and drive the strategic and tactical planning decisions.
4. STRATEGIC AND TACTICAL PLANNING
Category strategies
This is the step where strategies are developed to deliver on the category role. Category
role determines the depth of an assortment; whereas strategies determine the
assortments focus.Strategies enhance the strengths of the category, focus on combating
category threats, and create opportunities for the segments. The development of category
strategies has six basic drivers:Traffic Building; Transaction Building; Profit Generating; Turf
Defending; Excitement Creating; and Image Enhancing.
Category tactics
The goal of category tactics is to choose the best action to achieve a specific strategy based
on the role the category plays. In determining the appropriate tactic, you must review the
four basic category roles (Destination, Routine, Seasonal, and Convenience).These roles
determine how the retailer makes decisions about the implementation of each tactic.The
tactics used are the 4 Ps : Product Assortment, Pricing, Promotion and Merchandising
Placement.
5. INITIATIVE DEVELOPMENT & PLAN LAUNCH
During initiative development, you need to assess the cost versus the benefit of the plan
before prioritising the next steps for implementation.
This step is used to implement the category business plan through a systematic schedule
and list of responsibilities. Implementing category plan as per the objectives laid down is
the path to the success of a merchandising strategy. A typical category plan under
implementation stage includes: what specific tasks need to be done; when to do; where to
do, and who will do it. It is vital that you secure commitment to resources for
implementation otherwise all the hard work put into the first few steps will be wasted
without the right actions in place. The plan launch requires you to create a timeline for
rolling out the Category Management plan you've created.
6. PLAN REVIEW
A Category Review is not necessarily listed as a step within the Category Management
process as it needs to be completed on an ongoing basis. This step is rather an ongoing
measurement of the progress of the category plan and is a key indicator of the category's
success which allows you to determine whether or not changes should be made to the
category plan.

Establishing a pricing strategy

1. UNDERSTAND YOUR BUYER PERSONAS
Buyer personas are fictional characters that represent your ideal customers. They help you
refine your marketing activities and lead to an understanding of your customers’ willingness
to buy at a given price. There’s plenty of literature out there on defining your buyer
personas, so we won’t go too deeply into that process. Yet, in terms of pricing and packaging,
understanding them helps you to customize and develop your product for the valuations of
those customers and price accordingly.You’re probably already versioning your product into
tiers or levels, but understanding these personas ensures you’re capitalizing on those
customers willing to pay more and appealing to those who are more price sensitive. The big
thing here is that it’s all about your customers. Understand them, align your offerings to
them, and you can’t lose.
2. SURVEY AND TALK WITH YOUR CUSTOMERS
Once we’ve identified our buyer personas and understand them how do we figure out how
much they’re willing to spend, or what exactly they want their plan to be for your product?
The key to creating optimized prices and measuring the value you’re providing is to survey
the customer base and collect hard data. You already should be talking to your customers
about everything else, there’s no reason pricing should be an exception. You’ll find
customers truly appreciate the conversation, because it’s directly related to providing them
the right amount of value for how much they’re paying.You can ask them point blank how
much they’d be willing to pay, but you’ll find it’s hard for customers (and the human brain,
quite frankly) to cognitively come up with a number. Instead, asking the customer value-
based questions in ranges (“at what point is this way too expensive or at what point is this
so cheap you question the quality?”) will generate data that can take most of the guesswork
out of pricing your product tiers, and with that data you’ll be able to price your products for
affluent clients who want all the bells and whistles as well as frugal ones who don’t need
every feature.
3. ANALYZE THE DATA AND PICK YOUR PRICES AND PACKAGES
Now that you’ve collected some quantitative and qualitative data, you can analyze it and
create value-based pricing that appeals to the target segments. Pricing is a process, and
while looking for one perfect price is like trying to find a needle in a haystack, the data will
generate an optimal price range that narrows it down significantly. You’ll see patterns
emerge (I promise), especially when segmenting this data by persona.You’ll also need to
compare the data to your costs and competitors before making a final decision (although
that data shouldn’t be the driving force behind your analysis). Your final list of offerings
and SKUs should then be a listing that is discrete and collectively exhaustive. Essentially,
you need to make sure there’s an option for every one of your customer personas, in
addition to ensuring that when a customer visits your pricing page they know exactly what
bucket they fall into across your offerings. From a pragmatic standpoint, make sure that
you set a deadline for your team and that one person will make the final decision. The
process should and can involve someone from every part of the business, but we’ve seen
plenty of pricing paralysis when there are too many cooks in the kitchen. After all, pricing
will always be an aspect of your business.
4. COMMUNICATE VALUE TO YOUR CUSTOMERS
Prices and value are only as good as how you communicate them. Fortunately, collecting
price sensitivity data not only determines a more accurate price for your product, it also
allows you to provide great customer service. You’re further developing that customer
relationship and assuring customers that you’re providing the value you claim in your
prices.Once you have those prices though, you need to make sure you communicate the
value, pricing model and purchase process clearly. If you publish your prices, make sure it’s
clear what features are available for each tier at the given price so that customers know
exactly what they’re paying for when they put down their credit card or invoice number
(more on pricing pages). Make it as easy as possible for customers to predict their costs
and see the value they’re receiving.
5. CREATE THE RIGHT, PROFIT FOCUSED CULTURE
While it’s definitely imperative that you communicate the value of your product to the
consumer, it’s equally as important to accurately convey that value to everyone on your
team. The individuals on your team, from the sales team to developers, have just as much
power over your profitability as your customers. If the company culture isn’t unified
around the value and pricing of your products, then none of the effort put into generating
data, conducting a thorough analysis or choosing your price points will maximize revenue
or help your business grow.To create a culture that reinforces your pricing strategy it’s
important that your company’s costs, pricing, and profit margins are clearly visible to the
team. This transparency guarantees their bought in, and you’ll realize that the collective
will do a better job at figuring out how to market and sell different versions of your
product to the right customer segments.If you decide to run promotions or offer discounts,
make sure the team knows the limits so you don’t lose out on margins. Discounts need to
be discreet, used sparingly and executed consistently.

Merchandise pricing
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, send 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.
The Consumer and Retail Pricing:
Retailers should understand the importance of pricing because it has direct relation with
consumer purchases and perceptions. During pricing decisions, retailers should also under
the price elasticity of customers to price changes in terms of the quantities bought. If
relatively small percentage change in price results in substantial percentage changes in the
number of articles purchased, price elasticity will be high. This is the situation where the
urgency to purchase is low or substitutes are well available. If large percentage changes in
price have small percentage changes in the number of articles purchased, demand is
considered to be inelastic.
This is the situation where purchase urgency is high and substitutes are not easily
available. The formula to compute price elasticity is given below. The price elasticity is
calculated by dividing the percentage change in the quality demanded by the percentage
change in the price charged. Because in retail market sales usually decline as prices go up,
elasticity tends to be on negative side.
Factors Affecting Retail Price Strategy:
Following factors have direct or indirect influence on retail pricing. Three are usually basic
pricing options before a retailer. Each has its own merits and demerits. These are as
follows:
Pricing Options, Objectives and Types:
1. Pricing Options:
(i) Predatory Pricing:
It involves large retailers that normally seek to produce competition by selling
merchandise at very low prices and create the situation where it becomes difficult for
small retailers to stay.
(ii) Prestige pricing: It assumes that customers will not buy merchandise displayed if price
fixed are too low. It is based on the price-quality association.
(iii) Price lining:A pricing practice where by retailers sell merchandise at a limited
rate/limited range of price points, where each point represents a different level of quality.

2. Pricing Objectives:
Pricing objectives are generally considered as part of the general business strategy and
give direction to the retail pricing process. While deciding on pricing objectives, a retailer
must understand that pricing strategy must reflect the retailer’s overall goals that can be
stated in terms of profit and sales.
Usually, while setting the price, the firm may aim at one or more of the following
objectives:
(i) Achieving pre-determined return on investment (ROI)
(ii) Building company’s image, goodwill and brand’s name
(iii) Building sustainable competitive advantage
(iv) Creating curiosity and interest about goods and services
(v) Creating store traffic
(vi) Early recovery of cash
(vii) Having price leadership
(viii) Increasing company’ growth
(ix) Increasing market share
(x) Increasing rupee sales
(xi) Justifying social responsibility of business
(xii) Making the newcomers’ entry in the industry difficult
(xiii) Matching with competitors’ prices
(xiv) Maximizing long-term profit volume
(xv) Maximizing short-term profit volume
(xvi) Partial Cost Recovery
(xvii) Providing ample customer service
(xviii) Quality Leadership
3. Types of Pricing:
(i) Horizontal pricing: This practice involves agreements among manufacturers,
wholesalers, retailers to set certain prices. These agreements usually are illegal under
Indian sales act.
(ii) Vertical Price Fixing:A practice where manufacturers or wholesalers seek to control the
retail prices of their merchandise through some sort of agreements.
(iii) Price Discrimination:A pricing practice where different prices are charged from
different retailers for the same merchandise and same quality.
(iv) Minimum Price Laws:These laws prevent retailers from selling certain items for less
than their cost plus a fixed percentage to cover overhead.
(v) Unit Pricing:The objective of such legislation is to let the customers compare the prices
of product available in many sizes. For instance, Food and Grocery stores must express
both the total price of an item and its price per unit of measure.
(vi) Item Price Removal:A pricing practice whereby prices are marked only on shelves or
signs and not on individual item.

Setting the Retail Price:

Once price used to be the less important ‘P’ of marketing mix & ‘Price’ was neglected for a
long time. But with the complexities of business and increasing competition, the
importance of pricing decision is growing because today customers are looking for
appropriate ‘value’ Value is the relationship between customers’ expectation and his
paying ability.
Retailers, marketers are in business to multiply their invested money. There are several
factors that affect the profitability of a retail business but an appropriate pricing policy is a
vital decision toward multiplying their invested money. Retailers have various pricing
strategies to use in their normal course of business but which one to adopt, depends on
costs (operating and running cost etc.) incurred on that products. Setting the retail price of
merchandise is a complicated, but the most important aspects of managerial decision
making. If the price is set too low, retailer may not be able to cover its store expenses. If
the merchandise is priced too high retailer may price himself out. Therefore, price setting
is a complex activity and no formula has been developed so far to set the price
correctly.Retail price setting process includes a series of decisions a retailer makes while
determining the price of merchandise. As said earlier, there is no universal way to set the
price of merchandise but one thing should be noted in this regard that regardless of the
price setting process used, the price of merchandise should meet the cost of obtaining the
supplies and expenses to operate the retail firm.Here a five-step process is explained
which most of the retailers follow to set the prices for their merchandise.
Five-step Process:
Pricing Strategies:
Some of the major factors affecting retail pricing strategies are as follows:
Price is a highly sensitive and visible part of a retail marketing mix and has bearing on the
retailer’s overall profitability. Further, pricing itself is an essential part of marketing mix
and has its own place in strategic decision-making process. Out of 4 Ps (Product, Price,
Place & Promotion), price is the only element of marketing mix that generates income for
the firm, while rest of the elements are parts of the variable cost for the firm.Pricing
strategy must consider that it costs to manufacturer to develop a product; it requires
expense on distribution and promotion. A lot of pricing strategies are on hand and are
practiced throughout the world. The main criterion to adopt a particular strategy is “what
objectives’ a firm decides to achieve?” A price strategy can be demand, cost and/ or
competitive in nature. As charging too high or too low may cause loss to the firm, pricing
should take demand, cost and/or competition into account.
1. Demand Oriented Pricing:
Under demand oriented pricing, prices are based on what customers expect or may be
willing to pay. It determines the range of prices affordable to the target market. Under this
method, retailers not only consider their profit structure but also calculate the price-
margin effect that any price will have on sales volume. As the very name implies, demand
oriented pricing strategy seeks to forecast the quantities (sales volume), customers would
purchase at various prices and concentrates on the prices associated with pre-determined
sales targets.
For example, if customers are highly sensitive to price tags, a price cut can enhance the
sales volume so much that profits actually go up. On the other side, if customers are less
bothered about ‘price’, increasing the sales price will directly result into increased profits.
In short, demand oriented pricing seeks to estimate the price level that maximizes profits.
2. Cost Oriented Pricing:
Under this form of pricing policy, a retailer decides a floor price of the merchandise a
minimum price suitable to the organization to achieve its financial goals. A retailer under
this method sets the price to cover production cost, operating costs and a pre-determined
percentage for profit. The percentage varies strikingly among industries, among member
outlets and even merchandise of the same retail firm. One popular form of such pricing
strategy is to mark up pricing. In mark up pricing, a retailer sets the prices of the
merchandise by adding per unit merchandise costs, retail store operating ex
3. Competition Oriented Pricing:
As the very name suggest, under this pricing policy, retailers set the prices of merchandise
after considering competitors’ prices rather than demand or supply considerations. The
 company following this policy may not react to changes in demand or an increase in cost of
merchandise.The retailer can charge higher than the market price, when the location of
their stores is attractive and convenient to majority of its customers, offer wide
assortments, exceptional customer service, a well established image, long experience and
an executive brand. On the other hand, stores with inconvenient location and absence of
value-added characteristics can charge less than the market price.penses and determined
profit.
Pricing Adjustments Techniques:
After deciding the prices of merchandise, the retailer’s next step is to consider whether
there is any need to change some prices due to reasons like changing demand patterns,
pilferage issues, competition and seasonal shift during normal course of business. Price
adjustments include either mark down or additional mark ups.
Mark Down:
Mark down is a most common technique to push retail sales that offers particular
merchandise at a price less than the merchandise’ marked price (normal price).
The reasons for several types of merchandise include:
(i) Overstocking / over buying
(ii) Season (climate) change
(iii) Clear out store worn / slow moving merchandise
(iv) Clear out old fashioned / old trend merchandise
(v) To generate customer traffic
Mark down always does not mean that store is not performing well but this is a part of doing
business and to run a retail store efficiently. Sometimes, some retailers initially mark up their
merchandise high enough that after reductions and marking downs (whatever the reason may
be) the planned maintained mark up is achieved. Thus a retailer’s intentions should not be to
reduce mark downs. If mark downs are too less, it may mean that the retailer is probably
charging the merchandise too low, not purchasing in bulk, or not having interest to purchase
particular merchandise.
Types of Mark downs:
(i) Temporary Markdowns:
This is a policy of reducing the prices of merchandise for a particular time period due to a
particular reason. For instance, markdown because of clear out shop worn / substandard
merchandise. Once such merchandise is sold, the product will be priced to the normal selling
price.
(ii) Permanent Markdowns:
In such markdowns, price reduction is made for comparatively longer periods, may be few
weeks, few months or more. Unlike the temporary markdown, where price reduction takes
place for a particular cause and price eventually will be raised to the original one, the
permanent mark down is used to replace the old quality merchandise with the new one.
The reasons for permanent markdown are:
(a) Merchandise is of perishable nature and will be of no use after sometime
(b) To replace the old technology goods to new and latest versions
(c) Particular merchandise that a manufacturer / marketer no longer wish to produce/sell.
(iii) Seasonal mark downs:
Under such markdowns, prices are reduced to clear out the seasonal retail merchandise, such
as ‘Ludhiana woolen sales’ in the last months of winter season are very common in North
Indian states like Haryana, Punjab, and Delhi etc.
Additional Markup:
Unlike the markdown where the prices are reduced, the additional mark up is intended to
increase the retail price above the original mark up due to certain reasons like:
(i) When the demand for merchandise offered is exceptionally high
(ii) Due to monopoly like situation
(iii) When competitors are not able to meet the consumers’ demand
(iv) In case private labels are performing well in retail market and have good demand, retailer
would like to have quick and fast returns.

Price Discrimination Policy:

The important level of price discrimination policy are listed below:
It is a pricing policy where a retailer charges different prices from different customers for the
same merchandise. Price discrimination is based on the philosophy of ‘ability-to- pay’ and
requires market segmentation. Price discrimination may be studied under few degrees such as
first, second and third level price discrimination.
1. First Level Price Discrimination:
This type of price discrimination occurs when retailer charges the price of merchandise
according to the customers’ ability to pay. Usually for a retailer, it is not easy to identify which
customer is able to pay more but when a retailer is able to do so, he would like to increase his
profit base.
For example, this type of price discrimination practice is usually common for sale of both new
and second hand cars. People pay different prices for the cars having same features, model and
make. The success of such price discrimination policy depends upon the ability and selling art of
the floor employees to convince the customers that they are paying genuine and reasonable
price for the merchandise. A customer having less/no bargaining power is welcomed by the
retailer.
2. Second Degree Price Discrimination:
It refers to a practice where retail companies charge less prices for bulk buying. A retailer when
gets big orders or purchase order for the same items at once in high number, offers the
merchandise at a discounted rate. This practice is very common not only in retail business but
in wholesaling too.
This reduced rate will not be applicable to a customer who places order for a few items. A
reduced price (discounted rate) is offered if one buys 5 kg or more instead of 1 kg or two shirts
instead of one. It is helpful in clearing out the merchandise and generates quick revenue for a
retail firm.
3. Third Degree Price Discrimination:
It refers to a practice where price vary by customer group or by location. One another form of
such type of price discrimination is a practice of offering temporary discounts for airfares during
particular seasons to cover up the low traffic fleet. In practice, this pricing discrimination takes
various forms.
for example, ‘students’ are considered a group and are offered discounts at cinema halls,
amusement parks, trade fairs and museums. Some public and private airlines offer discounts to
‘senior citizens’. Both students and senior citizens have higher elasticity of demand but less
affordability.