Session 11 17

Category Management
Multichannel Retail Strategy
8/20/2021 Dr. Ashis Mishra, IIMB 1

Category Management philosophy
 Category management is all about finding out what
shoppers want and providing it better than the
competitor can
 In other words, if the retailers select the right
products for the target customers and then
merchandise and price them appropriately,
the result should be a satisfied consumer who
remains loyal to a store

Category Management
 For the achievement of the same, category
management emerged in the early 1990s as a
method of turning the marketing basics into an
organized process.
 The 8 step process proposed by “The
Partnering Group (TGP)”, a consultancy firm
has been used as the basic model of category
management by most retailers with requisite
modifications
Early Practitioners
 The first retailers who pioneered category
management are
 Safeway, Kroger, Albertson’s and Publix
 The first wholesaler to practice category management
is SUPERVALU
 The manufacturers who are the earlier supporters of
category management are Coca-Cola and Philip Morris

Category Management
 Category management is the process of
managing a retail business with the objective
of maximizing the sales and profits of a
specific category.
• Direct objective is to maximize the sales and
profits of the entire category (say dairy, fresh food,
denims etc.) not just a particular brand or the
whole merchandise range of the store.
• One person (category manager)is totally
responsible for the success or failure of a category.

Organization Structure change
Division Level
VP Merchandising
Department
Level
(Division)
GM Gents GM Ladies
GM Kids wear
wear wear
Category Level
Category Category Sub Category
Level
Manager Men Formal Manager Men casual (if applicable)
Buyer/
Sub Category Manager
Assistant
intimate wear, sports wear
Buyer
Buyer/ Buyer/
Buyer Admin Assistant Assistant
Buyer Buyer
Buyer Admin
 Roles are defined
 Category Manager per category
 One person responsible for success or failure of the category
 KRAs and KPIs (key result areas and key performance indicators)
 Establish performance Indicators and measures for the same
 Eg. Sales per Category, Availability, Wastage, Markdown %, Shrinkage, GMROI, Inventory Turnover
6
Category Management
 In deciding the proper space allocation per product
category, these are several of the crucial measures
of performance to retailers
 Sales per linear foot of shelf space : annual sales divided by
total linear footage devoted to the product category
 Gross profit per linear foot of shelf space : annual gross
profit divided by total linear footage devoted to the product
category
 Return on inventory investment : annual gross profit divided
by average inventory at cost

Category Management
 Inventory turnover : number of times during a
given period, the average inventory at hand is
sold (usually one year)
 Days supply : number of days of supply of an
item that is on the shelf
 Direct product profitability : an item’s gross
profit less its direct retailing costs (warehouse
and store support, inventory, direct labor costs
etc.)

How to do it practically?
 Category management must start with consumers
 Who the consumer is (demographics, psychographics,
purchase patterns etc.)
 What the consumer buys (brand, size, wt etc.)
 Why the consumer buys (price, promotion, convenience
etc.)
 When the consumer buys (seasonal, cyclical etc.)

 Where the consumer buys (alternative formats, on line,
direct marketing etc.)
 How much the consumer buys per trip (regular,
exceptional etc.)
 Retailers can not develop marketing and
merchandising plans to increase their profit, sales,
market share per category chosen without exploring
these issues

errors
 Category management is most often not
implemented with understanding of the
implications; rather it is wishful thinking
 Rules are not followed by the theories and even
deviations from theories are not dealt with
scientifically
 One size does not fit all and all categories do not
benefit equally from implementing category
management

Grocery industry developed an 8
step category process
13
Category Management Framework

Category Definition
 A category is an assortment of items that the
customer sees as reasonable substitutes for each
other: girls’ apparel, boys’ apparel, infants’ apparel.
 Category Configuration should be a function of Time,
Space, and Product Utilization based on customer
preferences / predispositions
 It arranges product groupings / stocks into strategic
business units

Dairy category
Sub Product Sub-
Division Department Category Category Product Group Group Product
Reduced Fat
Liquid Milk milk 500ml,1ltr
Low Fat milk 500ml,1ltr
Skim Milk 500ml,1ltr

300 ml, 600 ml, 1 L ( Chocolate, Coffee, Banana
Flavored Milk flovors)
Milk
UHT Milk Single Serve Packets, Cartons - 500 ml, 1 L
Dried Milk 500ml,1ltr
Fresh Evaporated Milk 500ml,1ltr
and Sweetened
Diary Diary Condensed Milk 500ml,1ltr
Frozen
Food Packed- Block, Packed - Sliced, Loose(by wt.), 100g,
Cottage cheese 200 g, 500g, 1 kg
Processed Packed - Blocked, Packed Sliced, 100g, 200 g, 500g,

Cheese Cheese Soft Cheese 1 kg
Packed - Blocked, Packed Sliced, 100g, 200 g, 500g,
Hard Cheese 1 kg
Yoghurt
Cream
Butter
16
Meat & Poultry
Division Department Category Sub Category Product Group Product Sub-Group Product
Broiler Chicken
Skinned, Loose (per wt.) , Packed
Chicken Whole Chicken Whole
Broiler Roaster Chicken (100g, 250 g, 500g, 1 kg)
Chicken Chicken - Breast Piece Chicken - Breast Piece
Cut/ Whole, Cleanedand Spiced/
Chicken – Legs Chicken - Legs
Fresh-cutAS-IS
Heavy Hen
mahi-Mahi
Marlin
Tropical Sea-Fish
Pomfret
Sea Fish Tuna

Skinned, Loose (per wt.) , Packed
Monkfish Chicken (100g, 250 g, 500g, 1 kg)
Raw Fish
Fresh and Sea Fish Anchovy Cut/ Whole, Cleanedand Spiced/
Unprocessed Fresh-cutAS-IS
Frozen
Meat / Fish/ Cod
Food
Eggs
Trout
River Fish River Fish Blacknose dace
Common Shiner
Omega Eggs Omega Eggs
Vitamin Enhanced Eggs Vitamin Enhanced Eggs

Hen
Free-Range Eggs Free-Range Eggs
Egg Packet,Loose
Cage-Free Eggs Cage-Free Eggs
Duck
Goose
17
Category Management
 Category management is a method of managing
a business that focuses on product category
results rather than the performance of individual
brands or models
 It orients retail managers toward the
merchandising decisions necessary to maximize
the total return on assets assigned to them per
category (financials per category)

Develop & assign category roles
 Role definition is the key starting point in the category
management cycle and drives an enormous array of
subsequent decisions.
 By formally assigning roles, a retailer decides whether
it will be the store of choice for milk (i.e.,“destination”
category) or a place where shoppers can pick up milk
during a shopping trip (routine category)

Category Role
 Customer Focus
 Who is Buying? Why? When?
 How many do they buy? How often?
 We will develop a strategy of 0 tolerance for out of stock in the destination
categories (effective supply chain strategy, reviewed constantly)
 Retailer Focus
 Analysis on Sales Value and Gross Margins
 When we are starting new, Retailer focus may not be there
 Can go with lessons in similar markets
 Competitor Analysis
 Product Focus – Product Characteristics
 Inputs used
 Customer Sample
 Research Papers on Internet
 Competitor Survey
20
Core Category Identification
Core category identification by sample population (# of people)
Rank / rate Frequency (1 -most imp, 8 - least imp) Total Average
Category
1 2 3 4 5 6 7 8 Score Rank / rate
Staples
Body Care
3
1
1
2
1
3
3
2
0
0
0
0
1
0
0
1
27
30
3
3.33
**
Dairy 1 2 2 1 3 0 0 0 30 3.33
Snacks & Confectionary 1 1 1 2 2 1 1 0 37 4.11
Fresh Fruit and Veggies 4

Core Category Identification
3 2 0 1 0 0 0 21 2.33
*
4.5
3.5
3
 Destination Category
Weighted Rank
2.5  Fresh Fruit/ Veggies

2
 Staples are a close second
1.5
0.5
0
Staples Body Care Dairy Snacks & Confectionary Fresh Fruit and Veggies
Categories
21
Crowd Puller Merchandise
Crowd Puller category identification by sample population (# of people)
Rank / rate Frequency (1 -most imp, 8 - least imp) Total Average Rank /
Category
1 2 3 4 5 6 7 8 Score rate
Fresh Meat/ Fish 2 1 2 1 1 2 36 4

*
Bakery
Pharmacy 1
3
3
3 2
1
1
2 2
29
39
3.22
4.33
***
Fresh Local Delicacy
Pet Food
2 1
1
2 1
1
1 1
4
1
3
33
58
3.67
6.44
**
Processed Food 1 1 6 1 44 4.89
Alcoholic Beverages (W & S)
Organic Food
3
1
1 1
2 1
1
1
1
1 2
2
1
35
44
3.89
4.89
**
CrowdPuller Identification
6  CrowdPuller Category
5
 Bakery
Weighted Rank
 Fresh Food Delicacy

3
2
 Alcoholic Beverages – Wine and Spirits
1  Fresh Meat/ Fish
0
Fresh Meat Bakery Pharmacy Fresh Local Pet Food Processed Food Wine and Organic Food
Delicacy Beverages
Categories
22
Category Role - by Product Characteristic
Category Role Type of Product Characteristics
Destination Fresh Veggies/ Fruit Will define our image to the target consumer
Staples – Rice, Wheat, Will determine consumer switch to our stores
Pulses High Penetration amongst target consumer group
Routine FMCG products – Routinely Purchased Products

Toothpaste, Soap etc Consistent performers for the retailer
Occasional/ Food/ Non Food Sold during a specific time period

Seasonal Products – Seasonal/ Seasonal Fruits – Mangoes, Oranges
Special Occasions Festival special: Food/ non food products – Christmas Cakes,
cookies, Sankranti special, Diwali crackers
 Yearly special periods - School reopenings, Summer Special (Cold
drinks, Deoderants, talc, Hobby products), Winter Special (Food,
cold/cough related products, Hot chocolate etc.)
Convenience Stationary Impulse Purchase
23
Develop & assign category roles
 Category management is intended to guide the
merchandiser through a process that extends these
role decisions to their tactical implications
 Space allocation
 Pricing
 Promotion
 Assortment design etc.

Step 1 summery
 Step 1
 Define the category based on the need of the target
market
 Objective : Determine the products that make up the
category and its segments
 Analytical tools used
 Market Analysis
 Consumer segmentation

Step 2 summery
 Objective
 Assign category roles (purpose) based on a cross
category quantitative analysis that considers
consumers, retailers, suppliers and market place
 Tools
 Basket analysis, frequent shopper data, household
panel data, POS data, Occasion analysis, financial
analysis

Step 2 summery
 Category roles
1. Destination
2. Routine
3. Occasional / seasonal
4. Convenience


Data Integration
 Information to measure category management must
come from a wider range of sources within the
company
 Technological infrastructure and customized software
are absolutely essential
 Retailers also need to examine their own priorities and
appreciate the significance of data integration

Develop Evaluation measures
 Activity based costing
 There needs to have visibility of true category
profitability
 Category profitability should be measured in the context
of category roles and strategies
 Scorecards should be aligned with over all strategy and
balanced to provide feedback across number of areas

Activity based costing
 Gross margin as a profitability measure reveals
only part of the story
 Activity based costing holds the key to category
profitability
 It allows the management to examine the total costs
involved in getting products to the consumer; once the
true cost are identified, the retailer can assess the impact
a process / category has on the bottom line and the value
delivered to the customer

Personnel Management &
Evaluation
 There is a majority opinion that category management
improves the performance evaluation of category
managers and other executives
 However, the organization’s strategy must be aligned
with the performance measurement of employees and
there must be consistency across the whole process

Step 3 Summery
 Objective
 Analyze the category as well as subcategories, brands
and items based on consumer, market, retailer and
supplier perspective
 Draw appropriate conclusion for future progress
 Analytical tools
 POS data
 Household panel data
 Space management software data

Step 4 Summery


The Model

Step 5 Summery
 Strategies
 Traffic building
 Transaction building
 Profit generating
 Cash generating
 Excitement creating
 Image enhancing
 Turf defending


Step 6 Summery
 Tactics on key decisions
 Assortment
 Maintain
 Decrease
 Increase
 Exchange / Swap
 Private label
 Pricing
 Promotion


Implementation Process






Implementation
 One size does not fit all
 Hence, an iterative evolutionary approach needs to
followed by the retailers to move towards a vision
in increments, reinforcing workability and value at
each step and stopping at the point of reasonable
balance
 Consequently, changes could be assimilated, benefits
could be realized in a progressive manner, key concepts
could be validated as they evolve and scope could be
adjusted as per the requirements

Category Management
 Category captain - supplier forms an alliance
with a retailer.
• Helps gain customer insight, satisfy customer
needs and improve the performance of the
category
• P&G could be a category captain for Wal-Mart
• Potential problem: it’s like letting a fox into the
henhouse (forward integration of the supplier).

Category captain
 Retailers select one manufacturer in a category as a
trusted partner
 The retailer believe this manufacturer has the resources,
interest and commitment to grow the category
 So, this manufacturer could be treated as the category
captain where as the others would be the category
advisors / validators

Cluster Marketing

Cluster Marketing

Cluster Marketing

Cluster Marketing

Illustration
Illustration

Illustration

Fundamentals of Category management
- Managing Categories as Strategic business units thereby

ensuring that the right PRODUCT is available at the right
PLACE at the right TIME in the right QUANTITIES
Category
8/20/2021 Management Dr. Ashis Mishra, IIMB 59
Pre-requisites of Category management
Cluster marketing
Micro-merchandising
Model categories
Performance measurement
Category
8/20/2021 Management Dr. Ashis Mishra,February
IIMB 20 , 1999 60
The Resort , Mumbai
Enablers of Category management
Scorecard -Performance measurement

Organizational capability
Technology infrastructure
Collaborative relationship
Category
IIMB 20 , 1999 61
The Resort , Mumbai
Need for Category management
13%
37% Reduce product proliferation
23% Lift sales / Market share
Rethink end to end market offering

Re-merchandise categories
27%
Category
IIMB 20 , 1999 62
The Resort , Mumbai
Consumer driven approach

Who is our Consumer ?

Stage of Life
Purchase Patterns
Class
Influences
Category
IIMB 20 , 1999 63
The Resort , Mumbai

Why does he/she buy ?
Price
Promotion
Convenience
Shopping Experience
Category
IIMB 20 , 1999 64
The Resort , Mumbai

What does he/she buys ?

Brand
Basket preferences
Category
IIMB 20 , 1999 65
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How much does he/she buy ?

Exception purchase
Assortment purchase
Category
IIMB 20 , 1999 66
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When does he/she buy ?

Seasonal Events
Cyclical
Category
IIMB 20 , 1999 67
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How does he/she buy ?

Consumer decision making
process
Category
IIMB 20 , 1999 68
The Resort , Mumbai
Who is our Consumer ? Why does he/she buy ?

Stage of Life Price
Purchase Patterns Promotion
Class Convenience
Influences Shopping Experience
What does he/she buys ? When does he/she buy ?

Brand Seasonal Events
Basket preferences Cyclical
How much does he/she buy ? How does he/she buy ?

Exception purchase Consumer decision making
Assortment purchase process
Category
IIMB 20 , 1999 69
The Resort , Mumbai
Consumer decision making process
Purchase Walks into

Male Customer for Self Mens section
walks into store
Purchase
for Other
Formal Casual
External
Shirts Trousers
Decision based on Style Fabric

assortment offered Colour Weave
Price pt. Type
Internal
Category
IIMB 20 , 1999 70
The Resort , Mumbai
Category profitability
Performance Measures must be aligned with the Companies
strategic goals for Category Management to function properly
which add value to the consumer.
140000
120000
Sales at
100000 MRP(@ 500/-)
80000 Net
Margins(100%
60000 desired)
40000 Cost of Sales
20000
Weeks
0
Category
IIMB 20 , 1999 71
The Resort , Mumbai
Category managers
-Empower Category Managers with full decision making authority over all merchandising inputs .
-Each Category for a specific season/ period is treated as a PROJECT led by the Category Manager.
-Full accountability for the resultant category Profit and Loss.
Chief executive officer
Chief operating officer
Category manager Category manager Category manager

Shirts Trousers Jeans
Information
Flow
Product
Flow
Procurement Manufacturing Warehousing Distribution Sales Customer

service
Category
IIMB 20 , 1999 72
The Resort , Mumbai
Category illustration - Pantaloon specific
DEPARTMENT MENS LADIES CHILDREN

SUB-DEPARTMENT FORMAL CASUAL
CATEGORY SHIRTS TROUSERS JEANS
SUB- CATEGORY SOLIDS STRIPES CHECKS
CLASS COTTON BLEND OTHERS
SUB - CLASS LSBD SSBD LSRC
SKU
Category
IIMB 20 , 1999 73
The Resort , Mumbai
Category coding - Pantaloon specific
• Category Hierarchy Hard Lines denoting the Business what the company
is doing and would like to control
• 14 digit SKU The Stock Keeping Unit which maps to the aforesaid
Categories. (Variants)
• Unique Product Code The existing 14 digit SKU which is hard coded
presently is proposed to be replaced by a set of
Universal Product Code, (UPC),
National Retail Federation, USA,
International Apparel Coding System, in the future.
Category
IIMB 20 , 1999 74
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Category management - optimization
Store A Store B Store C
Category A Category
Profit
Category B
Category C
Profit/sq.ft
Category
IIMB 20 , 1999 75
The Resort , Mumbai
Session 12
Retail Pricing
20-08-2021 Dr. Ashis Mishra, IIMB 1

Retail Pricing
• A retailer must set prices in a manner that achieves profitability for
the store and satisfies customers, while adapting to a variety of
constraints.
• Pricing has a direct relationship with objectives and interacts with
other retailing elements.
• Objectives can be in terms of sales, profit, and return on investment.
• A key to successful retailing is providing good value in the consumer’s
mind for the particular price orientation chosen
• Pricing is often mixed with the other elements of retail mix to develop
a complete strategy
• A retailer has three basic pricing options
• Discount Orientation
• off-price retailers and discount department stores
• At-The-Market Orientation
• traditional department stores and drugstores
• Upscale Orientation
• upscale department stores and specialty stores
Government Manufacturers, Current and
Consumers (federal, state, wholesalers,and potential
and local) other suppliers competition
Total Effect
on Pricing Strategy
• Price Elasticity of Demand
• Elastic
• Inelastic
• Unitary Elasticity
• percentage changes in price are directly offset by percentage changes in quantity
• The computation of price elasticity is difficult in retailing.
• Demand for individual events or items may be hard to predict.
• Retailers often sell thousands of SKUs and could not possibly compute
elasticities for each even though they can do it for categories as an indicator
• Accordingly, many retailers rely on average markup pricing,
competition, tradition, and industrywide data as indicators of price
elasticity.
• A retailer must understand the relationship between price and consumers’
purchases and perceptions
• Price Sensitivity
• Consumer price sensitivity varies by market segment, based on shopping
orientation.
• Economic consumers shop around for the lowest prices.
• Status-oriented consumers are more interested in prestige brands and customer
services than in price.
• Assortment-oriented consumers seek retailers with strong assortments and look for
fair prices.
• Personalizing consumers have a strong personal attachment with retail personnel and
the firm itself. They are willing to pay slightly above-average prices.
• Convenience-oriented consumers look for nearby locations and long store hours, and
often shop via catalogs and the Web. They are willing to pay higher prices.
• Federal
• State
• Local
• Horizontal price fixing involves agreements among
manufacturers, among wholesalers, or among retailers to set
certain prices
• Vertical price fixing occurs when manufacturers or wholesalers
are able to control the retail prices of their products.
• CCI is the appellate body for the regulation of anti-competitive
practices in India
• Supplier vs. Retailer Perspective
• Branded bulldozer
• Tug of wars
• Strategic partnerships
• Gray Market Goods
• Foreign goods at lower price
• Price Guarantee
• Unknown /new brands may provide
Manufacturer Reseller
Relationship matrix
Strong Branded Tug of Strategic

Manufacturer
Bulldozers Wars Partnerships
Weak Opportunistic Shelf – Assortment
Mating space Fillers
Bidders
Weak Strong and Strong and
Adversarial cooperative
Reseller
Look before you leap : McKinsey Quarterly
8/20/2021 9
1(1997)
Generic Manufacturer Roles
Roles Details
• Single-minded focus on the consumer
Branded Bulldozer • Brand-led approach (no private label)
• Dismissive relationship with the trade (retailer as
vehicle)
• No ECR (efficient consumer response) activity
• Focus on the consumer and the trade
Branded Bastion • Brand-led approach
• Pragmatic relationship with the trade (mutual
suspicion)
• Limited ECR activity
• Focus on the consumer and the trade
Category Captain • Brand-led approach (private label supplied
pragmatically)
• Cooperative relationship with the trade (mutual
respect)
• Extensive ECR activity
• Focus on the trade
Private label partner • Private-label-led approach (with limited brand
presence)
• Subordinate relationship with the trade
• Medium ECR activity
Manufacturers, Wholesalers, and
Other Suppliers
• Manufacturers (and other suppliers) and retailers would each like to
control the final selling price of merchandise.
• Manufacturers usually seek a certain image, but want to let retailers earn
profits.
• Retailers want to set prices based on their own image, goals, etc.
• The manufacturer can control prices by using exclusive distribution
and refusing to sell to price-cutting retailers and/or by being its own
retailer.
• The retailer can control prices by being a major customer of the
manufacturer, threatening to discontinue the manufacturer’s line,
stocking private brands, or selling gray market goods.

Manufacturers, Wholesalers, and
Other Suppliers
• Many manufacturers set selling prices to retailers by estimating retail
prices.
• Sometimes, retailers sell against the brand by placing very high prices on
manufacturers’ brands and relatively low prices on private labels. This
strategy is disliked by manufacturers.
• Gray market goods are brand-name products bought in foreign markets or
goods transshipped from other retailers. They are sold at low prices by
unauthorized dealers and are also disliked by manufacturers.
• Unknown suppliers or those with new products offer price guarantees to
retailers to protect against price declines. These ensure that inventory
values and profits will be maintained by the retailer.
• Other suppliers also affect prices: employees, store fixtures manufacturers,
landlords, and outside parties (e.g., advertising agencies).

• Minimum-Price Laws
• Loss Leaders
• Predatory Pricing
• Unit Pricing (price per unit)
• Item Price Removal (remove items from the price list unannounced)
• Price Advertising
• Bait Advertising (Bait-and-Switch)
• Bait advertising is an unethical advertising technique that involves luring the customer
in with a promise of a sale or an inexpensive item they may be interested in, and once
capturing their attention, the online advertiser changes the scheme by making the
product unavailable and then directing the consumer to a like product that is more
expensive. An online vendor or merchant will offer the pseudo sale either in an online
advertisement or newsletter.
• Gives Consumers Perception of Always Low
Prices
• Most Consumers Will Not Ask for the Difference
• Deep Discounters Can Be Excluded
• Market Pricing
• there is a lot of competition and consumers
seek out the lowest prices. Retailers have
little control over price.
• Administered Pricing
• retailers attempt to attain consumer loyalty
on the basis of distinctive retailing mixes. If
strong store differentiation can be
achieved, the retailer can have control over
the prices it charges
• Copied Pricing Strategies
• Price Wars
• Market Penetration
• Market Skimming
• Return on Investment
• Early Recovery
• To maintain a proper image.
• To not encourage customers to become overly price-conscious
• To be perceived as fair by all parties
• To be consistent with setting prices.
• To increase customer traffic during slow periods.
• To clear out seasonal merchandise.
• To match competitors’ prices without starting a price war.
• To promote a “we-will-not-be-undersold” philosophy
• To be regarded as the price leader in the market area by consumers.
• To provide ample customer service.
• To minimize the chance of government actions relating to price advertising and
antitrust matters.
• To discourage potential competitors from entering the marketplace.
• To create and maintain customer interest.
• To encourage repeat business
• Demand-Oriented Pricing
• Prices are based on consumer desires. A demand ceiling is determined. This
defines the maximum consumers will pay for a product.
• It seeks to estimate the quantities customers would buy at different prices
and focuses on stated sales goals. This approach looks at customer interest
• The price-quality association is a concept stating that consumers believe
high prices connote high quality and low prices connote low quality.
• It is most important when competing retailers or products are difficult to
judge on bases other than price
• consumers have little experience or confidence in judging quality,
• buyers perceive differences among retailers or products,
• brand names are an insignificant factor in product choice.
• Demand-Oriented Pricing
• In prestige pricing, it is assumed that consumers do not buy goods and
services at prices that are considered too low.
• The feeling is that too low a price means that product quality and status are
also low.
• Prestige pricing does not apply to all customers or products categories
• Cost-Oriented Pricing
• One form of cost-oriented pricing, markup pricing, is the most widely
practiced retail pricing technique
• The retailer sets prices by adding per-unit merchandise costs, retail operating
expenses, and desired profit. The difference between merchandise costs and
selling price is the retailer’s markup.
• The markup percentage depends upon the product’s traditional markup, the
supplier’s suggested list price, inventory turnover, competition, overhead
costs, service requirements, and sales effort.
• Markups are usually computed on retail selling price, rather than cost,
because expenses, markdowns, and profits are stated as a percentage of
sales and retail price data are more readily available than cost information.
• As competitor oriented pricing, the retailer develops the pricing
based on the price points of the competitors.
• Most often, two different pricing methods are used here.
• Everyday low pricing (EDLP)
• This strategy stresses continuity of retail prices at a level somewhere
between the regular non-sale price and the deep discount sale price of the
retailer’s competitors
• EDLP does not necessarily mean the lowest price in the market. It simply
means the promise for a stable low price every day. This is not a deep
discount type of price.
• Food and grocery stores and supermarkets often use EDLP model
• High-low pricing
• With this strategy, retailers offer prices that are sometimes above their
competitors EDLP but they use advertising to promote frequent sales
• In other words, the price is sometimes high and some other time low.
Typically, beginning of the season / new product launch etc. leads to high
price whereas end of the season leads to low price. Retailers could
artificially increase the price and then provide discount – low price.
• Mostly fashion retailers follow this high-low model.
• The price may fluctuate within one day based on type of merchandise and the expiry
period (food and grocery type).
• To intimate the customers regarding the changes in price, the retailers
frequently advertise.
• Odd Pricing
• An odd-pricing strategy occurs when retailers price at levels below even dollar values,
such as $0.49, $4.98, and $199.00. The assumption is that consumers feel these
prices represent bargains or that the amounts are beneath the consumers’ price
ceilings. This is also a form of psychological pricing
• Leader Pricing
• A retailer advertises and sells selected items in its goods/service assortment at less
than the usual profit margins.
• The goal is to increase customer traffic for the retailer, increase the volume for the
lower priced items and the hope of selling regularly priced items too in larger than
regular volumes.
• It is used most often with frequently purchased, nationally branded, high turnover
products.
• The two types of leader pricing are loss leaders and sales at lower than
regular prices.
• Multiple-Unit Pricing
• Retailer offers customers discounts for buying in quantity
• Bundled Pricing
• Unbundled Pricing
• Price Lining
• Instead of stocking merchandise at all different price levels, retailers usually
employ price lining and sell merchandise at a limited range of price points,
with each price point representing a distinct level of quality.
• Markdown
• A markdown may be used to meet the lower price of another retailer, adapt to
inventory overstocking, clear out shopworn merchandise, reduce assortments,
and increase customer traffic
• Additional Markup
• Increases in retail prices after and in addition to original markups that are used
when demand is unexpectedly high or when costs are rising
• Employee Discount
• Markdown Control
• Evaluates the number of markdowns, their proportion of sales, and their causes.
• Timing Markdowns
• Automatic Markdown Plan
Category
Management
IIM Bangalore
2nd Aug 2021
Concept
Buying & Merchandising concept to effectively & efficiently manage Retail business-
multi-channel
Centralized function
 Cover different Business format
 Different Store grades
Big
Brings in merchandise efficiency- Consistency in Assortment building Differentiator
 Look & Feel / Design / Packaging
 Price- both Buying and Selling
 Inventory Management
Range Balancing / Assortment Planning

 Number of options
 Shift by season
Benefits
Strategy of cost management and Strategic Supplier relationship management within an
organization
It is a bridge between Buyers (Retailers) and Sellers (Suppliers)
Can benefit any size of business but more effective in bigger size businesses
Supports the in-depth analysis of each category and assess

 Supply market to optimize the business bottom-line
 Competition mapping & Analysis
Improves supplier performance

 Closely working with suppliers
 Result in negotiating better prices by having in-depth insights of the product
 Can facilitate understanding of expenditure of standard cost and actual cost on the existing contract as well
as future ones!
Category Management Process
Define Categories for a Business and its Customer segmentation.
 Who are my Customers?
 Customer looking for Styling and Passion to look different
Let’s look at Men Footwear Category that includes
 Office wear  Occasion wear

 Formals  Partywear
 Semi Formals  Occasion wear, e.g., Wedding
 Accessories
 Casual wear
 Belt and Wallet
 Drivers
 Bags
 Sneakers
 Socks
 Open Footwears
 Shoe care Accessories
 Sandals and Slippers
Conceptualization of the Category
 Create a vision for the Category Managers to be able to align categories of the
business with the Organizational vision. For example-
 Establish the Brand or the Categories which are leader in terms of Styling,
detailing, Comfort and Pricing, locally manufactured.
 Category Managers to create a vision to use the suppliers within proximity
 Create Role and Job description of the Category Manager and the Team based on
Consumers, Channel of sales, Suppliers, etc.
 Allocate resources among various categories
Range Creation
 Consumers and Markets in which you want to be present
 Channel of Sales, e.g.,

 Exclusive Brand Outlets (EBOs)
 Department Stores
 Multi Brand Outlets (MBOs)
 Online
 Distribution
 Competition Mapping
 Direction to designers / Buyers / Merchandisers
for their respective inputs
Create Key Performance Indicators (KPIs) for the Category Managers
 Category Level Space allocation vis-à-vis Sales Targets
 Target Gross Margins for each Category (GMROI)
 Target Sell Through at Full Price
 Target Stock Turn at Category Level
 Exit Plan
Category Strategy
 Cash or Profit Generator

 e.g., Formals  Deals for the consumers
 Separate Range
 Markdown articles to
 Excitement Creating enhance KPIs
 e.g., Partywear
 Traffic Builder
 Drivers
 Sandals and Slippers
Category Approach- Range or Assortment Build up
 Clear demarcation of Categories based on
 Optimal Category
 Space Allocation
 Pricing
 Promotion
 Gross Margin
Implementation
 Define Specific tasks

 Create timeline of start and end dates each for task
 Define clear role of each team member
 Communicate
 Create a Program Evaluation Review Technique (PERT) and review progress on
 Daily
 Weekly
 Fortnightly
Make REVIEW a habit, of target vs. actual
 All the agreed Key Parameter Indicators (KPIs)
 For example, where are we in terms of target Sell Through vis-a-vis actuals
 Take decision on Reorders / Replenishments
 Take necessary corrective / preventive measures

 Keep on tracking the improvement
Team Structure
Head Buying &

Merchandising
Category Category Manager Category Manager

Manager Formal Occasion wear Casual Footwear
Footwear
Asst. Category
Asst. Category Asst. Category Asst. Category
Asst. Category Asst. Category Manager Sandal &
Manager Formal Manager Occasion Manager Drivers /
Semi Formal FW Partywear Slippers /
FW Wear Sneakers
Accessories
Executive Formal Executive Semi

FW Formal FW
Key Result Area (KRA)
 Continuous improvement in Business Profitability thereby driving sustainable
growth  Space Optimization
 KYC and Create / get what customers wants / needs

 Automate Replenishment
 Create Differentiation in Product Offering / Pricing / Promotion Strategy
 Create Season / Product
 Negotiate Margins / Prices / Discounts with Suppliers Launch Plan
 Stay updated with Industry Trends / Market / Competition
 Create Open-To-Buy (OTB)  Weekly Category Performance Review

 Range Presentation / Sign-Off  Target vs. Actual Sell Through (ST)
 Order Sign-Off / Timely Order Placement  Top Selling / Bottom Selling
 Review Delivery from Suppliers to Warehouse for On time season  Inventory Management
launch  Markdown Management
 Movement of merchandise from Warehouse to Stores
What’s required to be a Successful Category
Manager?
 Sense of Urgency / Proactive / Solution Oriented
 Spend time in Competition Stores
 Commercial Acumen
 Suppliers Management
 Good sense of Customers and empathy
 High level of commitment and
Ownership
 Spend time on Floor with Customers
 Analytical, Good in Excel and System understanding
 Good Negotiation Skills  Analytical, Good in Excel and System understanding
 Project Management
 Thinking! Critical Thinking…  Team Player  Collaborate with Buyers & Merchandisers
 Attend Trade Shows
 Inventory
 Ready to dirty your hands
Management  Should be clear about the Mission and Vision
of the Organization
Way Forward
Technological competition OnPoint Manufacturing at PURE London 2019 - YouTube
Technology is changing every moment and making Retailers think very strongly
what to adopt and what not!
Every Retailer needs to have a very clear from long term Strategy and adopt
technology to have an edge over competition.
Way Forward
Omni-presence
Supply Chain
 Create an ability to have diversified supply chain network to ensure that even if one
supplier fails, you have a backup
 Create a sustainable delivery process for smooth and timely product delivery
Way Forward
Shift in Product pricing strategy
New Product Cash generator
Promo Product
Exclusive Product
Core Product Long Tail

Way Forward
Automate or codify
 Equip the Category Manager to get rid of day today routine and spend
time Strategic Thinking to build up the category
Brand Product Category Sub Category Type Colour Mutation Article Code
XYZ Men FW Formals Derby Lace up Black Black 1 Article Code
10 01 01 1 1 1 1 1001011111
Codification of Product Master in a Footwear Company

Way Forward
Continuous Investment in Technology
Cost
On average, Category Managers consider only 3

Pricing and Non-Pricing factors at once Competition
Business KPIs
Way Forward
There is a plenty room for digitalization and use of technology in every process and at
every stage of Category Management Consolidation
Category / Master Data Offers /

Technology can process up to 60 factors
Product Mix Management Promotions
Space Product
Planning Currency Rate
Efficiency Performance Festivals
GMROI Sell Through (ST) Seasonality
Order Tracking Mid-Season
Positioning Rate of Sale (ROS) Open to Buy
(OTB) Automatic
80-20 Principle Replenishment End of Season
Brand Perception Stock Cover / Sale
/ Pareto Inter Branch
Stock Turn
Consumer Transfer (IBT)
Behaviour Top Sellers Ordering Markdown /
Communication Delivery Tracking- Discounting
Bottom Sellers Next Season /
Channels In-Season Backend / Frontend
From Work
 Inventory Reduction in Women Footwear
 Fashion Footwear business

 Choice, Choice and more Choice. And if no
EXIT plan
 Blocks Inventory
 Blocks Cash Flow
 Collapse of Business
 How do you one knows Inventory in Blocked?
 Customer is asking for Choice, Choice and More Choice

From Work
 The moment Category Manager takes over, reviews
 Category Mix in terms of both Sales and Stocks
 Average Selling Price of both Sales and Stocks
 Product Sell Through (ST)
 Rate of Sale (ROS)
 Top Sellers and Bottom Sellers Analysis
 Stock Health
 Stock Cover
From Work
 Starts Identifying Areas of concern and finds issues at all the check points
 What will be the priority area of concern?
 Category Mix both Sales and Stocks
 Stock Health
 950 Options
 2350 pcs
 2.5 pcs / Option
 Majority of Product Styles had 10 to 12

colour Options
 More, More and More Choice
From Work
 Plan of Correction
 How much is optimum and how do you decide?
 Make a choice
 How to keep your Customer Happy and satisfied?
 By giving choice of  By giving choice of
 950 Options  300-325 Options

 2350 pcs and  2350 pcs and
 2.5 pcs / Option  7.5 pcs / Option
 Discipline, Discipline and DISCIPLINE and Determination

THANK YOU
Session 13a

Retail atmospherics
(Layout, design, visual merchandising)

Store Image
• Retail store has a personality (P. Martineau, 1958)
• Retail store image is an over all impression of a
store as perceived by a consumer (Zimmer and
Golden 1988)
• Store image has been measured on an attribute-
by-attribute basis, guided explicitly or implicitly
by the assumption that “consumers perceive the
store on a number of dimensions called the
components, which collectively make up store
image” (Hirschman, Greenberg and Robertson, 1978)
Store Image
• Components of store image are merchandise,
atmosphere, value, service, clientele,
convenience (Reardon, Miller and Coe, 2011)
• Store atmospherics is a significant element of
Store image and in turn retail strategy
• Like any other element of retail strategy (viz.
merchandising, pricing, promotion etc.), store
atmospherics influences consumer behaviour
and contributes to consumer satisfaction

Store Image
• There are enough literature (from 1970’s to
2017) to support this argument.
• As per Bloemer and Ruyter (1998) European
Journal of Marketing, Store image leads to
consumer satisfaction and satisfaction leads to
loyalty.
• Hence, store image is of paramount importance
to improve store productivity in Indian context
too (Ashis Mishra, Javeed Ansari, 2013)

Store atmospherics
Environment
Primary Emotional
Responses Behavioral Responses
• Pleasure • Approach
• Arousal • Avoidance
• Dominance
Personality
• Kotler (1973) was the first one to use store atmospherics term in retail.
• Most of the studies in store atmospherics is influenced by the 1974 environmental
psychology model by Mehrabian and Russell.
• Baker et. al. (1994) and Turley, Milliman (2000) provide the most comprehensive
summarization of store atmospherics.
Baker Classification of
store atmospherics
• Ambient factors (music, lighting, smell)
• Design factors
– floor covering, wall covering, fixtures/
displays, color, cleanliness, ceilings, dressing
rooms aisle, layout, signs
• Social factors
– sales people
Baker, Grewal, Parasuraman, 1994

Turley, Milliman (2000) JBR
• They segment the store atmospherics
parameters to 5 categories
– Store exterior (Store front, entrance, display window, parking etc.: 14 items)
– General interior (Fittings, Fixtures, lighting, scent, music etc. :14 items)
– Store layout (traffic flow, product grouping, floor space allocation etc.:14 items)
– Interior display (Product display, posters, signs etc.:10 items)
– Human variables (Customers, employees, crowding etc.: 5 items)
• They provide reference of various papers that validate the influence
of store atmospherics on consumer behaviour

• Exterior signs
• Storefront
• Marquee
• Entrances
• Display Windows
• Height of Building
Exterior • Size of Building
• Lawns and gardens
• Color of the building
• Surrounding Stores
• Surrounding Area
• Parking availability
• Congestion and traffic
• Architectural style

• Modular Structure
– One piece rectangle or square that sometimes attaches
several stores
• Prefabricated Structure
– Store frame built in a factory, assembled at store site
• Prototype Store
– Franchisers or chains for uniform image
• Recessed Storefront
– Store is one of many at the place; to attract customers
storefront is recessed from other stores level; customers
have to walk in a few feet to examine storefront
• Unique Building Design
John Players (ITC website)
ITC forayed into the youth fashion segment with the
launch of John Players in December 2002 and John
Players is committed to be the No. 1 fashion brand for
the youth.
This foray leverages ITC's proven competencies in
understanding consumer insights, brand building and
design capabilities.
At John Players we stand for fun, freedom and
friendship. We encourage friends to come together,
let their hair down and play by participating in
activities which help them bond and strengthen their
friendships.
Display Window
• Display windows serve two main purposes
– to identify the store and its offerings
– to induce customers to enter
• Major Decisions
– The number
– The size
– The shape
– The color
– The themes
– The frequency of changes per year

• Flooring
• Colors
• Lighting
• Scents, sounds
• Fixtures
• Wall Textures
• Temperature
General Interior • Width of Aisles
• Dressing Facilities
• Vertical Transportation
• Dead Areas
• Personnel
• Self-Service
• Merchandise
• Prices (Levels and Displays)
• Cash Register Placement
• Technology/Modernization
• Cleanliness

Issues
• Multilevel stores require some form of vertical
transportation
– Elevator (operator-run in finer stores)
– Escalator
– Stairs (for discount or smaller stores)
• Dead areas (lights, beams, doors, rest rooms,
dressing facilities, vertical transportation, etc.)
are spaces where normal displays cannot be set
up

Issues
• Retailers can be more creative with dead
areas
– Mirrors on exit doors
– Vending machines near rest rooms
– Advertisements in dressing rooms
– Displays of impulse items along the routes of
escalators

Issues
• Prices contribute to image in two ways
– The level of prices creates a perception of the
store
– The way prices are displayed is a vital part of
atmosphere
• A prestige store hides cash registers, while a
discount store locates cash registers centrally and
has large signs to point them out

• Allocation of Floor Space
• Product Groupings
Store Layout • Traffic Flow
• Space/Merchandise Category
• Department Locations
• Arrangements within Departments

Floor space Allocation
1. Selling space
• This is the area set aside for displays, sales
transactions, demonstrations, etc.
• It is large for self-service businesses
2. Merchandise space
• This is the area where non-displayed items
are kept in stock
• It is large for traditional shoe stores

Floor space Allocation
3. Personnel space
• This is the area set aside for employees to change
clothes, take lunch and coffee breaks, and have rest
room facilities
• This area is usually kept small
4. Customer space
• This is the area set aside for shoppers, such as a
lounge, benches and/or chairs, dressing facilities,
rest room facilities, a restaurant, vertical
transportation, a nursery, parking, and wide aisles

Space Allocation Planning
• What is the most productive allocation of
space?
• In existing stores - need to use sales
history to determine most productive and
profitable areas
• In a new store, allocation is based on
industry standards

Space Planning Issues
• How profitable is the merchandise?

• How will inventory turnover and stock-to-
sales ratio affect units stocked?
• How will the merchandise be displayed?
• What items does the retailer wish to
emphasize?
• Will the location of certain merchandise
draw the customer through the store?

Planogram
• More firms now use planograms to
allocate store space
• A planogram is a visual representation of
the space for selling, merchandise,
personnel, and customers, as well as
product categories
• It may be hand-drawn or computer-
generated

Planogram
• By definition, "Planogram" simply means
grouping together merchandise as an effective
selling tool.
• They are a good way to organize your store.
• By assigning a certain amount of space to
display a product line, you achieve visual
fulfillment and shopping ease for your customer.
• How the product is displayed determines how
well it sells … or doesn’t sell.

Creating Planograms
• The planogramer would start with the
objective
– Optimal returns from each element of the
shelf for which the planogram is made
– Consequently, the optimal returns from the
total shelf, the section, the category, all the
categories and hence the total store
– So, the input data for the planogram would be
from the retailer as well as the consumer

Creating Planograms
• From the retailer gather
– Gross – margin %
– Stock turnover desired
– Retail value (cost) of the inventory
• From the consumer gather
– The position value of the merchandise at
different positions in the shelves (awareness,
notice ability etc.)

Creating Planograms
• Then try to find out the optimal returns for each
item in the shelve by using manual computation /
trial and error model / spreadsheet modeling
and other software modeling
• Stop at the satisficing point and draw the optimal
planogram
• Combination of many such Planograms would
generate the planogram for the whole store

Planogram software
• Spaceman developed by ACNielsen offers a
wide range of space management solutions.
• mockshop automates the production of
planograms for the fashion industry.
• Intactix offers a variety of space management
solutions.
• Logical Planning Systems
– Shelf Logic®2000 planogram design software vendor

Planogram software
• MarketMAX : Provider of merchandise
analysis, planning, and optimization solutions.
Their Planogram Manager is a PC-based
application for developing planograms.
• Apollo is a space management software that
has been around for over 20 years. It is a
product of Information Resources.
• Ingen Spacemate is software for creating,
viewing and editing planograms.
– Various rules can be applied to the products in
order to produce an optimal planogram.
Evaluating Space
Productivity
• Productivity ratios are output/input
• Sales per square foot
• Sales per linear foot
• Gross margin per square foot

Merchandise Productivity Analysis
Category Juniors
Total Sales 259,645
Sale as % Total 3.9
Total Sq. Ft. 1,602
Sq. Ft % Total 2.9
Sales per Sq. Ft. 162.08 (Tot. Sales / Tot.
Sq.Ft)
Total Gross Margin $
211,497
G.M. $ % Total
4.57
Space Productivity Index
8/20/2021
1.58 (GM % / Sq.Ft.%)
Dr. Ashis Mishra, IIMB 29
Category Dresses
Total Sales 47,829
Sale as % Total 0.7
Total Sq. Ft. 608
Sq. Ft % Total 1.1
Sales per Sq. Ft. 78.67
Total G.M. $ 33,426
G.M. $ % Total 0.72
Space Productivity Index 0.66
Category Ladies
Total Sales 512,458
Sale as % Total 7.7
Total Sq. Ft. 3,702
Sq. Ft % Total 6.7
Sales per Sq. Ft. 138.43
Total G.M. $ 429,403
G.M. $ % Total 9.29
Space Productivity Index 1.39
• Functional Product Grouping
– categorize and display merchandise by
common end use (all breakfast cereals, all
detergents etc.)
• Purchase Motivation Product Groupings
– appeal to the consumer’s urge to buy
products and the amount of time he or she
is willing to spend in shopping (thoughtful
purchases far off, immediate purchase
near)
• Market Segment Product Groupings
– place together various items appealing to a given
target market (e.g., juniors’, misses’, and ladies’
apparel)
• Storability Product Groupings
– categorized by the amount of special handling
needed (e.g., refrigerator)
• These groupings are frequently combined

What Consumers See
• Consumers are exposed to various stimuli
through their sensory organs. They
– Select them
– Organize them
– Interpret the information
– Finally create a meaningful and coherent
picture of the world around them
• This process is called perception

Information processing Model
Consumer Situational
Characteristics Characteristics
Information
Stimuli
Outcomes
Acquisition Perceptual Integration
Encoding
Memory
Retail Implication
• In a Large format store, consumers’ eyes are
continuously moving about, ears are listening,
nose is smelling and hand is touching / feeling
merchandise
• This is not much different from his regular day –
to - day activity and hence, enough contrast has
to be created for the merchandise category /
brand for the consumers to notice it
• Tools are visual merchandising and P – O – S

Retail Implication
• Consumers have gone to the stores with some
purpose (purpose might be just hanging out with
friends / window shopping or serious career
influencing / relationship influencing high value
purchases; which depends upon consumer
characteristics)
• He has observed various merchandise and
offerings based on the contrast available and his
interest / motivation level

Retail Implication
• The more significant the purpose is the more
dominant would be the left brain (split brain /
hemispheral lateralization theory) and
consequently the consumers would reject 80% –
90% of the stimuli that is input to their sensory
organ to concentrate on the task at hand /
problem solving
• Hence, organization and categorization of the
merchandise at the retail store is of paramount
importance

Retail Implication
• Say, consumer would expect to find tooth
paste and tooth brush together
• Availability of a tool kit along with either of
them might reduce its significance and
consumers are likely to miss them
• On the other hand stacking toilet cleaners
along with tooth paste / brush might give
wrong signal to the consumer and they
might miss the tooth paste / brush
Retail Implication
• For easy assimilation and complete Gestalt, the
cognitive categorization and the physical
merchandise categorization as well as
representation must match
• Then consumers feel at home, need less
information, there is less risk and the decision
making becomes less strenuous : consequently
the retail experience more pleasurable :
consumer would tend to spend more time and
hence money
Retail Implication
• For the retailer / management, probably
categorization of merchandise based on
functionality, based on cost, based on
brand or based on ease of handling etc.
are all the same
• But for the consumer, functionality based
categorization changing to brand based is
nothing short of catastrophe

Retail Implication
• Say for example, consumers expect an
abundance of pink colour near ladies
dress, silver / white near kids apparel and
blue / yellow with home furnishing
• Finding them interchanged might take
them a couple hours to minimize the
discomfort and start browsing

Retail Implication
• Similarly larges shapes vs. small shapes,
types of icons, dress of sales people, type
of music played, the way price is
displayed, physical layout and interior
decoration etc. might go a long way
towards efficient categorization

Merchandise categorization
• The store groups its products based on
Gender followed by functional utility of
clothes
• Within functional utility classification, there
is classification based on brands

Session 13b

Layout, Design,
Visual Merchandising

Traffic flow Circulation
four basic types
• Free flow
– It is most often used by boutiques,
department stores, apparel stores, and
other shopping stores
• Grid
– It is used by food retailers, discount stores,
hardware stores, and other convenience-
oriented retailers
• Race track (Loop)
• Spine
Free-Flow Layout
Grid Layout
• Used in grocery and drugstores.

• Long gondolas in repetitive pattern.
• Cost efficient.

Grid Layout

Racetrack Layout (loop)
• Draws customers around the store.
• Has a major aisle that begins at the entrance,
loops through the store, that has access to
departments and store’s multiple entrances and
it returns the customer to the store front.
• Exposes customers to maximum merchandise
and increases store productivity

Spine Layout
• Single main aisle running from front to back of
the store transporting customers in both
directions
• On either side of the spine, merchandise
departments branch off towards the back or the
side walls
• Within each of these departments, free flow or
grid pattern can be used based on the type of
the merchandise

Spine Layout

Wal-Mart Layout

Location of Departments
• Relative advantage depends on:
– floor location, position within a floor, and location
relative to access routes.
• Impulse products near front
• Demand/Destination areas off the beaten path.
• Physical characteristics of product.
• Complementary products should be adjacent.

Merchandise
Presentation Techniques
• Idea-Oriented Presentation
• Style/Item Presentation
• Color Organization
• Price Lining
• Vertical Merchandising
• Tonnage Merchandising
• Frontal Presentation

Psychology of merchandise
presentation
• Value/Fashion Image
– Through the presentation, create an image in the
mind of the customer (trendy, exclusive, pricey, value
oriented etc.)
• Angles and sightlines
– Product placed at 45 degree angle has better visibility
• Vertical color blocking
– Vertical bands of color to expose customer to more
SKU’s

Interior Display
• The retailer devises interior point-of-purchase
displays, which provide consumers with
information, add to store atmosphere, and
serve a substantial promotional role
• An assortment display is one in which the
retailer exhibits a wide range of merchandise
for the customer
– An open assortment encourages customers to
feel, look at, and/or try on products. It is used for
greeting cards
– A closed assortment does not permit feeling
and/or trying on items. It is often used for
computer software
Interior Display
• A theme-setting display positions the
product offering in a thematic environment
or setting (e.g., Beijing Olympics)
• With an ensemble display, complete
combinations of merchandise (e.g., shoes,
socks, pants, shirt, and sports jacket) are
displayed

Impact of Red
Effect Attention grabber
Denotes Action
Strong masculine appeal and can be used to play
down femininity
Can escalate body’s metabolism
Exciting, full of energy and vitality
Powerful
Vibrant, passionate, can rise BP
Make people spend more
Impact of Yellow
Effect First colour human eye notices
Cheerful
Used for mental stimulations
Yellow background with black text has high
memory retention and legibility
Ego, optimism
Increases self esteem (overuse counters the effect)
Relaxation (lighter shades)
8/20/2021 Darker shades can
Dr. Ashis beIIMB
Mishra, overpowering 16
Impact of Blue
Effect
Calming, can lower BP (light blue)
Encourages reflection and logical thought
Has a tendency to make people spend less
Intellectual, Dignity
Favorite colour of most adults

Impact of Green
Effect
Relaxing and quiet (dark green)

Reassuring
Perfect balance (center of colour spectrum)
Stimulating and uplifting (bright green)
Health

Impact of Brown
Homely
Earthy
Impact of Violet
Contemplation
Impact of Pink
Feminine
Soothing (reddish pink)
Sexy
Impact of Orange
Fiery passion and physical enjoyment
Sensual
Physical comfort
Impact of Black
Sophistication
Impact of White
Innocence
Peace
Can be cold and sterile (with silver / blue bring warmth)
Impact of Aroma
Aroma Effect
Sweet Lifts mood, improves mental clarity and

Basil memory
Bay Relives nervous exhaustion and
melancholy
Sage Relives stress, guilt and hostility
Clove Aphrodisiac qualities and relives fatigue

Impact of Aroma
Aroma Effect
Ginger Relives confusion, loneliness and anxiety
Grape Uplifts, energizes and refreshes
fruit
Lemon Balances, refreshes, uplifts, relives distrust
and apathy
Lime Cheers, uplifts and purifies
Nutmeg Invigorates and stimulates the mind,
improves self image and an aphrodisiac
Examples of Visual Merchandising
“Visual Merchandising”, the art of

attracting patrons with visual cues, is central
to a retailer’s ability to generate sales. Visual
Merchandising got its start at the turn of the
century, when department stores began using
theatrical set design and lighting to create
exotic displays. Today, the way the
departments are arranged, the location of the
escalators, the lighting--all are carefully
planned to earn the store more sales per
square foot.
Session 14
E-tailing

As per McKinsey
• Retail 1.0
• Birth of modern supermarket
• Early 20th century – Piggly Wiggly Memphis (1916)
• Self service, price mark, open stands, checkout counters, employees with uniform etc.
• Retail 2.0
• Birth of Hypermarkets
• 1963 Carrefour in Paris suburbs and WalMart in Arkansas
• Everything under one roof – big box stores – operational efficiency – lower cost
• Retail 3.0
• Rise of e-commerce
• 1995 Amazon sells books online; 1997 Webvan sells grocery online

As per McKinsey
• Retail 4.0
• Multichannel or Omni-channel retailing
• Searching and buying on PCs, tablets and mobile devices becoming near ubiquitous
• Physical stores are looking for virtual presence
• Virtual stores are opening physical counterparts
• Stores want to be connected with the consumers all the time whichever way possible
• One channel need not substitute the other – rather it should be complementary with a
synergistic effect

Definitional Distinctions
Electronic Business
Electronic Commerce
Electronic Marketing
Electronic shopping,
Virtual malls, E-tailing etc.
Definitional distinctions
• E-business is the fusion of business processes, information
technology (IT), and organizational infrastructure to create a new
business model.
• Electronic commerce (e-commerce) is targeting customers by
collecting and analyzing business information, conducting customer
transactions, and maintaining online relationships with customers by
means of electronic networks. It includes B2B, B2C, C2B and C2C
transactions.
• Electronic marketing (E-marketing) is the strategic process of
creating, distributing, promoting, and pricing goods and services to
a target market over the Internet or through digital tools
E-commerce Capabilities
Benefits to Organizations Benefits to Customers

• Expands the marketplace to • Enables customers to shop or do
national and international other transactions 24 hours a day,
all year round from almost any
markets location
• Low Cost of Entry • Provides customers with more
• Aids in building and maintaining choices and better information
relationships • Provides customers with less
expensive products and services by
• Allows customized marketing allowing them to shop in many
places and conduct quick
• Reduces human error and comparisons
human resource costs
E-tailing
• Retail business (B2C) conducted online
• A significant part of retail business model is aided by online platform
• Retail business activities involves
• Procurement – vendor / supplier management
• Logistics and supply chain, warehousing, physical transportation
• Store operations
• Customer interaction
• Sales transactions
• Service delivery
• Complaint management
• Providing information
• Promotion
• Some or all of these activities are carried out online

Business model Template
What can be done online with better value?
Key Key Activities Value Proposition Customer Customer
Partnerships Store operations, Cheapest, Easiest, relationships Segments
Logistics & Quickest, Biggest, To acquire / retain
Suppliers, Supply chain,
Geographic,
Merchandising,
Hottest offers; To upsell / cross sell Demographic,
Manufactur Attracting - Assisted vs. self
Category Management, service Psychographic,
ers, Services, Price conscious Behavioural,
- Customer co-
Third party Private Labels
consumer; created Economic,
Logistics, Value conscious Channels Experiential,
Contract Key Resources Innovative,
consumer; Store formats,
Farming, Store formats, Dogmatic
Experience Online formats,
Technology, POS, Marketing &
Shop-in- seeking
Manpower, in-store
shop Distribution consumer;
promotion,
network, Luxury seeking
Distribution
Financial power consumer channels
Cost structure Revenue Stream
Fixed cost, Variable cost, Economy of Recurring revenue from regular and
Scale, Economy of scope ongoing purchases
Current Business Models
• E-shops
• Web marketing of a company or a shop
• Objective is to promote the company and its goods as well as services
• Any company that has created a website just to have a web presence
• Eventually the possibility of ordering and paying online could be added
• Could be in B2B as well as B2C sector
• E-procurement
• Electronic tendering and procurement of goods and services
• Improves the ease of operations and transparency in large projects

• E-Malls
• Collection of E-shops, usually enhanced by a common umbrella (say payment
gateway, delivery of merchandise etc.)
• Essentially a marketplace model
• The e-mall operator may / may not have an interest in the individual business
that it hosts
• In the not case, the e-mall operator may seek benefits in enhanced sales of supporting
technologies / services/ advertising / data accumulation and usage etc.
• E-Auctions
• Electronic implementation of bidding mechanism
• There may be integration of bidding process with contracting, payments and
delivery

• Virtual communities
• Members, customers and partners add information to a basic environment provided
by the company operating the virtual community
• Can be an important add on to other marketing operations and build customer
loyalty
• Revenue is generated out of membership fee and advertisements
• Book reviews, fashion reviews, steel industry reviews, nanotechnology review etc.
• Collaboration platforms
• A set of tools and information environment for collaboration between enterprises
• Focus on specific functions viz. design and engineering, team of consultants etc.

• Third party market place
• Leave the web marketing to a third party – specialists
• So essentially a e-tailing business
• Can be to provide information only – transactions physical
• Integration with vendors suppliers, logistics and supply chain
• Integration with the customers online (ordering and payment)

E-tailing business classification
• Electronic retailing (e-tailing): Retailing conducted online, over the
Internet
• E-tailers: Those who conduct retail business over the Internet
• Classification by distribution channel
• Mail-order retailers that go online (Land’s End)
• Direct marketing from manufacturers (Dell computers)
• Pure-play e-tailers (Bigbasket, Grofers)
• Click-and-mortar retailers (FabIndia, Spar Hypermarket)
• Internet (online) malls (Amazon, Flipkart)

E-tailing Classified by Revenue Model
• Product sales models
Charge customers directly for products or services
• Subscription models
Charge monthly or annual subscription fee for service
• Transaction-fee models
Charge service fee based on the level of transaction offered
• Advertising-supported models
Charge fee to advertisers instead of customers
• Sponsorship models
Companies sponsor the business through donations (usually supplemental income)

How to integrate with brick and mortar?
• Let us start with technology and its significance with retail
• Technology just does not mean internet; internet is one of the technologies
on offer
• Will technology change the way we interface with the customer in the
future?
• Definitely yes
• Will all of the innovations in technology be successful?
• Definitely No
• Examples of successful technology innovations are shopping cart, UPC
(universal product code) etc.
• Major failures of last couple of decades
• Videotex – an early home computer system using TV as the moniter. A source
of information, engagement with the consumer, home shopping,
advertisement, banking etc. (KnightRidder & AT&T)
• Interactive television (Time Warner)
• Ted Turner’s Checkout channel (CNN programming and advertisement
looping)
• VideOcart – an wireless system of LCD screens and computers mounted on
handlebars of shopping carts

• Reasons for success / failure of technology
• Value to the retailer
• Compatibility with existing business
• Cost (initial + maintenance)
• Manpower training
• Rate of obsolescence
• Operational efficiency
• Productivity (profit)
• Value to the consumer
• Is it compatible with their current decision making process?
• Does it make their purchase process easier? Is their any additional value?
• Does it involve learning new behaviour?
• Issues of privacy and intrusion

Key lessons
• Use technology to create an immediate, tangible benefit for the
consumer
• No one is bothered about long term benefits
• Tangibility is significant – they should be able to visualize the benefit
• The parameter under consideration should be significant for the consumer
• Time – cost – efforts – services etc.
• Make the technology easy to use
• Websites navigation
• Buying process – convenience
• Usage of kiosks

Key lessons
• Execution efficiency
• Prototype – test – refine
• Different customer groups have different responses to technological
innovations
• Technographic segmentation
• It is expected – so be prepared for it and make alternative plans
• Build systems that are consistent and compatible with the way
consumers make decisions
• Group cereals based on the core ingredient / brand / price / newness
• Having multiple filters and expecting the customers to do the grouping

Key lessons
• Study the effects of technology on what people buy and how they
shop
• Dynamic adjustment of price within a day and its impact on footfall as well as
conversion – ticket size
• Targeted promotion fliers based on past purchase data
• Coordinate all technologies that touch the customer
• Integrate multiple platforms across multiple touch points
• Revisit technologies that have failed in the past
• Technological maturity as well as consumer maturity
• Retailer experienced enough to handle it

Key lessons
• Use technology to tailor marketing programs to individual customer’s
requirements
• Build systems that leverage existing competitive advantage
• Amazon acquiring More
• Ultimately, technology may change the outward appearance of the
playing field
• But the game remains the same

E-tailing strategy
• 7Cs of e-tailing strategy
1. Convenience for the consumer (place dimension)
• Multichannel option
• Ease of finding and accessing physical as well as digital store
• Store design – physical as well as digital
• Layout, design, traffic flow, VM etc.
2. Cost to the customer (price dimension)
• The real price the customer will pay including transportation and taxes
• Cost of internet access
• Customer’ perception of the price (where it is cheaper)

E-tailing strategy
3. Customer value and benefits (product dimension)
• Expectation – satisfaction desired by the customer
• Range of products available to the customer (including long tail)
• Wide and / or deep merchandise mix
• Providing adequate content to the to the customers
• Compelling offers and customer value
• Problem solving ease (how to use the product, benefits / values expected etc.)
• Customization of the merchandise

E-tailing strategy
4. Communication and customer relationship (promotion dimension)
• Availability of accurate information regarding the customer
• Registration
• Purchase history
• Browsing history
• Online and offline advertisements – targeted
• Banners, pop-ups, paid for listings in search engines, directories and affiliated
programmes
• Retail marketing
• Store atmospherics
• Physical as well as digital
• Targeted loyalty schemes and offers
• Engage with the customer
E-tailing strategy
5. Computing and Category management
• Identify categories – focus areas
• Optimal efficiency of logistics and supply chain to provide the customers with
expected experience; provide supplier with cost benefits
• Cooperation between retailers and suppliers so as to minimise stock and
improve speed of response
• Collection and analysis of customer as well as supplier data to optimise
operations, service and customer care
• Dynamic data, big data and machine learning

E-tailing strategy
6. Customer franchise – community
• Customers serve as brand ambassadors – spokes person
• Image- trust – branding
• Long term investment for the future in quality, corporate communication and
customer relationship (customer engagement)
• Content marketing
7. Customer care and service
• Fast and reliable delivery at times convenient to the customer
• Availability of help, return and refund facilities
• For physical stores – store personnel
• For the digital stores, tele-operators, bulletin boards, chat rooms etc.

Amazon business model adaptation for India
• Challenges
• Large and young population; but 67% live in rural areas with undeveloped
infrastructure
• Last mile connectivity is definitely a challenge
• Only 35% connected to internet
• Cash transactions still rule the roost; cash economy
• No shortage of quality goods produced by Indian firms; but most vendors are
small
• Most retailers believed e-commerce is complicated and time consuming;
hence avoided it

• Launched Indian website in 2013
• Developed a programme to recruit an army of suppliers and convince them
• What a trustworthy partner can do for them; increase market for their products
• Amazon Chai Cart
• Mobile tea carts that navigated city streets, serving refreshments to small business owners
and teaching them virtues of e-commerce
• It travelled more than 9400 miles across 31 cities and engaged with more than 10,000 sellers
• Launched Amazon Tatkal in 2015; a studio on wheels
• Launch services, registration, imaging, cataloguing and sales training
• Developed the fulfilment centre FBA (fulfilled by amazon); a centralized
platform
• Sellers send their goods to Amazon fulfilment centres (about 2 dozen warehouses) and
pay a fee for Amazon to store, pick, pack and ship their wares

• Amazon localized its fulfilment platform by introducing Easy Ship and
Seller Flex which provides a neighbourhood approach to online
business, convenience for the retailers and speeds up the delivery
process
• With the former, Amazon couriers pick up packaged goods from a seller’s
place of business and deliver them directly to the consumer
• With the later, the vendors designate a section of their warehouses for
products to be sold on Amazon and Amazon coordinates the delivery logistics
• Eventually, Amazon also introduced the marketplace model where
retailers can sell their products on Amazon for a fee and the retailers
themselves are responsible for the delivery of the merchandise
• Amazon also tied up with Indian Post and cargo airline Blue Dart for
delivery services
• In 2014-15, it set up a subsidiary Amazon Transportation Services Private
limited to augment delivery
• It utilises bicycles and motorcycles for last mile delivery
• In rural areas, Amazon enlisted the local mom & pop stores (village kirana
store) as partners in the delivery platform
• Local residents can go to the local store to access internet, browse and order on
Amazon, the products are delivered to the stores and the store owner delivers /
alerts the consumer to collect the items from the stores
• The transaction can be cash based. The store owner can collect cash and transfer the
amount to Amazon after deducting his handling fee

7 trends for future
1. Continued rise of e-grocery attackers
• Current thought process may not be valid for long
• No one will make money on e-grocery
• Last mile coverage will remain expensive
• Retailer will eventually figure out how to make money
• Home delivery
• Click and collect
• Drive through
• Success of e-grocers would of course depend upon warehouse utilisation,
customer penetration and density, order frequency and basket size
• So they may not be successful everywhere, all countries, all geographies
• In specific areas, could provide serious challenge to supermarket and mom &
pop stores
7 trends for future
2. Thinking differently about the box
• Smart brick and mortar retailers are redefining themselves to the threat of
online players
• New ways to engage with the customers
• Purchasing occasions beyond the physical store
• Membership, ongoing subscriptions, on demand delivery – blurring the line between
physical and digital store
• All these may lead to the death of the big box retailers as we know it now
• Compelling experience, price, assortment and variety and convenience may not be
enough
• Success will depend upon engaging and entertaining the customer

7 trends for future
• There could be rise of innovative trends in delivery
• Drive thru pick up or drop boxes
• Order online and pick them up without having to leave the car
• Virtual stores embedded in physical stores
• Micro stores popping up in street corners
• In Korea, “Home Plus” the discount chain co-owned by Tesco and Samsung, offers a
virtual grocery store in the walls of subway stations
• In US, Walmart is developing a service called Walmart To Go
• Same day delivery of items from Walmart stores for a limited universe of items
purchased online
• However, all these models may not be equally profitable; yet the would
coexist
7 trends for future
3. Increasing importance of digital marketing, social media and
location based services
• Digital is less about e-commerce (transaction) and more about engaging with
the customers
• Whole Foods (USA) uses Twitter for customer service
• Seiyu (Japan) which is owned by Walmart, launched a Twitter campaign allowing
customers to vote on and suggest items for which they think prices should be lowered
• The company ended up reducing the prices for 100 SKUs (most voted) for 4 weeks across all
stores
• Social media can also be utilised as a source for customer generated new product / new
store ideas
• New product development can be “crowd sourced” on Facebook, Twitter or different
blogs
• Help develop dynamic brand personality online

7 trends for future
4. Sophistication of personalization and CRM
• As retailers have large amount of dynamic data regarding the customers and
they employ advanced analytics to analyse the same, the know more and
more about the customers
• Coupons and promotions have evolved from static notices published in flyers
to targeted personal communications using a variety of channels – from
glossy print outs to smart phone apps
• Customers too are willingly participating in innovative loyalty programmes,
location based services and smart phone applications
• Receiving and browsing coupons on the smart phones while they are walking in the
aisles or browsing the merchandise
• Social shopping experience on platforms such as Facebook, Groupon,
LivingSocial etc.

7 trends for future
5. Advances in self checkout and digital wallet
• Retailers are developing more efficient ways for consumer checkout
• It reduces time for the customers and cuts their own operating expenses
• NFC technology (near field technology) allows two wireless devices in close
proximity to beam data to each other
• Technology enabled in smart phones; scan and go – alter the shopping experience
• Sainsbury is testing its Mobile scan and go services; customers can download an app to their
smart phones; scan items as they shop; pay at the check out without unloading their cart or
trolley
• Retailers are also planning to do away with the cash register and makes the inevitable
checkout lines obsolete
• Use ipads on a swivel with sales associates; reduces expenses on POP and increase customer
service

7 trends for future
6. Digital dashboards; shop floor customer service
• Tablets / ipads with the sales associates with digital dashboards
• Real time and highly granular product information into the hands of shop floor worker
• More product information; improved story telling, superior on the job training
• With product description, consumer reviews and brochures at their figure tips, workers
can quickly answer a wide range of customer questions
• Mobile devices could give managers increased access to real time store performance
data say inventory metrics / personnel performance, category performance etc.
• Head office can connect with stores by beaming data into every single handheld in the
network, allowing instant reactions to market trends, details on market pressure, info on
product recalls and even specifics on price point pressures from competitors
• Woolworths Australia, Guess, Puma; even Urban ladder and Pepperfry
• Complete design view, design your own shoe etc.

7 trends for future
7. Dynamic Pricing
• Showrooming refers to checking product details and offers at store; going
online and buying at a lower price
• Amazon offered a discount to those who checked price at store and bought at Amazon
• Brick and mortar retailers are responding to this by altering their own prices
to match online deals
• They are stretching their analytical capabilities to change prices within the same day in
order to better match demand and supply and to create real time flash sales
• ESL (Electronic Shelf Labelling) platforms could become more affordable for
retailers to further enable real time pricing
• OVACO , the UK online grocer varies its delivery charges based on customer’s profile and
desired delivery time

Why these changes are more likely?
• Near universal adoption of mobile technologies
• Increasing cost pressure resulting from increased competition
• Global urbanization and rise of the middle class (44% in the next
decade- by 2030; 5.2 billion in numbers)
• Power of Big Data

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Category Management

Multichannel Retail Strategy

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Low Fat milk 500ml,1ltr

Skim Milk 500ml,1ltr

Dried Milk 500ml,1ltr

Fresh Evaporated Milk 500ml,1ltr

Processed Packed - Blocked, Packed Sliced, 100g, 200 g, 500g,

Sea Fish Tuna

River Fish River Fish Blacknose dace

Omega Eggs Omega Eggs

Vitamin Enhanced Eggs Vitamin Enhanced Eggs

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Snacks & Confectionary 1 1 1 2 2 1 1 0 37 4.11

Fresh Fruit and Veggies 4

2.5  Fresh Fruit/ Veggies

Fresh Meat/ Fish 2 1 2 1 1 2 36 4

 Fresh Food Delicacy

Routine FMCG products – Routinely Purchased Products

Occasional/ Food/ Non Food Sold during a specific time period

Convenience Stationary Impulse Purchase

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