SEMESTER II

COURSE CODE & NAME

DBB1205 – RETAIL MANAGEMENT
Set – I
1. Explain how the convenience stores are different from departmental stores?Elaborate
with examples of both retail formats.
Ans. Convenience Stores: It is generally a well situated, food oriented store with long
operating hours and a limited number of items. Consumers use a convenience store, for fill-in
items such as bread, milk, eggs, chocolates and candy, etc. They are comparatively smaller
stores located near residential areas. They are open for an extended period of the day and
have a limited variety of stock and convenience products. Prices are slightly higher due to the
convenience given to the customers. Convenience stores provide a limited variety and
assortment of merchandise at a convenient location in a 2000-to-3000-sq.ft. store with speedy
check out facilities. These are relatively small stores located near a residential area. They are
open long hours, seven days a week and carry a limited line of high-turnover convenience
products at slightly higher prices. They also have plus take away sandwiches, coffee, soft
drinks, etc. Though not many convenience stores exist in India, the retail stores, like ‘HP
Speed mart’ and ‘In & Out’ that have come up at petrol pumps in major Indian cities can be
termed as convenience stores. Examples of international stores are 7-Eleven, Circle K, Albert
Heijn and SPAR.
Departmental Stores: These consist of several product lines, typically clothing, home
furnishings, and household goods with each line operated as a separate department managed
by specialist buyers or merchandisers. A departmental store usually sells a general line of
apparel for the family, household items, home furnishings and applications. The size of an
average Indian departmental store varies from 20,000 to 40,000 sq. ft. and stocks anywhere
between 50,000 to 100,000 SKUs. Large format department stores include Pantaloons, Ebony
and Pyramid. Others in this category are Shoppers Stop, Westside and Lifestyle.
Example of Store retail format
The following are the types of retail stores under store retail format:
1. Convenience store: It is generally a well situated, food oriented store with long operating
hours and a limited number of items. Consumers use a convenience store, for fill-in items
such as bread, milk, eggs, chocolates and candy, etc. They are comparatively smaller stores
located near residential areas. They are open for an extended period of the day and have a
limited variety of stock and convenience products. Prices are slightly higher due to the
convenience given to the customers. Convenience stores provide a limited variety and
assortment of merchandise at a convenient location in a 2000-to-3000-sq.ft. store with speedy
check out facilities. These are relatively small stores located near a residential area. They are
open long hours, seven days a week and carry a limited line of high-turnover convenience
products at slightly higher prices. They also have plus take away sandwiches, coffee, soft
drinks, etc. Though not many convenience stores exist in India, the retail stores, like ‘HP
Speed mart’ and ‘In & Out’ that have come upat petrol pumps in major Indian cities can be
termed as convenience stores. Examples of international stores are 7-Eleven, Circle K, Albert
Heijn and SPAR.
2. Supermarkets: These are diversified stores which sell a broad range of food and non -
food items. A supermarket typically carries household appliances, apparel items, bakery,
jams, pickles, books, audio/video CDs, etc. This type of store has a selling area of 1000–2000
sqm and with at least 70% of its merchandise comprising of food stuffs and everyday
commodities. Internationally, the size of these stores varies from 8000 to 20000 square feet.
Examples of supermarkets are Subhiksha, Reliance Fresh, Food World, Food
bazaar and Nilgiri’s.

Q2. Discuss retail consumer behaviour. Briefly explain stages of consumer decision
making process.
Ans: Retail Consumer Behaviour: Consumer behaviour is "the study of individuals, groups,
or organisations and the processes they use to select, secure, use, and dispose of products,
services, experiences, or ideas to satisfy needs and the impacts that these processes have on
the consumer and society". It is the understanding of how consumers make decisions to use
their resources such as time, money, and effort for buying, using and disposing goods and
services.
Consumer Decision Making Process: The consumer’s decision making process is the way
in which people gather and assess
information and make choices among
alternative goods, services, organisations,
people, places, and ideas. It consists of the
process itself and factors affecting the
process.
The consumer decision making process, in general, consists of five basic stages. They are
1. Problem recognition.
2. Pre-purchase information search.
3. Evaluation of alternatives.
4. Purchase decision.
5. Post purchase evaluation.

However, in case of routine purchases, the consumer may skip the second and third stages
and go to the purchase decision stage. But if purchase decision involves extensive problem
solving, the consumer is likely to go through all the five stages in the specified sequence.

The important point to note is that the buying process starts much before the actual purchase
and has implications even after the purchase has been made. This should give ideas to the
marketer as to how he must start designing his marketing strategy to achieve his specified
marketing objectives.

Various stage of consumer decision making process:

Problem recognition: This arises when the consumer becomes aware of his need for a
particular product or service. During problem recognition, the consumer recognises that the
good, service, organisation, person, place or idea may solve a problem of shortage or
unfulfilled desire. Many consumers are hesitant to react to unfulfilled desires because there
are risks and the benefits may be hard to judge.
Information search: The second step involves gathering information on how to solve the
problem. Information search involves listing alternatives that will solve the problem at hand
and a determination of the characteristics of each. Search can be internal (from memory)
and/or external (friends, family, published sources, salespersons, internet, etc). As risk
increases, the amount of information sought also increases. Once the information search is
completed, it must be determined whether the shortage or unfulfilled desire can be satisfied
by any alternative.
Evaluation of alternatives: The alternatives are evaluated on the basis of the consumer’s
criteria and the relative importance of these criteria. This would vary from person to person
and may be influenced by the situation. They are then ranked and a choice is made.
Purchase decision: At this stage, the decision is made whether to buy or not. The ‘purchase’
act involves the exchange of money or a promise to pay for a product, or support in return of
ownership of a specific good, the performance of a specific service, and so on. Purchase
decisions remaining at this stage centre on the place of purchase, terms and availability. If the
above elements are acceptable, a consumer will make a purchase.
Post-purchase behaviour: Frequently, the consumer engages in post- purchase behaviour.
Buying one item may lead to the purchase of another. Re-evaluation of the purchase occurs
when the consumer rates the alternative selected against performance standards. Cognitive
dissonance – doubt that a correct purchase decision has been made, can be reduced by follow-
up calls, extended warranties, and post-purchase advertisements.

Q3. Do you think that the selection of retail store site can be systematic based on certain
parameters and steps to be followed? Justify the context with description.
Ans: Selection of the store site can be a non-systematic process, which is based on
experience or environmental observation or following on the competitor’s footsteps (or near
competitors). On the other hand, it may be a systematic process, which would be based on
certain parameters and steps to be followed. After identifying the region, the following steps
have to be followed:
Step 1: Market identification
The first step in arriving at a decision on retail location is to identify the markets attractive
and suitable to a retailer. This is as important as the retailer needs to understand the market as
well, especially in a country like India, where every region has its own peculiarities, specifics
and needs. Similarly this is also important in case of an international expansion if the
business is focused on international trading.
Step 2: Determining the market potential
While determining the market potential, the retailer needs to take various elements into
consideration. Understanding the features of the population of a country, region, or location is
integral to developing retail marketing strategy. Data on population and related statistics can
be obtained from the Census reports. After acquiring an idea of the size of the population, it
is essential to know the break-up of rural and urban population as growth of urbanisation is
again essential for the growth of retail. The retailer also needs to understand the level of
literacy and the level of education in the population. All the above data and information helps
in knowing the market potential for the retailer.
 Characteristics of households in the area: The retailer needs to have a clear
understanding of the average household income level and the distribution of this income
 in the location. This is very essential as the level of income largely determines the kind of
facilities and investment required etc. Also, understanding of the average age profile of
the population in the area is necessary as it helps in decision making.
 Competition and compatibility: In order to determine the market potential, it is
necessary to check the compatibility of the retail store with the neighbouring retail outlets
in an area. For example, a good location for a gift shop would be near a department store
or a theatre or restaurant, as such a location would allow potential customers to spend
time looking at the gift shop’s display windows. On the other hand, locating a high
fashion boutique next to a bakery or a hardware store may not be a very good idea.
 Trade area analysis: An integral part of determining the market potential is the analysis
of the trade area. A trade area is the geographical area that generates the majority of the
customers for the store. Knowing the boundaries of the trade area helps retailers estimate
the number of potential customers that may patronage the store. Also, knowing the trade
area allows for demographic and lifestyle information to be gathered from a variety of
public and private sources. This information provides insight into the people in the trade
area and eventually allows consumer demand for products and services to be calculated.

Step 3: Identify the alternate attractive sites and select the best site: After determining
the market potential and taking the decision on the location of the store, a retailer has to select
the site to locate the store.
Measurement of successful retail location
Retailers are of course mindful of the need to manage the productivity and efficiency of their
businesses. However, the larger publicly-quoted retailers tend to avoid aggregate economic
approaches to the measurement of productivity, in favour of firm-level financial or operating
measures and benchmarks that are meaningful to investors and shareholders – and which are
more amenable to comparison and control. Whilst smaller and unquoted retailers have fewer
stakeholders to convince, they similarly rely upon a relatively common set of operating and
performance ratios.
A success of retail location can be measured with the following parameters.
 New customers acquired.
 Status of existing customers.
 Customer attrition.
 Turnover (i.e., revenue) generated by segments of the customer population.
 Set-II

Q4. Define retail pricing. What are the factors influencing retail prices? Elaborate
various pricing strategies available with the retailers.
Ans: Retail pricing: Pricing is the process of determining what an organisation will receive
in exchange for its products and services. Pricing of a product of service depends on factors
like manufacturing cost, market place, competition, market condition, and quality of product
etc. Pricing is a fundamental aspect of financial modelling and is one of the four ‘Ps’ of the
marketing mix. The other three aspects of ‘Ps’ are product, promotion, and place. Price is the
only revenue generating element amongst the four Ps, the rest being cost centres.
Factors influencing retail prices:
The main purpose of the business is to maximise profits and therefore, pricing of products
would have to be done with all care to ensure that the profit goal can be achieved. Other
pricing objectives could help in achieving the targeted sales, to maintain or enhance market
share or to meet or prevent competition. Prices could be set at a level that reflects the average
industry price, with small adjustments made for unique features of the company’s specific
product(s). Firms that adopt this objective must work backwards from price and tailor cost to
enable the desired margin to be achieved. It is interesting to note that the perception of price
is different for a retailer and the consumer. For the retailer, it is a key element of the retail
mix, while for the consumer, it is a measure of the value of the service or product satisfaction
they are offered. It is also a measure of the alternatives foregone; either directly, competitive
products or substitutes or indirectly i.e. alternative uses for the money to be spent and a
measure for quality.
Elements of retail price
In order to arrive at the retail price, one needs to first consider the elements that go into the
making of the price. Two main key elements in factoring product price are the cost of goods
and operating expenses. The costs of goods include the price paid for the product, plus any
shipping and handling expenses etc. The cost of operating expenses includes overhead,
payroll, marketing and office supplies. To succeed in business, retailers need to assess their
distribution channel and research on market potential to pay. The cost of goods is the cost of
the merchandise and various other expenses, which are incurred in the movement of the
goods from the manufacturer to the actual store. These expenses may be fixed or variable.
Fixed costs: Fixed costs sometimes referred to as overhead, are expenses that do not vary
according to production amounts – such as rent or office space (and storage space if you store
inventory), office equipment (telephones, faxes, computers etc.) insurance, utilities etc.
Variable costs: Variable costs are expenses that do vary with the amount of service provided
or goods produced. They include cost such as hourly pay for a contractor on a specific
project, raw material etc. Some available costs do not depend specifically on the number of
products but are still variable such as advertising or promotion expenses.
Various pricing strategies available with the retailers:
Pricing of products depends on the business strategies of the retailers. While introducing a
new product, the retailer can opt between running promotions and low pricing in the initial
stage until the demand rises for the product in the market. To maintain a decent margin of
profit, the retailers can use 'Manufacturer Suggested Retail Price' (MSRP) in order to avoid
price wars. Retailers considering a ‘competitive pricing strategy’ are required to price
competitively and to provide outstanding customer service to stand ahead in the competition.
Before pricing product, the retailers have to consider the location, exclusivity and/or unique
customer service which would help to justify the higher prices. Some of the supermarkets are
usually located in places where the upper class families reside. In such localities the retailer
can charge higher prices to the products as the upper class families would buy branded
products even if the price is a little high. Therefore a retailer has to know the consumer
behaviour. Retailers should offer a discount to the customers depending on the type of
customer targeted and the type of item offered. Example: A retailer can offer a cash discount
as reward to the customers who pay cash promptly or on time, quantity discount to large
volumes buyer, seasonal discount to the customers who purchase as per season and charge
less when the customer purchases a bundle or several related items together. Some of the
retailers have assumption that they can win their competitors by fixing a low price. However
the lowest pricing strategy may not allow retailers to attain sustained profit in the long run. It
is better for retailers to keep a check on the low pricing strategy and start with looking at the
demand in the market by examining the following factors:
Competitor's price: Retailers need to look at the competitor's pricing, cost, market price,
discount offers and promotions to compete with their competitors.
Ceiling price: The retailer should not fix the price above ceiling price as the ceiling price is
the highest price in the market that the product can bear. If the product price is above the
ceiling price then customers will not be able to purchase such products.
5. Describe in detail the stages involved in merchandise planning?
Ans. Stages of Merchandise planning:
Stage 1: Developing sales forecast
Sales forecasting is made based on the targets and inputs given by the top management. Sales
forecasting enables to determine the inventory needs for a particular product or category. A
good model of sales forecasting answers the following questions:
1. How much of each product needs to be purchased?
2. Should new products be added to the merchandise assortment?
3. What price should be charged for the product?

A sales forecast is usually made for a specific period of time – it may be weeks or a season or
a year. The person who makes forecasts for the product group or category needs to be aware
of the changes in tastes and attitudes of consumers, the size of the target market and the
changes in their spending pattern.

Stage 2: Determining merchandise requirement: The levels of planning merchandise:

1. Creation of merchandise budget: Merchandise budget is referred to as a financial plan
that indicates how much to invest in product inventories, usually stated in rupees per month.
Earmarking of merchandise budgets is considered to be a vital component of the planning
phase. Usually a budget states the amount allocated for each product, based on the pre-set
profitability or other performance measures.
2. Assortment plan: An assortment plan is a description of items a retailer would like to
have in his store in a particular merchandise category. Planning merchandise assortment is a
significant part of a retailer’s financial success. To begin with, a retailer first decides the
firm’s financial objectives. Once the financial objectives are framed, the retailer begins the
task of selecting ‘what to buy’, which is the biggest challenge a retailer faces in his day to
day life.

Stage 3: Merchandise inventory planning: Planning of inventory can be made by using any
one of the following four methods:
1. Basic stock method: Basic stock method is the minimum amount of stock that needs to be
maintained in the store for a particular product or category. Minimum amount of stock should
be maintained in the retail store at all times. This should be followed even in the time of low
sales.
2. The percentage variation method: Here, inventory in the store should be aligned with
the actual sales. This method is used when the stock turnover rate is more than six times in a
year. When the inventory level maintained in the store moves in line with the actual sales, the
store is believed to have maintained a reasonably good system of stock valuation.
3. Stock to sales ratio method: It involves the maintaining of the inventory levels at a
specific ratio to the sales. This ratio tells the retailer how much inventory is needed at the
beginning of the month to support the month’s estimated sales.
4. Stock turnover rate: The stock turnover rate measures the speed at which the stock moves
in and out of the retail store for a given period. The time period for such a calculation is
usually six months or a year. Stock turnover rate is a tool which measures the efficiency of
the management of stocks.

6. Explain the need for visual merchandise. Describe in detail the tools used for
presentation of merchandise in store
Ans. Visual merchandise: The art of increasing the sale of products by effectively and
sensibly displaying them at the retail outlet is called as visual merchandising. It is the
presentation of a store and its merchandise in ways that will attract the attention of potential
customers, prompt them to buy and eventually increase the sales of the store. In simpler
words, visual merchandising is the art of displaying the merchandise to influence the
consumer’s buying behavior. When placing a visual merchandising plan into reality, some of
the factors to consider are attracting the five senses. That is the sense of sight, smell, sound,
touch and taste. The tools used for visual merchandising should help in attracting these five
senses. The store must offer a positive ambience to the customers for them to enjoy their
shopping. The location of the products in the store has an important role in motivating the
consumers to buy them. Sensible display of the merchandise goes a long way in influencing
the buying decision of the individual.

Tools used This section examines tools related to the presentation of merchandise.
a) Point of Purchase (POP): It is the place where a customer is about to buy the product. This
is the crucial point where the exchange takes place. It offers us a last chance to remind or
attract customers. In spite of a considerable expenditure on point of purchase material by
companies, there is a lack of an established method of measuring the effectiveness of
communication at the retail outlet. In-store communication uses POP material in positions
that are highly visible to the eye thus informing the consumer of the brand presence or any
premium that the company may be offering to the customer. Display material is evaluated on
its ability to attract and hold attention through contrast, repetition, physical motion and size.

b) Fixtures Fixtures in the retail world store are an important part of the overall function and
appearance of the shop. Much like furniture in a home, these pieces are intended to function
and be attractive at the same time. Many of the fixtures are designed to highlight your
merchandise to its greatest appeal; however others are used as working surfaces for you and
your employees. By selecting specific fixture styles and models, you can create a signature
look for your shop to attract your desired client base. The primary purposes of fixtures are to
efficiently hold and display merchandise. At the same time they must help define areas of a
store and encourage traffic flow. Fixtures come in infinite variety of styles, colour and sizes
but only a few basic types are commonly used. For apparel, retailers utilise the straight rack,
rounder and four-way.

Straight rack

The straight rack consists of a long pipe suspended from supports going to the floor or
attached to a wall. Although the straight rack can hold a lot of apparel, it is hard to feature
specific styles or colours. All the customer can see is a sleeve or a pant leg. Wall fixtures
Wall fixtures make store’s wall merchandisable. The wall is usually covered with a skin that
is fitted with vertical columns of notches similar to those on a gondola, into which a variety
of hardware can be inserted.

c) Lighting Lighting is one of the critical aspects of visual merchandising. Lighting increases
the visibility of the merchandise kept in the store. The store should be adequately lit and well
ventilated. Harsh lighting should be avoided as it blinds the customers who walk into the
store. A good lighting system helps create a sense of excitement in the store.
d) Colour The retailer must be extremely cautious about the colour of the paint he chooses for
his store. The paint colour can actually set the mood of the customers. The wall colours must
be well coordinated with the carpet, floor tiles or the furniture kept at the store. Dark colours
make the room feel small and congested as compared to light and subtle colours.