Buying & Merchandising

A typical B&M organisation

CMO/B&M Head/Commercial Director

Planning head

Category 1 head Category 2 head Category N head

Asst. Cat. head Asst. Cat. head

Buyer 1 Buyer 2
2
 B & M function

 Planning the merchandise hierarchy & assortment

 Store layout

 Planogram

 Pricing

 Promotions

 Competition mapping

 Sales and margin planning

and more……

So how does it all come together?

3
Category Management
- A Method of Merchandise Management

11
 CATEGORY MANAGEMENT

Category Management can be defined as “the process of

managing categories as SBUs, producing enhanced business

results by focusing on delivering customer value”.

- Each category is then run like a "mini business" (Business Unit) in

its own right, with its own set of turnover and/or profitability targets

and strategies.

5
The Category Management Business Process

6
The Category Management Business Process *

Step 1: Category Definition

A distinct, manageable group of products/services that consumers
perceive to be interrelated/substitutable in meeting a consumer
need.
The category definition should be based on how the customer
buys, & not on how the retailer buys.
This step decides the products that represent a category, sub-
category & major segmentation.
At this step, the retailer assigns products to the various categories
based on factors such as consumer usage & packaging.

* The traditional 8 step process still forms the foundation across most retailers in the
world…with some modifications. 7
 CATEGORIES IN RETAIL

Food retail Jewelry retail Apparel

Gold  Ladies wear

 Staples / Groceries 

Plain  Ethnic
 Processed Food 

Studded  Western formal

 Beverages/Drinks 

Diamond  Western casual

 Personal Care 

18 K  Men’s Wear
 Non Food/ Cleaning 

14 K  Formal
products 

22 K  Casual
 General Merchandise 

Uncut  Semi formal

 Fruits & Vegetables 

Silver  Kids wear

 Dairy 

 Jewelry  Infant

 Utensils  Boys –Age group

 Girls –age group
8
 The Category Management Business Process

Step 2: Category Role

It determines the priority & importance of each category
in the overall business.
It serves the basis of resource allocation.
Consumer-based category roles:
Destination categories – Why you as a retailer?
Preferred/routine category
Occasional/seasonal category
Convenience category – one-stop shop

9
INVESTMENTS CATEGORY ROLES

IMPORTANCE
Category Roles

• Destination – Retailer is known for this. Used as a key

differentiator from competition.
• Routine – Retailer is one of the preferred providers;
customer gets competitive and consistent value for
daily needs
• Occasional/Seasonal – products which are not regularly
bought but can provide that edge during certain
periods of the year and act as a differentiator
• Convenience – all those products which are not part of
the ‘routine’ list but a retailer uses these to ‘complete’
the assortment and act as the consumer’s ‘one stop’
shopping destination. 11
 ROLE STRATEGY
Destination  Traffic Building STRATEGY INTENT
 Turf Defending
 Transaction Building Traffic To get the consumer
 Excitement Building to the store and into
Generation the category

Routine  Transaction Building Transaction Increase the average

 Profit Generation Building spend in the
category

Seasonal /  Transaction Building

Occasional  Profit Generation Turf Unbeatable – Defend
(Incremental) Defending Market Share & Sales

Convenience  Transaction Building Excitement Innovations/

 Profit Generation Creating Something New
(Incremental)
 Image Enhancing Image Desired Image
Enhancing Reinforcement
 Category Assessment

Step 3 : Assess the category to find opportunities for

improvement
 Analyze the category, subcategories, brands, and items based on 4 prisms
of insights from
- the consumer
- - market
- - retailer
- - supplier.
 Suppliers provide deep insights of who their consumers are and how they
buy and relate to their brands and the category, as well as their tracking
of the market and category trends. These provide tools for framing
category strategies.

Some analytical tools include basket analysis, frequent shopper data,

consumer panel data, point-of-sale data, and occasion analysis. 13
 The Category Scorecard

Step 4: Frame the category scorecard.

 Have appropriate KPIs to assess Category performance
- absolute and relative
- within outlets
- against competition
Some KPIs used
 Category sales
 CTS- overall and storewise
 Cat.Penetration
 RGM and Tot.Income%
 Market share- Cat shares and brand shares from Nielsen

14
 A Category score card sample*

CAT CAT
GRTH % PEN PEN TOTAL STOCK STK STK
CATEGOR SALES OVER GRTH % CTS %(T %(L GM INCOME TOTAL INC% AS ON COVER- STOCK STOCK TUR
Y NAME MTD LM OVER LY (TY) CTS(LY) Y) Y) % % INC% (LY) DATE #DYS LM LY N%

A
B
C
D
E
F
G
H

* Scorecards may vary depending of category objectives; Even when

metrics are same, goals differ due to varying category roles
 Category Strategies

Step 5
 Formulate category strategies to meet scorecard
objectives – increase sales/margins/footfalls/ticket
size/customer loyalty/customer satisfaction
 Apple pie of Thom’s bakery : Loyalty
 Dmart – Horlicks : Loss leader
 Reliance fresh : F&V destination
 Chocolates (impulse): # items per bill
 Rice bags : ABV builder
 What is the strategic intent for each category for the
retailer?
(Loss leader cats; Destination cats; Footfall drivers; perception
builder;)
16
 The Category Management Business Process

Step 6: Category Tactics

Category tactics work towards the determination of optimal category pricing,
promotion, assortment & shelf management/presentation of the merchandise.

Step 7: Category Plan Implementation

What specific tasks needs to be done?
When each task needs to be completed?
Who will accomplish each task?

Step 8: Category Review

17
 Case discussion

Managing the Merchandise

18
 Category role matrix

 Uses category profitability to “frame” the categories within a store

 Other factors are important, but profitability and sales

volume/value are the most important criteria for managing and
measuring category performance.

Only SKUs that have been on sales for 3 months to be

considered
19
 Category role matrix

Flagship Cash Machine Maintain &

Grow

Avg GM
GM% 13.5%

Core Traffic Under Fire Rehabilitate

50 % 80 %

20
Cumulative Sales (%)
 Category Role Matrix

GROSS
SALE SALE MARGIN GROSS
GROU GNA QTY VALUE VALUE MARGI
P ME ITEM NAME (UNITS) (RS) (RGM) N% CTS% CUME% CRM
3201 SOAP 66078 PEARS GERM SHIELD/MINT EXT.75GMS 20804 405,673 49492 12.2 8.15% 8.15% CT
3201 SOAP 64884 DOVE CREAM BATHING BAR 75GMS 17986 449,646 54092 12.03 7.05% 15.20% CT
3201 SOAP 28891 PEARS OIL FREE SOAP 75GMS 11496 224,172 27058 12.07 4.50% 19.70% CT
3201 SOAP 25228 PEARS GLYCERINE SOAP 125GMS 9962 308,808 37705 12.21 3.90% 23.61% CT
LUX ALMOND OIL&MILK CREAM SOAP
3201 SOAP 36521 100GMS 8210 106,668 12896 12.09 3.22% 26.82% CT
3201 SOAP 25229 PEARS GLYCERINE SOAP 75GMS 6894 134,431 16078 11.96 2.70% 29.53% CT
MEDIMIX AYURVEDIC BATH SOAP
3201 SOAP 35879 125GMS 6640 111,508 14496 13 2.60% 32.13% CT
3201 SOAP 25085 LUX TOILET SOAP 100GMS 5706 74,148 9380 12.65 2.24% 34.36% CT
3201 SOAP 24928 HAMAM SOAP 100GMS 5564 69,075 8524 12.34 2.18% 36.54% CT
3201 SOAP 32229 MARGO SOAP 100GMS 5445 78,692 5634 7.16 2.13% 38.68% CT
3201 SOAP 25089 MEDIMIX AYURVEDIC SOAP 75GMS 5217 57,376 7447 12.98 2.04% 40.72% CT
3201 SOAP 53190 LIFEBUOY ACTIVE RED 125GMS 4946 52,378 6301 12.03 1.94% 42.66% CT
LUX SANDAL SAFFRON&MILK CREAM
3201 SOAP 36520 SOAP 100G 4795 60,213 5835 9.69 1.88% 44.54% CT
3201 SOAP 22821 CHANDRIKA AYURVEDIC SOAP 75GMS 4523 49,374 7085 14.35 1.77% 46.31% FS
3201 SOAP 55142 LIRIL ICY COOL MINT SOAP 75 GMS 4411 67,878 7650 11.27 1.73% 48.04% CT
3201 SOAP 21961 MYSORE SANDAL SOAP 75GMS 4123 74,213 8037 10.83 1.62% 49.66% CT

21
 GROSS
SALE MARGIN GROSS
GNAM SALE QTY VALUE VALUE MARGIN
GROUP E ITEM NAME (UNITS) (RS) (RGM) % CTS% CUME% CRM
3201 SOAP 30774 HAMAM SOAP 150GMS 4053 72,949 8761 12.01 1.59% 51.24% UF
3201 SOAP 30630 LUX BEAUTY BATH SOAP 150GMS 3885 73,789 8847 11.99 1.52% 52.77% UF
3201 SOAP 46478 LIFEBUOY GOLD SOAP 150GMS 3842 65,962 8912 13.51 1.51% 54.27% CM
3201 SOAP 25204 PARK AVENUE LUXURY SOAP 150GMS 3770 94,250 14137 15 1.48% 55.75% CM
3201 SOAP 32983 DETTOL BATH SOAP 75GMS 3598 57,503 6998 12.17 1.41% 57.16% UF
3201 SOAP 21594 DETTOL EXTRA SOAP 75 GMS 3546 51,538 2866 5.56 1.39% 58.55% UF

3201 SOAP 41647 LIFEBUOY FOR HEALTH ACTIVE RED 100GMS 3462 29,427 3549 12.06 1.36% 59.90% UF
3201 SOAP 41661 DETTOL SOAP 125GMS 3363 85,099 10374 12.19 1.32% 61.22% UF
3201 SOAP 66094 LIRIL ORANGE SPLASH 75GMS 3273 50,837 4753 9.35 1.28% 62.50% UF

3201 SOAP 30773 LIRIL LIME FRESH SOAP 75GMS+ORANGE 50G 3267 52,271 6189 11.84 1.28% 63.78% UF
3201 SOAP 25308 REXONA BATH SOAP 100GMS 3115 40,262 4799 11.92 1.22% 65.01% UF
3201 SOAP 25110 MYSORE SANDAL SOAP 150GMS 2972 103,984 14776 14.21 1.16% 66.17% CM
3201 SOAP 46479 LIFEBUOY GOLD SOAP 100GMS 2879 35,983 6574 18.27 1.13% 67.30% CM
PALMOLIVE ARO/THER ANTI-STRESS
3201 SOAP 31589 SOAP100GM 2853 62,420 7784 12.47 1.12% 68.42% UF
3201 SOAP 26185 SAVLON SOAP 75 GMS 2784 39,784 4774 12 1.09% 69.51% UF
3201 SOAP 25068 LIFEBUOY PLUS SOAP 150GMS 2738 49,264 5843 11.86 1.07% 70.58% UF
3201 SOAP 25075 LIRIL LIME FRESH SOAP 125GMS 2728 70,928 8483 11.96 1.07% 71.65% UF
3201 SOAP 20497 REXONA COCONUT SOAP 150GMS 2395 44,124 5657 12.82 0.94% 72.59% UF

3201 SOAP 65791 CINTHOL DEO SOAP COLOGNE 75GMS(B3G1) 2185 85,215 8522 10 0.86% 73.44% UF
3201 SOAP 25113 MYSORE SANDAL SOAP 125GMS 2144 60,032 8416 14.02 0.84% 74.28% CM
LIFEBUOY FOR HEALTH ACTIVE ORANGE
3201 SOAP 41646 100GMS 2069 17,587 2114 12.02 0.81% 75.09% UF
3201 SOAP 56890 HARMONY FRUIT SOAP - LEMON 80GMS 2057 24,670 7391 29.96 0.81% 75.90% CM
3201 SOAP 56892 HARMONY FRUIT SOAP - ORANGE 80GMS 2015 24,167 7240 29.96 0.79% 76.69% CM
PALMOLIVE ARO/THER ENERGY SOAP
3201 SOAP 26961 100GMS 1851 40,671 5226 12.85 0.73% 77.42% UF
3201 SOAP 32448 SAVLON SOAP 125GMS 1823 44,661 4082 9.14 0.71% 78.13% UF
3201 SOAP 59679 FAIR & LOVELY FAIRNESS SOAP 75GMS*2 1807 36,139 4546 12.58 0.71% 78.84% UF
3201 SOAP 24713 CINTHOL REGULAR SOAP 100GMS 1730 31,999 3194 9.98 0.68% 79.52% UF
SANTOOR SANDAL & TURMERIC SOAP
3201 SOAP 25402 100GMS 1725 22,425 4485 20 0.68% 80.19% M&G
22
 GROSS
MARGIN GROSS
SALE QTY SALE VALUE VALUE MARGIN
GROUP GNAME ITEM NAME (UNITS) (RS) (RGM) % CTS% CUME% CRM
3201 SOAP 25402 SANTOOR SANDAL & TURMERIC SOAP 100GMS 1725 22,425 4485 20 0.68% 80.19% M&G
3201 SOAP 56887 HARMONY FRUIT SOAP - GRAPE 80GMS 1700 20,387 6108 29.96 0.67% 80.86% M&G
3201 SOAP 56888 HARMONY FRUIT SOAP - APPLE 80GMS 1629 19,543 5859 29.98 0.64% 81.50% M&G
3201 SOAP 60218 HARMONY FRUIT SOAP-PEACH 80GMS 1618 19,412 5820 29.98 0.63% 82.13% M&G
3201 SOAP 20790 MYSORE SANDAL GOLD 125 G 1617 80,847 11319 14 0.63% 82.76% M&G
3201 SOAP 20399 LUX INTERNATIONAL WHITE SOAP 75 GRAMS 1549 24,786 9813 39.59 0.61% 83.37% M&G
3201 SOAP 56889 HARMONY FRUIT SOAP - LIME 80GMS 1511 18,130 5437 29.99 0.59% 83.96% M&G
3201 SOAP 59030 JEEVA AYURVEDIC SOAP 75GMS 1485 14,963 2976 19.89 0.58% 84.54% M&G
3201 SOAP 29045 ARUMUSK OFFERPACK 75GMS 1448 56,457 5934 10.51 0.57% 85.11% REH
3201 SOAP 56891 HARMONY FRUIT SOAP - MELON 80GMS 1389 16,658 4991 29.96 0.54% 85.66% M&G
3201 SOAP 53272 MARGO SOAP 75GMS 1310 15,720 1663 10.58 0.51% 86.17% REH
3201 SOAP 56854 DOY CARE ALOEVERA SSP SOAP 75GMS*3 1280 38,409 7497 19.52 0.50% 86.67% M&G
3201 SOAP 29084 SWASTIK NEEM SOAP 75GMS 1257 12,570 2162 17.2 0.49% 87.16% M&G
3201 SOAP 65803 CHANDRIKA SANDAL SOAP 75G 1247 14,865 2147 14.44 0.49% 87.65% M&G
3201 SOAP 64749 HARMONY SOAP LEECHI 80GMS 1239 14,866 4458 29.99 0.49% 88.14% M&G
3201 SOAP 36541 CINTHOL LIME FRESH 75GMS*4 (BUY3 GET1 1236 48,163 4778 9.92 0.48% 88.62% REH
3201 SOAP 40030 GODREJ SANDAL SOAP 125GMS 3+1 1173 45,718 4544 9.94 0.46% 89.08% REH
3201 SOAP 55697 CINTHOL LIME FRESH 125GMS*3 1143 67,331 6673 9.91 0.45% 89.53% REH
3201 SOAP 65790 CINTHOL DEO SOAP SPICE 75GMS(B3G1) 1133 44,183 4414 9.99 0.44% 89.97% REH
3201 SOAP 25080 LUX INTERNATIONAL SOAP WHITE 125GMS 1055 24,163 5342 22.11 0.41% 90.39% M&G
3201 SOAP 31637 KRISHNA TULSI SOAP 75GMS 1043 10,430 1512 14.5 0.41% 90.80% M&G
3201 SOAP 25067 LIFEBUOY PLUS SOAP 100GMS 1016 12,697 2490 19.61 0.40% 91.19% M&G
3201 SOAP 20205 SANTOOR SANDAL & TURMERIC SOAP 150GMS 984 18,700 3744 20.02 0.39% 91.58% M&G
3201 SOAP 22268 NIVEA SOAP OFFER PACK 979 64,613 12923 20 0.38% 91.96% M&G
3201 SOAP 23153 NIVEA SOAP 100GMX3 OFFER PACK 946 85,116 17006 19.98 0.37% 92.33% M&G
3201 SOAP 42061 PALMOLIVE AROMA.SOAP 100GMS*4 OF/PK 909 70,246 10537 15 0.36% 92.69% M&G
3201 SOAP 45868 LIESE BOTANICAL ROSE SOAP 90GMS 894 14,304 2861 20 0.35% 93.04% M&G
3201 SOAP 22456 DOY SOAP TEDDY BEAR 75G 858 12,012 2342 19.5 0.34% 93.38% M&G
3201 SOAP 20844 FAIR&LOVELY SOAP 75G+SOAP DISH 833 9,994 1214 12.15 0.33% 93.70% REH
3201 SOAP 56893 HARMONY FRUIT SOAP - S'BRY 80GMS 798 9,576 2873 30 0.31% 94.02% M&G
3201 SOAP 41876 CINTHOL INT LIME B2 G1 75GMS OFF/PK 771 24,672 2467 10 0.30% 94.32% REH
3201 SOAP 45869 LIESE BOTANICAL JASMINE SOAP 90GMS 747 11,952 2390 20 0.29% 94.61% M&G
3201 SOAP 25111 MYSORE SANDAL SOAP SET OF 3PCS 712 71,058 9827 13.83 0.28% 94.89% M&G
3201 SOAP 31739 LUX ROSE & MILK CREAM SOAP 100GMS 705 9,165 1099 11.99 0.28% 95.17% REH
3201 SOAP 61805 SANTOOR SANDAL & TURMERIC SAVER PK(3+1) 684 34,168 6830 19.99 0.27% 95.43% M&G
3201 SOAP 37710 GODREJ FAIR GLOW B3 G1 125GMS OFF/PK 638 38,232 3781 9.89 0.25% 95.68% REH
3201 SOAP 36522 LUX FRUIT EXTRACT&MILK CREAM SOAP 100G 611 7,636 907 11.88 0.24% 95.92% REH
3201 SOAP 40491 DOY SOAP 75GMS [2+1] GIFT PACK 610 18,449 3717 20.15 0.24% 96.16% M&G
3201 SOAP 36793 MYSTIC EGYPTIAN SOAP 120GMS 544 16,320 5700 34.93 0.21% 96.38% M&G
3201 SOAP 64891 GODREJ RENEW BURGANDY 50GMS 495 32,194 4201 13.05 0.19% 96.57% REH
23
TOTAL 255203 5,243,498 708,203 13.5% 100%
 Category role matrix - application

ASSORTMENT RATIONALISATION
PRE DELIST POST DIFF
# SKUS 147 44 103
GM% 13.51% 10.24% 13.80% 0.29%
SALE VAL 5,243,498 428,555 4,814,943 (428,555)
RGM VAL 708,203 43,887 664,316 (43,887)

 0.3% increase in Soaps category margin by removing 44 SKUs from

Rehab
 Loss of Rs 4.2 L sale and Rs 0.4 L RGM value
 Plan to recover sale and margin value?

24
 Merchandise Planning Process

Merchandise planning can be defined as the planning & control of the

merchandise inventory of the retail firm, in a manner which balances
between the expectations of the target customers & the strategy of the
firm.

1. Forecast Category Sales

2. Develop assortment plan
3. Determine inventory and product availability
4. Develop a plan for managing inventory
5. Allocate merchandise to stores
6. Buy Merchandise
7. Monitor and evaluate performance and make adjustments 25
 Merchandise Planning Process
Stage I: Developing the Sales Forecast
1. Reviewing past sales
2. Analyzing the changes in the economic conditions
3. Analyzing the changes in the sales potential
4. Analyzing the changes in the marketing strategies & the competition
5. Create the sales forecast

Stage II: Determining the Merchandise Requirements

Planning in merchandising is at two levels:
1. The creation of the Merchandise Budget
2. The Assortment Plan

Merchandise
Budget

Stock Planned Planned Gross

Sales Plan
support plan reduction Purchase Margins
26
 Merchandise Planning process- assortment plan
Assortment Planning involves determining the quantities of each
product that will be purchased to fit into the overall merchandise
plan.
Details of color, size, brand, materials etc. have to be specified.
To create a balanced assortment merchandise for the customer.

Department Menswear

Product Line Shirts Trousers Accessories

Breadth Zodiac Van Heusen

Louis
Philippe
Arrow

Depth Styles Color Sizes

27
 Merchandise / Inventory Planning Method

 Forward Weeks of Supply Method (FWOS)

 Project week wise sales and calculate the number of weeks of
planned sales from the next week forward that the current
inventory value represents.

wk 1 wk 2 wk 3 wk 4 wk 5 wk 6

Sales projection 10 20 25 60 75 15

FWOS (Desired
number) 4 4 3.5 3 3 4

EOP (calculated) 180 175 155 100 45 115

Week’s Supply method is similar; Beginning of month stock = Average

weekly sales x Number of weeks to be stocked 28
 Merchandise / Inventory Planning Method

 Stock to Sales Ratio (SSR= Stock/Sales)

- Stock to Sales Ratio forecasts how much inventory is required to
achieve the projected sales basis a specified ratio
 Sell Through Percent (ST) method
ST is calculated by dividing sales for a time period by stock at the
beginning of the period. More for analysis rather than planning purpose.

SSR Method Mnth 1 Mnth 2 Mnth 3 Mnth 4 Mnth 5 Mnth 6

ST%

Sales projection 10 20 25 60 75 15
Stock at mnth
beginning 30 35 40 50 60 30
SSR 3 1.75 1.6 0.83 0.8 2
Annual stk turn 4 6.86 7.5 14.4 15 6
ST % 33% 57% 63% 120% 125% 50%
29
 Merchandise / Inventory Planning Method

 Basic Stock Method

- The Basic stock method of inventory planning calculates a baseline
level of inventory that is the same for all months; inventory should
not drop below the base level.
BASIC STOCK
Mnth 1 Mnth 2 Mnth 3 Mnth 4 Mnth 5 Mnth 6

Sales projection 18 20 22 24 20 19

BASIC STOCK (Fixed

level) 25 25 25 25 25 25

Stock at mnth beginning 43 45 47 49 45 44

Basic Stock value = Avg inv/Avg

sale 2.2

 Suitable for SKU level planning 30

 Merchandise / Inventory Planning Method

 OTB method -An open-to-buy plan is a purchasing budget for future

inventory orders that a retailer creates for a specific period.
 It takes into account orders in transit + orders with supplier
 Helps in keeping purchase and inventory under tight control
 Sales forecasts need to be done carefully
 Calculation @ cost

Open to buy (OTB)

Apr May Jun Jul Aug Sep
Planned Opening Stk INR
Lacs -A 20 15 15 25 30 25
Planned Sales -B 15 15 20 25 30 20
Planned markdown sale -C 5 3 5 0 0 10
Planned Closing Stk -D 15 15 25 30 25 15
OTB= B+C+D-A 15 18 35 30 25 20 31
(Plan CS+Plan sale- OS)
Merchandise Planning

Supply Sales Supply

pattern Pattern Frequency

Payment
Store Size Warehousing
Terms

Product
Life of
importance/ Seasonality
Product
position

• Determine stock holding at Stores

• Determine stocking level at Warehouse
• Ideal situation is to work with 0 working capital – TOUGH!!
32
Merchandise Planning – MBQ calculation

 Calculate MBQ (Max Base Quantity) for every SKU

 MBQ = Av Daily Sale x No. of Stock Days Cover

( 100 x 14 ) = 1400 units

 No of Days Cover would depend on

a) Supply Frequency and lead time of the supplier
b) Credit Period
c) MSF (Minimum Shelf Fit)
d) Shelf life of product
e) Shelf space

# days cover = Supply frequency + lead time +buffer days

( 7 +2 +5 )= 14 days
33
 Merchandise Planning – MBQ calculation

 Past sales data -56 days considered. Non promo, no OOS (out of
stock) days ideal
 Factors to consider
 SKU classification

 Vendor performance

 Product life

 Weekend spikes

 Promotion spikes – should be taken out

 New products – a static MBQ for 1st 3 months is the norm
 Physical vs. System stock variances

34
 Allocating Merchandise to stores

• Stores are grouped into like “clusters” – basis sales/ size/ catchment
profile.

• Assortment plan fixed for clusters – Flagship stores/Mall stores/ stand

alone stores

• MBQs fixed – dynamic vs static. ARS model

• Back room space considerations

• Scheduling deliveries – frequency, timings

35
 Buying and monitoring Merchandise

 Place purchase orders – automated as per vendor and category

schedule.

 Adhoc/emergency order provisions

 Category role/importance, shelf life of product, Supplier credit, lead

time and supply frequency key considerations in fixing schedule

 Category parameters set (stock turn, stock cover, category budget) –

monitor regularly and fine-tune where needed.

36
 STOCK MANAGEMENT

Efficient stock management is one of the key parameters

differentiating a successful retailer from a not-so-successful one.
Key is to :
• Avoid stock outs - leads to sale loss but also
customer dissonance
• Avoid overage stocks – leads to sale loss and loss of
consumer confidence

A good Merchandiser will try and avoid stock outs as far as

possible by end to end tracking of
• Fill rates by supplier to warehouse
• Fill rates for warehouse to stores
37
Space Planning
 Space planning

 If there is something more precious than stock in a retail store, it is

space to stock the stock !!

 Defined and limited space with pre-fixed # bays, fixtures, display

units

 Different SKUs have different rate of sale

 Defined delivery schedule to store –either from supplier or from DC

 Limited and fixed BOH

 New product introductions – fast and furious !

 Customers like to “find” what they want right away !

 How to plan for the right space allocation ?

Space
planning
 PLAN-O- GRAM

Definition: Plan-O-Gram is a map of the category as

represented in the store. It gives the position of each “SKU” in
the store.

Purpose:
• Ease of shopping
• Ease of display
• Aesthetics
• Tactical benefits
41
 PLAN-O- GRAM

 Planograms differ significantly by retail sector

 Supermarkets largely use text and box based planograms
 Apparel brands and retailers are more focused on presentation
and use pictorial planograms
 POGs can be of various types
 Sales enhancing
 Margin enhancing
 Seasonal
 Promotional
 Store specific or cluster based
42
 Blocking and adjacencies management are critical
get rights

Adjusting allocation of space between

categories while maintaining the brand
image is a key opportunity area

Grouping the right products together in a

logical and customer friendly manner is
vital

Better “blocking” removes confusion and

helps the customer find what they are
looking for

 It also makes the store more

aesthetically pleasing and drives return
visits
43
Allocating the right amount of shelf space can mean
the difference between Wasted product and Lost
Sales.

Space allocated to each product has

to be optimized across the available
shelving and depends on…

The “Pack Size” of the product

The “Case Size” of the product
The “Sales Rate” of the product
The “Replenishment Rate” of the
product.

Assign too little space and the

product will sell out.

Assign too much and you may end

up throwing it away, while another
44
product sells out.
45
Where you put the product on the shelf is
important…

Because shoppers are not all the same…

 Traditionally Retailers have tried a
“One Size Fits All” Approach…

Planogram ends in the Bin

“One size fits all” Planogram

Doesn’t fit the specific Store Layout

Store implements
sub—optimal shelf layout
47
Thank You
Pricing in retail

Madhumita Mohanty
 Retail pricing

• Key component of Retail Strategy (Value being one of the 11 corners!)

• Needs to consider
• Retail objectives – Market share gain, profit maximization, Sales
maximization
• Target Segment, Format
• Type of pricing strategy – demand, cost, competitive, integrated
• Implementation of pricing strategy

2
 Pricing strategies

• Everyday Low Pricing

- The term EDLP is a misnomer, low does not always mean
lowest .
- This strategy could more accurately be called “everyday same
prices”, because prices don’t have significant fluctuations.
- Set prices between regular non-sale price and deep discount
sale prices of a high/low pricing competitor.
- EDLP retailers typically still have some ‘sale’ periods

3
 Everyday Low Pricing

 D Mart, Mc Donald’s, Reliance SMart

 Benefits to Consumers

 Assured of Low Price on Every Visit

 Less Stock outs

 Benefits to Retailer

 Lower Advertising Expense

 Lower Labor Costs

 Pricing strategies

High / Low Pricing

- This strategy typically describes a “sale” driven format.

- The retailer offers not necessarily the lowest price, but

uses advertising to promote the “Sale”.

- Regular prices are higher than EDLP competitors, but

merchandise frequently on sale at lower prices.

5
 Hi-Lo Pricing

 Most Department Stores, TITAN, Arrow, Skechers….

 Benefits to Consumer

 Spend Time to Find Lowest Price

 Benefits to Retailer

 Maximize Profits -- Price Discrimination

Problem: Trains People to Buy on Deal

 Pricing Strategies

EDLP Hi-Lo

 Builds loyalty – guarantees  Higher profits – price

low prices to customers discrimination

 Lower advertising costs  More excitement

 Better supply chain  Build short-term sales and

management generates traffic

 Fewer stock-outs

 Higher inventory turns

Methods for Setting Price

• Demand-Oriented – Charge as much a customers are

willing to pay
• Cost-Oriented – Set price at a fixed percent over cost of
merchandise
(Profit-Oriented – Focus is on margins and not on volume
or share)
• Competitor-Oriented – Set price in relation to
competitor’s prices
(Even Keel-Oriented – Set price in relation to competitor’s
prices )
• Sales-Oriented – Focus is on Volumes or share of
customer purchases
 Topical pricing strategies

• HAPPY HOURS

• DIFFERENTIAL PRICING - STORE SPECIFIC

• DIFFERENTIAL PRICING - PERIOD SPECIFIC

9
 Some interesting pricing strategies

• Freemium
 More users hooked on
 More media coverage and WOM
• Adobe, Dropbox, Linkedin, Smule

• Subscription model
 Magazines; Health clubs
 subscription boxes- meal delivery, beauty boxes

• Free Give aways ? Are they really Free ?!!

https://outbound.net/how-sunny-co-clothing-got-750000-instagram-
followers-and-over-1000-orders-in-24-hours/
10
How does a customer see it?

SUPER VALUE HIGH VALUE PREMIUM

Q
u
a GOOD VALUE AVERAGE VALUE OVER CHARGING
l
i
t ECONOMY FALSE ECONOMY CHEATING/RIP OFF
y

Price
 Factors That Affect Customer’s
Sensitivity to Price

Customer Income (-)

Need for the Product (-)

Availability of Product from Competitors (+)

Frequency and Amount Spent on Product (+)

 Considering Competitor Pricing

 The only way this is done is by constantly benchmarking

 Types of Price Discrimination

 First Degree – Set unique price for each customer equal to

customer’s willingness to pay

 Auctions

 Second Degree – discounts if purchased in bulk

 Offer the same price schedule to all customers

 Quantity discounts

 Third Degree – Charge different groups different prices

 Markdowns Late in Season

 Early Bird Special

 Seniors Discounts

 Coupons
Markdown Vs Markup
Example of Setting the
Initial Retail Price (on Markdown %)

Cost = Rs.100 Planned Markdown on SP = 30%

Retail Price = Rs.100 + (30% x Retail Price)
Solve for Retail Price
0.7 x retail price = 100
Retail Price = Rs.100/0.7 = Rs.142.85

Initial Retail Price = Cost of Merchandise /(1-Mkdn %age)

Example of Setting the
Initial Retail Price (on Mark Up %)

Retail price = Cost + Markup

Cost = $100; Markup =30%
Retail price = $100 + $30= $130

COST 100
MK DN % 30%
SELLING PRICE 142.86 (COST/(1-MKDN %)

RGM 42.86
MK DN % 30%
MK UP% 43%

MKUP% 30%
SELLING PRICE 130
 Price Adjustments

 Markdowns

 Coupons (coupon codes)

 Rebates (cash backs)

 Price Bundling or combo pack pricing (Rice+oil @ a slashed price)

 Multiple-Unit Pricing (1 unit @10; 2 units @ 9.5; 5 units @ 8

each…)

 Variable Pricing – store/ region specific, time specific, occasion

specific , qty specific
 Using Price to Stimulate Sales

1. Leader Pricing

 Certain items are priced lower than normal to increase customers

traffic flow and/or boost sales of complementary products.

 Best items: purchased frequently, primarily by price-sensitive

shoppers.

 Examples: bread, eggs, milk, disposable diapers.

 Using Price to Stimulate Sales

2. Price Lining

 A limited number of predetermined price points.

 Ex: $59.99, $89.99, and 129.99

 Dollar stores

 Benefits:

 Eliminates confusion of many prices.

 Merchandising task is simplified.

 Gives buyers flexibility.

 Can get customers to “trade up.”

 Using Price to Stimulate Sales

3. Odd Pricing

 A price that ends in an odd number ($.57)or just under a

round number ($98).

 Type of store (downscale store might use it.)

 Sale periods
CASE DISCUSSION: JC PENNEY’S FAIR AND
SQUARE STRATEGY
 1. What were the problems being faced by the Department
stores specifically JCP ? How were other retailers coping with
it?

- Departmental stores under pressure – declining share

- Competitive retail landscape for departmental stores from Big box
retailers like Walmart and specialty retailers like Gap
- Competition from International chains like H&M, Zara
- JCP sales and profits on a downward slide
- Sales/sft lowest amongst competitors and on the decline more than
competition (Kohl’s, Target, Macy’s)
- Online retailing on the rise
- Macy’s and Kohl’s online sales healthy growth whereas JCP online sales
were on a decline despite it being a pioneer
- Increase in promo budget by dept. stores and big box stores
23
 2.Evaluate Hi-Low vs. EDLP pricing strategies.
EDLP
Suitable for mass/essential
segments
Price conscious customers
Supermarkets/Big Box
No sales or coupons
Product assortment – ‘Low
brow”
Lower marketing budget
HI-LOW
Suitable for non essential
segments
Value seekers
Departmental stores
Stores offer coupons/ sale
events to bring prices down
High brow assortment
Requires heavy marketing
spends
24
 3.Should a retailer who is not a market leader in the
segment lead a Price change strategy like JCP did with Fair
and Square? Give reasons for your stand

- Dealing with pricing strategy of EDLP/F & S involves deeper discounted

prices on an average
- Retailer needs to have significant bargaining power to protect margins
following this path
- Typically market leaders with high volumes can have such leverage with
suppliers

So, a non market leader should not lead a price change strategy!

25
 4.If you were in Johnson’s position, what would
you have done differently?

- Test market concept

- Split the market into 2 distinct segments
- Do not alienate core customer base of middle aged women, budget
shoppers, lower income (75% below $50k)
- Do not roll out price change without implementing rest of the strategy
elements like better looking stores, newer merchandise

26
 5.Do JC Penney’ store locations have any
bearing on the pricing it should follow?

- More than a third of the stores (400/1100) located in small towns

with population below 10k and no other departmental store

- 72% revenue in 2011 was from products on discounts indicating

that customers were bargain seekers

27
 6.Why did customers fail to see value in
Johnson’s new pricing structure?

- JCP was a 100 year old brand with set practices

- Customers were trained to look for deals in products they
perceived as ‘high brow’ at ‘low brow’ prices during sales
- Customer perception sometimes beats economic theory! Despite a
study showing JCP prices cheaper than competition, customers
perceived the opposite.
- Customers ignore numbers after a decimal. Rs 9.99 is read as 9
and not almost 10!
- Customers relate to prices when compared to something and not
in vacuum. Original and reduced price both to be visible .
28
 7. If you were the board, would you fire Johnson?
Give reasons

YES NO
 Johnson ignored the company heritage  He needed more time to implement
and treated it like a startup such a huge change
 Ignored existing customer base  He was trying to change customer
alienating them with the changes and mindset which is difficult and a long
not attracting newer customers term game

 Ignored customer needs with  He inherited a lot of problems like

misplaced belief that ‘customers didn’t declining sales, market share and
always know what they wanted’ profits

 Employees were demotivated  There was some positive response

 Transition was not handled smoothly from customers in some segments. In
1st 3 months, 67% products bought at
F&S prices
29
 Thank You

Madhumita Mohanty
LOYALTY PROGRAM IN RETAIL
 Purpose of Loyalty programs

 Drive differentiation

 As a reward to customers

 Getting information on consumer buying patterns

 Sustain a competitive advantage – To pre-empt competition or

because competition has it

 Try and influence buying patterns

 If everything else is equal, Loyalty can be a differentiator
 Customer acquisition is more expensive than retention
 Uses of Loyalty programs for retailer

 Site selection

 Network planning

 Market research

 Assortment planning

 Promo planning

 Pricing decisions

 Smart baskets

 Monetization?
 Loyalty points-serve differently

• The usual : points for every purchase. E.g.: 1 point for every
Rs.100 spent
• Do it differently: 20% bonus points if # of items is > than 5 in
a single bill
• Focus on some merchandise: additional 50% points on
certain sku/skus
• Have different slabs for points accumulation.
• Upto Rs.40,000 in a year -1 point for every Rs.100.
• Rs.40,000 -1,00,000-1.5 points for every Rs.100
• Every incremental above Rs.1,00,000-2 points for every Rs.100
purchase
• Relationship building: Double points on purchases for
Birthday/Anniversary etc.
 Segmenting in loyalty

 Value
 Frequency
 Recency
 Online shopping
 Lifecycle-young adults, young family, older family, empty
nesters
 Psychographics
 Loyalty-does it pay?

 Only if incremental rgm>loyalty program cost+cost of offers

 Designing successful Loyalty programs

Rewards
-ambiguous
-unique
Cashbacks -custom fit

Personalization
X points for of rewards Added
Buy N,
Rs Y spent features
get N+1
-goal alignment
free
-added needs

Difficult to replicate
Easily replicable
by competitors
 Designing successful Loyalty programs

Personalization

 Using customer data on purchase patterns and demographic

plus other details collected

 Personalised offers/recommendations – do they lead to

customer’s cherry picking or consolidation of purchases

 Whom to target – do not offer incentives to people who would

have anyway purchased

 What type of offers should the targeted customers receive

 Designing successful Loyalty programs
Rewards
 The reward structure should not be too transparent – easily
replicable
 If customers also do not know it can work as a double

edged sword!
 Triggers feelings of unfairness

 Does not cater to customers who want to boast about their

“tier” value
 Difficult to imitate “Rewards” – celebrity meets, exclusive movie
screenings or concerts, exclusive merchandise tie-ups
 Custom made rewards
 Is it relevant

 Balancing the surprise element with privacy concerns

 Cost vs benefit
 Designing successful Loyalty programs

Additional features
 Goal alignment – linking loyalty program to customer’s life
goals like reduction of smoking or eating healthier, exercising
more
 Points awarded for purchase with retailer plus for activities
undertaken to achieve said goals
 Linking LP to “Causes” customers are interested in
 Using LP to offer value to customers

 Home depot’s ProExtra LP for smaller professional builders

 Participants can track orders, receipts and incorporate into

accounting programs
 HD helps its LP customers save on expensive accounting

software while making them loyal to HD purchases

 Some successful Loyalty programs

 Sephora Beauty insider

 Builds beauty profile for customers and recommends
products basis shoppers’ skin and hair types and concerns
 Very popular with 17 mn members - 80% sales

 Points system but flexibilty in redemption – customer can

choose to redeem against discounts, gift cards, limited

edition products or in-store beauty tutorials.

 TESCO CLUBCARD
 Launched in 1995, one of the early LP
 Purchase info used to profile customers and personalized
coupons sent for future needs
 Helped TESCO topple Sainsbury to become # 1 retailer in
UK ‘s grocery sector
Some successful Loyalty programs
 North Face – apparel and outdoor gear retailer
 Offers points and redemption flexibility
 Customers earn points with purchase, attending events, app
downloads, checking in at certain locations
 Redemptions on unique travel experiences like mountain
climbing in Nepal

 TOMS one for one

 No monetary rewards in exchange for purchase or loyalty
 With every purchase, customers earn the non-monetary
incentive of creating change through various initiatives like
the One For One shoe donation and profit-sharing with
causes like the Wildlife Conservation Society.
 Some successful Loyalty programs

 Tarte – cosmetics and skincare retailer

 Customers get points for user generated content (UGC)-

post selfie with product, write online reviews, video tutorials

 Redemption on product samples, free birthday gift, credits

on point slabs

 Amazon Prime
 Flat annual fee ensures perks like free 2 day shipping,
Prime day sales, Prime video
 Prime members spends 4 times more
Store brands

14
 Store brands

 A.k.a Own brands/ Private label brands/House brand

 Made and sold by a retailer meant to compete with National brands
 Usually sold only in the retailer’s stores but sometimes sold to other
chains as well. E.g. Future group brands; Reliance retail ; No.7 of Boots
 Outsourced to 3rd party manufacturer or own manufacturing

15
 Private label -A strategic advantage for the retailer

 Equivalent or higher quality but

 Lower priced than national brands – customer pull

 Higher margin

 Create customer loyalty/stickiness

 Better supply chain control

 Can enter niche segments not catered to by National brands

 Quick turnaround for new product development to meet

consumer needs

 Built customer loyalty

 Negotiating edge with suppliers

 Private label brands and Indian retail
https://www.businesstoday.in/magazine/corporate/st
ory/how-private-labels-are-outselling-established-
brands-332046-2022-05-02

 Big Basket : 38% of total sales from own brands – BB Royal, BB

Home, Tasties, Fresho
 Reliance Retail : Snac tac noodles, Yeah cola, Puric, Desi kitchen,
(18%-50% cheaper)
 Reliance Trends : 75% revenue from own label
(Netplay,Avaasa,Rio,Performax, Fusion)
 Spencer’s: 13-14% share- Smart choice, Double tick,Clean home,
Numkeen,HandsOn, Bath and beauty
 METRO cash & carry : 8% share of own label
 Shoppers Stop : 15% share from STOP, Altlife, Fratini, Ivy, Fern
 Purplle : 45% share from Pvt label
17
 A hard look at Pvt label margin impact – not always rosy!

PRE LAUNCH POST LAUNCH

SALES
Brand COST SP sale qty VAL share RGM GM% sale qty SALE VAL share RGM GM%
in 000s in 000s % in 000s in 000s in 000s % in 000s
A 102.2 130 73 9490 57% 2029 21.4% 52.0 6760 45% 1446 21.4%
STORE
BRAND 86.1 125 22 2750 18% 856 31.1%
B 296 385 12 4620 28% 1068 23.1% 6.0 2310 15% 534 23.1%
C 131.2 165 15 2475 15% 507 20.5% 20.0 3300 22% 676 20.5%
100 16585 100% 3604 21.7% 15120 100% 3511 23.2%

• Store brand is at higher margin (31.1%) than all other leading brands (20.5% to
23.1%)
• Drop in sales share of Brand B from 28% to 15% (B had highest ASP (premium
brand)
• Brand C seems to have grown but that has least margins
• Pvt label has taken shares from Brand A which has dropped from 57% to 45%
• Overall GM% has grown from 21.7% to 23.2% but RGM has dropped .
18
Retail Customer Service

Madhumita Mohanty

Customer service is not a department, it's an attitude!

Customer Service

 Give one example of great customer service from personal

experience
 Give one example of poor customer service from personal
experience

2
Customer Service

 It is “the set of activities and programs undertaken by

retailers to make the shopping experience more
rewarding for their customers.”
 Excellent customer service can build loyalty and develop a
sustainable competitive advantage
 1/4th customers with negative customer service experience
talk about the same, stop shopping at the store and urge
others not to as well.

 Hence retailers should look at customer service as an

important strategic advantage.

3
 Customer Service by retailers

 Accepting multiple payments  Repair services

options  Rest rooms
 Alterations of merchandise  Shopping carts
 Returns  Special/customised orders
 Gift wrapping  Warranties
 Trial rooms  Personal assistance while
 Child care facility shopping
 Credit  ATM terminals
 Home/work delivery  Display
 Product demo  Signages
 Parking  Personal shoppers
 Wheel chair access  Provisions for shoppers with
special needs 4
Customer Service

 Hire the right people (R&R case reference – CS heroics,

 Hire with the right fit
 Customer service goes beyond just being “nice” to
customers

If we don’t take care of our customers, someone else will

5
Customer Service strategies

 Customization vs. Standardization

 Shop assistant providing demo at Croma ?
 Shopper locating the meat section in MORE?
 Receiving your Mc D order within x minutes?
 IKEA vs traditional furniture/furnishing stores?

What does it take?

6
 Customer Service

Issues...
 Customer service is intangible
 It is inconsistent

 Costs vs. Benefits of customer service

 New age challenge of self service vs the issues escalated to
frontline reps
 Increasing costs of CS

Sales without Customer Service is like stuffing money into a pocket full of holes.
7
 Customer evaluation of service quality

 Service Quality evaluation – perception about service

received vs. Expectations

 Expectation based on previous experience and knowledge

 Expectation is a function of store format

 Customer Service expectations vary across the world*

(R&R case- Chicago store)

* Restaurant example

In business you get what you want by giving other people what they want.
8
Customer expectations of service- people and tech

 Dependable outcome

 Easy access

 Responsive systems

 Flexibility

 Apology/compensation for things gone wrong

9
 Customer evaluation of service quality – on perceptions!

 Perceived Service is intangible.

 Cues used by customers to assess service

 Reliability – billing accuracy, delivery date adherence,

 Assurance – return policy, guarantee
 Tangibility – store appearance, staff appearance and
interaction
 Empathy – personalized service, acknowledgement (of emails;
remembering names)
 Responsiveness – returning calls/mails; prompt service

Although your customers won’t love you if you give bad service, your competitors will.
10
 Customer Service – The GAPS* Model (aka ServQual
Model)
 Service Gap- mismatch between expectation and perception
of customer service
 GAP Model used to address disconnect between customer’s
expectation of service vs perception vs actual service
received
 Customer Gap vs Provider Gap
 Customer Gap : Expected service vs Perceived Service
 Reasons – Miscommunication, Over-expectation, lack of awareness
about actual service provided
 Service expectations a function of previous experience, WOM, price
paid

Customers don’t expect you to be perfect. They do expect you to fix things
when they go wrong.
*Conceptual model of service quality – Parasuraman, Zeithaml, Berry 11
Provider Gaps

Source: Retailing Management by Michael Levy,Barton Weitz and Ajay Pandit 12

 Provider Gaps- Knowledge Gap

 Knowledge Gap- difference between customer expectations and

retailer’s perception of these expectations
(JCP F&S case)
Reasons for this gap :
1. Lack of adequate market research
2. Lack of communication between front end and back end of retail
3. Lack of focus on relationships and more focus on transactions

13
 Bridging the Knowledge Gap

 Listening to customers – Research, comprehensive studies,

customer panels, customer interaction, feedback on
individual transactions, customer complaints, store feedback,
using technology
 Encourage inter-departmental interaction; store visits for
direct interaction with customers
 Customer information and research must be used to set
standards

Quality in a service or product is not what you put into it. It is what the
client or customer gets out of it 14
 Standards Gap

 Standards Gap – Difference between retailer’s perception of

customer expectations and retailer’s own service standards.

(“Quick check-out”- what does this mean?)

Reasons for this gap :

1. Lack of proper service design
2. Lack of formal service standards and processes

15
 Bridging the Standards Gap

 Setting service goals – specific, measurable (SMART goals)

 Commitment to high quality service – top down
 Defining role of service providers
 Measuring service performance – mystery shoppers
 Giving information and Training

As far as customers are concerned you are the company.

16
 Delivery Gap

 Delivery Gap –difference between retailer’s service standards

set and actual service delivered
(#cash tills to be opened up)
Reasons for this gap :
1. Not hiring the right people
2. Not communicating effectively
3. Lack of control mechanisms- evaluation, compensation
systems

17
 Bridging the Delivery Gap

 Provide instrumental and emotional support

 Improving internal communications to avoid conflict
 Empowering store employees
 Providing Incentives
 Using technology

A customer is the most important visitor on our premises. He is not dependant on us

– we are dependent on him.
18
 Communication Gap

 Communication Gap – difference between actual service

provided and the service promised in retailer’s promotions
(Website and ATL may show something and customer experiences is
something else)
Reasons for this gap :
 Lack of inter departmental communication
 Lack of integrity – over commitment
 Lack of uniformity in policies

19
 Bridging the Communication Gap

 Make realistic commitments in promotional campaigns

 Seek inputs from front end personnel
 Better inter-departmental communication
 Managing customer expectations

”People perform best and deliver the best customer service,

when they like what they do.”
20
 Customer Service failure and recovery

Service Recovery – ability of a company to solve a

disgruntled customer’s problem

 Listen to customers; apologize

 Provide a fair solution after getting to the root of the
problem
 Resolve the problem quickly; empowerment of front end
staff
 Avoid company jargon
 Offer something extra
”There is only one boss. The customer. And he can fire everybody in the company
from the chairman on down, simply by spending his money somewhere else.”
21
 Thank You

Madhumita Mohanty
Retail Marketing & Promotions
 Retail Communication

Developing and implementing a communication program to

 Build a brand image

 Attract customers/footfalls

 Encourage customers to buy merchandise/ conversion of

footfalls to bills

Communication program provides information about Retailer as

well as the merchandise and services

2
 Retail Communication Mix

Communication Programme Objectives

 Short term

Tactical, Seasonal, “Sale” driven

 Long Term

Brand building, Customer loyalty, private label

3
 Retail Communication Mix

Brand Equity – Value that a Brand image provides retailers

4
 Retail Communication Mix

 Advantages of a strong retail brand

 Loyalty

 Premium pricing possibility

 Higher margins

 Less reliance on “sale”, “offers”, price discounting

 Lesser marketing effort

 Ease of introducing new concepts or brand extensions

5
 Retail Communication Mix

Building Brand Equity by

 Creating brand awareness

 Aided recall vs. Top-of-mind awareness

 Memorable names, Logos, visual images, visibility, sponsorship

association

6
 Retail Communication Mix

Building Brand Equity by

 Developing favourable brand association – what does the

customer link the brand with

Some common associations retailers develop with their brand names

are :

o Merchandise Category (Reliance FRESH ? Mc D ?)

o Price/quality (Walmart/ D Mart? Tanishq ?)

o Specific attribute or benefit ( 7-11 stores? Nordstrom?)

o Lifestyle or activity (Wild craft? Decathlon?)

7
 Retail Communication Mix

Building Brand Equity by

 Brand image reinforcement by integrated marketing

communication program
 Program that integrates all communication elements to deliver a
comprehensive, consistent message.

 Integration of Merchandise assortment, pricing, customer service, store

design with the Retailer’s communication programme.

 Consistency between various messaging mediums to consumer

8
 Integrated Marketing Communication
Case in point : DIESEL

In 1978 Renzo Rosso started Diesel with the intention of creating the world’s most
innovated denim. Amidst a worldwide oil crisis, during which diesel was considered to
be an alternative fuel, Renzo liked the idea of his brand to be known as an alternative
jeans brand, in contrast to the prevalent casual wear giants that had come before.
Renzo intended to reach the entire world since the brand’s very inception, making the
word “diesel,” an international term pronounced equally all over the world, the perfect
name for his endeavor.
Since its start, Diesel has used “For Successful Living” as a slogan for the brand’s
DNA. Through a long and storied history of strong, ironic and playful campaigns,
Diesel has become a leader in advertising as well as in fashion. Where the world
zigged, Diesel zagged, and in the 35 years since its founding, the brand still embraces
the same ethos.
Diesel has over 5,000 points of sale worldwide with over 400 monobrand stores, 37 of
those in the US. Between 1978 and 2012, the company has produced more than
2,000 different washes of denim.

9
 Integrated Marketing Communication

BRAND : DIESEL

 Super luxury segment...average price of jeans @ Rs 15k and

goes up to Rs 1 Lac !

 Location – Palladium Mall ( Mumbai), UB City Mall

(Bangalore), TataCliq luxury

 Communication – aggressive,

 provocative ads

10
Diesel - Be Stupid campaign

11
Diesel – Live Fast campaign

12
 Be a follower campaign -

https://www.youtube.com/watch?v=rcjcQdaKnwU#action=s
hare

https://youtu.be/rsbKRBRYvGk

13
Diesel Store

14
15
Diesel Loyalty Program – “Diesel Cult”

THE CULT
Pleasure.Egotism. The fierce adulation of all that is
beautiful, wicked and debauched.

Welcome to a global community of hedonists united in

exalted worship of the deep, dark pleasures of the
flesh.

Welcome to Diesel Cult

Here, indulgence is your birthright and privileges

abound.

All we ask in return is that you remain steadfastly loyal

to the cult that applauds sin, and guarantees
redemption.

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Diesel Loyalty Program – “Diesel Cult”

Diesel Cult is India’s premier loyalty program that lets

you attain things that ‘money can’t buy’. Shop at any
Diesel store worth Rs.25,000 to join the program as a
Classic Cult member, or Rs.50,000 to become a Higher
Cult member. Once in, you earn style miles on every
transaction made at any Diesel store in India. Hoard as
little as a 1000 style miles, and redeem cool limited
edition merchandise, get access to exclusive sales, new
collection previews, invites to exclusive Diesel events,
style mile bonuses on special occasions and special
discounts. There is NO membership fee involved.

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Diesel - People

• Founder – a maverick

• Artistic director - Nicola Formichetti- Lady Gaga’s

former stylist

• Sales people

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 Retail Communication Mix

 Methods of communicating with customers

• Advtg/PR • Personal selling

• Sales promos • Direct emailers
• Contests/coupons/demos/
sampling
PAID • Store atmosphere
• Website

UNPAID • Publicity • WOM

• UGC/reviews

IMPERSONAL PERSONAL

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 Marketing Channels

• Paid Media: When you pay to reach an audience (example: display ads or

commercials)

•Owned Media: Platforms you own and control (example: your website)

•Earned Media: When a 3rd party spreads your company brand and/or

message for you (example: a TV interview or reviews on Amazon or Google)

•Converged Media: Marketing efforts that combine two or more of the three

main marketing channels (example: influencer marketing, which is typically

paid for but functions like earned word-of-mouth marketing)

 Marketing Channels

Media What Why Pros Cons

type

Paid 1. Higher ranks in • Brand awareness • Full control - Costly

search and reach over reach, - Complex
2. Display ads • Engagement spend, - Lesser
3. Sponsored • Conversion targeting credibility
Posts • Easy to
4. Paid social ads scale
• Fast
• Easy to
measure
 Marketing Channels

Media What Why Pros Cons

type
Owned 1. Website • Long term brand • Full control - Heavy time
2. Apps building and • More affordable investment
3. Social relationships with barring initial - Difficulty in
media both current and set-up costs scaling
accounts potential • No risk of - Measurability
4. Emailer customers Algorithm not easy
lists changes do not - No
impact reach guarantee of
reach, traffic
 Marketing Channels

Media What Why Pros Cons

type
Earned Reach earned • Heightened • Higher - Cannot plan
through brand reach and credibility or promote
community trust with • Long lasting - No control
engagement consumers • Free even over
1. WOM negative
2. Organic content
social - Difficult to
shares measure
3. Viral results
content
(unpaid)
 Marketing Channels

Media What Why Pros Cons

type

Converged Reach that • Combines • More - More

combines one or pros and effective complex
more of earned, cons of the • Leverage - Difficult to
paid, owned others strengths of track
media each of the - Impact
- SEO other media varies as per
- Influencer channel used
Mktg
- Promoting
branded
content
 Retail Communication Mix

Strengths and Weaknesses of Communication Methods

 Control

 Flexibility

 Credibility

 Cost

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 Retail Communication Mix

Control of Communication
Strengths and Weaknesses Credibility Cost
Methods Flexibility
Advtg H L H L
DM H L M H
Sales promo H L-M M L
Store atmos. H NA M L
Website H L M M
Sales M L H H
persons
Email H L L H
Publicity L H L L
WOM L H L L
UGC/Reviews NA H L L

26
 Thank You

Madhumita Mohanty
Retail Performance

Madhumita Mohanty
 Building a Business Plan

1st step in a retailer’s strategic planning process is articulation of its

objective.

 Financial

 Societal

 Personal

2
 Retailer’s objectives

 Alignment of Financial objectives with retail strategy

 Factors affecting financial performance of a firm

 Net profit margin

 Asset turnover

 Return on assets

 The strategic profit model

3
Strategic Profit Model

 Net profit margin = Net Profit/ Net Sales

 Asset turnover =Net sales/Total Assets
 Return on Asset = Net profit X Asset T/O
= Net Profit/ Total assets

Net P Asset T/O ROA

Retailer A – 1% 10 times 10 %
Bakery/Fast
food
Retailer B – 10% 1 time 10 %
Jewelry/
Consumer
Durables

 How did A & B with different models end

up with same ROA ? 4
 Profit Margin Management Path

To analyse this, one needs to analyse the

income statement

5
 Income Statement

Income Statement Retailer A Retailer B

Rs in Cr (Fashion) (lLow cost hypermkt)

Net sales 15,630 48,107

COGS 9,297 42,093
Gross Margin 6,333 6,014
GM% 40.5% 12.5%
Op Ex 4933 4629
Op Ex % to sale 31.6% 9.6%
Interest exp/income 284 -15
Total expenses 5217 4614
Net profit (pre tax) 1116 1400
in % (PBIT%) 7.1% 2.9%
Taxes 427 518
Net profit (post tax) 689 882
in % (PAT%) 4.4% 1.8%

 B has thrice the sales of A but both have similar RGM

 A has very high Opex, higher than B
 Net profit in % terms higher for A
 Net profit – key measure at store level
6
Income
Statement Retailer A Retailer B Asset information Retailer A Retailer B
Rs in Cr (Fashion) (hypermarket) Rs in Cr (Fashion) (hypermarket)

Net sales 15630 48,107 Accounts receivable 3418 335

COGS 9297 42093 Merchandise Inventory 3120 3644

Gross Margin 6333 6014 Cash in hand 868 2823
GM% 40.5% 12.5% Other current assets 104 467
Op Ex 4933 4629 Total Current Assets 7510 7269
Op Ex % to sale 31.6% 9.6% Fixed Assets 7375 7824
Interest
exp/income 284 -15 Total Assets 14885 15093

Inventory turnover
Total expenses 5217 4614 (COGS/Inventory) 3.0 11.6
Net profit (pre Asset turnover
tax) 1116 1400 (sale/tot assets) 1.1 3.2
ROA (Net profit
in % 7.1% 2.9% margin%*Asset turnover) 4.63% 5.84%
(NET PROFIT/ TOT
Taxes 427 518 ASSETS)
Net profit (post
tax) 689 882

in % 4.41% 1.83%
 Retailer A seems to be better performing in profit management with higher profit
margin %
 B performs better on Asset management path with higher Asset T/O
 Overall performance as measured by ROA - both are similar 7
 Differences in strategy between A and B

Retailer A (Fashion) Retailer B

(low cost
hypermarket)
Margin High Low as focus is on
high turnover and low
prices
Assortment Wide Narrow
Service High Low
Customers Not price sensitive Highly price sensitive
Op Ex High Low
Inventory investment High – slow turn Low – quick turn
(current asset) around around
Fixed Assets High Low

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 How to increase ROA

 Net profit margin = Net Profit/ Net Sales

 Asset turnover =Net sales/Total Assets
 Return on Asset = Net profit X Asset T/O
= Net Profit/ Total assets

 Increase gross margin? How?

• Price increase?
• Lower costs?
 Lesser stocks?
 Availability? OOS?
 Supplier issues?
 Lesser fixed costs?
 Negotiation?
 Compromise? (RP story)
 Better and ingenious solutions? 9
 Supermarkets,
Discount stores
have lower profit
margin % and
higher Asset T/O
ratios
 Target is an
exception –
’cheap chic’
strategy +pvt
label
 Apparel Specialty
stores – high
margins, low
Asset T/O
 Drug stores
reverse

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 Setting Performance Objectives

Should be

• Top – Down vs. Bottom- Up process

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 Strategic Resource Management Model
Net Sales Gross Margin
Inventory = GMROI
 X Inventory
X
Inventory
Selling Feet
=
Gross Margin Net Sales Gross Margin
X = GMROF
Net Sales Selling Feet Selling Feet

X
Selling Feet
FT Employees
=
X Gross Margin
Net Sales GMROL
= FT Employees
FT Employees
 Assessing Performance

 Performance over time – months, quarters,

years

 Performance compared to competitors

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Sample P & L Statement of a Retail store

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 P&L at store/region level

P&L Statement
Fig in Rs region STORE EXPENSES 4,538,840
Total Gross Sales 28,583,062 Employee Cost 1,902,084
Less Taxes 1,823,370 Rent 1,123,879
Net Sales Excl Tax & Travelling &
26,759,692 10,105
Discount Conveyance
Cost of Goods Sold 22,909,216 Utilities Consumed 860,163
Gross Margin 3,850,476 Communication 58,262
GM% 14.39% Repairs & Maintenance 21,714
Margin before Loss at Sales Promotion & Advt 285,385
3,850,476 Consumables & Packing
Store 237,419
Loss At Store ( 1 + 2 ) 943,321 Material
Dump / Scrap Loss (1) 187,104 Freight & Forwarding
4,640
Shrinkage / Phy Inv Expenses
756,217 Bank / Finance Charges 53,016
Loss (2)
Loss At Store % 3.53% General Expenses 17,533
Margin before Store
2,907,156 EBITDA at Store level
Expenses -1,631,684
Margin before Store before allocated costs
10.86% EBITDA% -6.10%
expenses %
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 Some KPIs
Retailer A CTS

Major Stock or Stk Stk Annual

Categor Sales ( Rs GM in Cat inventory Cvr=Stk/ Turn=sale/ ST=12*Stk GMROI=
ies Cr)/month COGS Rs=RGM GM % Contr% (Rs Cr) sale*30) stk turn GM/STK
CAT 1 32.1 26.9 5.17 16.1 20.0 37.5 41.8 0.7 8.6 0.1
CAT 2 30.6 25.4 5.16 16.9 19.0 30.3 35.7 0.8 10.1 0.2
CAT 3 26.7 23.9 2.73 10.2 16.6 27.7 34.7 0.9 10.4 0.1
CAT 5 22.1 18.8 3.34 15.1 13.7 49.2 78.6 0.4 4.6 0.1
CAT 6 17.8 14.8 3.04 17.1 11.1 8.0 16.3 1.8 22.1 0.4
CAT 7 13.0 11.4 1.58 12.1 8.1 4.5 11.8 2.5 30.4 0.3
CAT 4 12.3 9.9 2.41 19.6 7.6 20.7 63.0 0.5 5.7 0.1
CAT 8 6.3 4.7 1.64 25.9 3.9 11.1 71.0 0.4 5.1 0.1
Total 160.9 135.8 25.08 15.6 100.0 189.0 41.8 0.7 8.6 0.1

• Stock Turn= Sale/Stock or COGS/Inventory (ideally sale = cost of sale)

• Annual Stk turn= Stk turn*12
• Stock cover=# days or months of stock you carry
• Stock cover or stock days =Stock/sale*30 (ideally sale = cost of sale)
• GMROI = GM/STOCK* (* STOCK= Avg inventory cost)
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 Thank You

Madhumita Mohanty