RETAIL MANAGEMENT

UNIT – III

Marketing Mix – Product Merchandise, Pricing, Promotion and

Communication Mix

By

Dr. Ravindra
Associate Professor
Department of Commerce
Indira Gandhi University, Meerpur, Rewari

DEPARTMENT OF COMMERCE

2023-24
RETAIL MANAGEMENT - RETAIL MIX

Retail Marketing Mix and 7 Ps of Retail Mix

Retail marketing mix refers to the variables that a retailer can use in variable methods to arrive at
an effective marketing strategy to attract his prospects. The variables are the varieties of
merchandise and assortment along with the services that are offered,
including advertising, pricing, layout and promotion and also store location, design and
visual merchandising.

Retailers can employ a variety of combinations to promote their business and to ensure proper
reach to their prospective customers. The use of multiple methods depending on their objectives
to promote themselves and create a market profile.

The choice of methods of promotion varies and is dependent on the nature of the business, the
goods that are kept in the retail store, and other such multiple factors.

The credibility, control, and flexibility along with the cost that is associated with the retail
promotion methods determine the choice of method of promotion.

There are 7 Ps of the retail mix, which is as follows:

1. Product: Product is the basic element of any and every organization. Some people go to the
extent to comment that an organization is nothing but a collection of products. The product line
is defined as the varieties of the products that are produced by a company, or that is stocked by a
retailer.

Collection of all the products and offering the company is known as product mix. The same
products that are produced by the company are the ones that are sold by the retailer and kept in
the retail store. Product mix refers to the length breadth and depth of the products.

Result of the product is the total number of products that are present in the product line while the
breadth of the product refers to the number of product lines that are offered by the company and
finally the depth of the product means the various varieties of a particular product in that
particular product line.

The retail product mix is also called as a product assortment. Making sure that the availability of
the product and inventory levels are according to the demands of the customer is very crucial for
a retail store manager. Maintaining adequate inventory levels of product to meet the demands of
the customer is very important. Multiple strategies can be used in case of retail product mix such
as;

a. New product launches

a. Modification of existing product lines

b. Trading town or trading up

 c. Assortment reduction or line elimination

d. Management of PLC

Multiple combinations are used by retailers to achieve their business and promotional objectives.

2. Price: One of the most important element or variables, and the retailing buying decision is
price. The entire retail organization is dependent on the single factor; it was either make it or
break it. It is also known as the biggest and easiest measurement, which is subject to change.

Rising helps the retail organization to complete its objective. This is also significant for new
market entrant whose primary function is to establish their brand and then enjoy the increasing
profits as and when the brand gets acceptance from the customers. From the customer’s point of
your price is considered as one of the main reason to visit a particular retail store.

The pricing strategy in the case of the retail marketing mix should be consistent and consider the
overall positioning of retailers sales, profits, and rate of return on investment.

The lowest price may not necessarily mean the best price. Profit is the difference between cost
and price. This can be very high when an urgent situation is exploited by the salesman.

Cash flow, overall growth, and profitability are sort out by the retailers in order to survive
the retail business. But in this case, pricing cannot be determined in isolation and operating
expenses and costs are equally important while establishing the retail price. Pricing the products
is either based on the market at the cost of the product.

The profits that are generated are within this and is controlled by the government and oriented
by consumer or competition. Before one can determine the price, it needs a certain consideration
such as the position of the market the position of the product in the market the perception of the
customer various stages of a product life cycle through which the product is passing along with
the competitive strategy and the overall retail marketing mix. The calculation of retail price
should always be based on the markup and not the cost that is involved.

The following are the components of price mix

Competition, organizational objectives, credit terms, discount, cost and profit, variable and fixed
cost, pricing options, positioning strategies, pricing policies, etc.

3. Place: The availability of the product should be close to the place of consumption so that the
prospects and the customers can buy it easily. Ab preferred brand by the customer who is not
easily available at a location which is convenient to the customer that person made by some other
brand in the same category thereby increasing the market share of the competition.

This is the retailer has to and sure the availability of the product so that the customers can buy it
whenever they require the major components of place, in the retail marketing mix:
physical distribution and marketing channels.
The elements of the marketing mix are affected by the channels decisions and involve a long
term commitment of resources for them to run smoothly.

The intermediaries which are involved in the channel network independent organizations and
their needs should be taken into consideration evaluating the alternatives of the channel. The
marketing efforts success is dependent on a full-proof distribution network.

The stronger than another network, the better the success of the marketing effort. The elements
of physical distribution involve warehousing, transportation, bulk packaging, material handling,
etc.

Some of these activities may be carried out by the intermediaries, and he is coordination would
be required to see in maximum results of marketing operations. The Place also concerns with
levels of operation of the store and the number of employees that are needed.

4. Promotion: Once the budget of the retail store has been decided, the retailer should select an
appropriate combination of public relations advertising, sales promotion, and personal selling.
While this may be true in case of retailers, in case of small traders there are points which are
limited because of limited availability of the funds, and they have to use advertising methods of
promotional methods like direct mail holdings store displays fliers and other related publicity
methods to attract the customers.

Retailers who have no problems with financing may opt for Print or television media in order to
promote their Store. The promotional mix is the one which varies from retailer to retailer and
country to country and also depends on technological advancement. It also depends on the nature
of competition and the finances available with the retailer.

The promotional mix is designed by the retailer, which is in compliance with the objectives of
the store, such as attracting the customers positioning of the organization and increasing the
turnover.

It also is based on other objectives such as clearing of the seasonal merchandising with special
offers and announcement of special events.

Retailers are known to spend the promotional budget on the development of advertising
and advertising campaigns along with other promotional activities. The retailer is also known to
have various methods of promotion in order to promote his goods.

The methodology of promotion that is used by the retailer should be compatible with the stored
image and the budget that is allocated for promotion by the retailer.

The primary objective behind the promotional strategy is to influence the decision of purchasing.
Hence the retailer has to ensure that proper budgets and time is allocated in order to make the
promotional activity more effective.

5. Process: The process is perhaps one of the most crucial P in the retail marketing mix. The
retail industry is based entirely on processes such as order processing and management of the
database.
Right from the moment a customer enters the retail store, he is dependent on the process which
will help him to find the appropriate section which has the appropriate goods.

It is a process that will help him find the price of the product along with other products and their
prices, which help them to make a buying decision. Then the customer approaches the billing
counter, which has an order processing system and a database management software which
processes the order and generates a bill to the customer and processes the payment.

Other processes such as queuing system and standardization also part of the process. It is
essential that all these processes are interlinked for a customer to have a smooth experience.

6. People: People is perhaps another most important aspect and the element of retail marketing.
People in the retail store are the ones that help the customers to find their product to help them
with a particular product. Is also includes the capacity of the staff and the efficiency and
availability.

The staff should be capable and efficient to carry out the functions of the store smoothly. The
interaction of the staff with customers should be a profession as well behaved and helpful.

If if a particular product needs internal marketing it is the people who make sure that the internal
marketing is done in accordance to the marketing rules and also ensures that the message reaches
the right people or right customers.

7. Physical Evidence: The layout of the shop and the reception and check out are part
of physical evidence. Answering questions such as what will be the location of the store, or the
location of the store in the mall, etc. cockroaches in case of physical evidence.

Interaction of customer and the staff is also included in physical evidence along with people. The
testimonials of the customer the cash receipts and after-sale service are also part of physical
evidence of retail Marketing Mix.

PRODUCT MERCHANDISE
INTRODUCTION

Retailer is into the primary function of buying from some sources and making it available to the
customer at convenient sizes at a proper price. This process is known as merchandising.
Whenever you go to a retail store, you are on the lookout for products which fulfil your needs. It
is a welcome from the fact that customers do not have a preplanned list of products to be
brought. Majority of the buying done by customers in a store is impulse buying. Interestingly
none of the retail stores can survive if they count on customers who have planned what to
purchase from the store. It is the merchandise which is displayed in the store arouses the
attention of the customers. This in turn develops an urge amongst the customers to buy.
Therefore, we can say that merchandise is the core of retailing, and buying and selling of
merchandise is the central retail function.

MERCHANDISING
Merchandising comprises of planning as to what to purchase for the outlet (obviously to resell),
how much to purchase and at what price to purchase. Thereon maintaining proper stocks and
finally pricing them for selling purpose. Merchandising is a critical function. The neighbourhood
grocery shop has to keep an eye on hundreds of items from maybe similar number of suppliers,
both small and large. He has not only to order what is going to be out of stock but also products
whose prices are going to shoot up in the near future due to seasonal effects. He has not only to
make payments but also claim various purchase discounts which ultimately will nourish the
bottom line of his Profit and Loss account. Similarly when you go to a cloth shop what do you
do? For the same print of cloth you ask many colours. While purchasing a shirt you would like to
look into all the designs and colours available in your size before taking the final purchase
decision. A retailer should therefore maintain a proper depth in his rnerchaildise which in the
present example would mean that he should be stocking maximum possible range of colours and
prints in different sizes of shirts.

CROSS MERCHANDISING

Each retailer wants to boost his sales. The increase in sales can be either through the main line of
products which he is stocking or complimentary goods which may arouse interest in the
customer. Maintaining stocks of complimentary goods along the main line is known as Cross
Merchandising. In today's era where every retailer is trying to increase the footfalls in his outlet
it is very essential that he adopts the cross merchandising in strategic manner. It makes it
relatively easy for the retailer to convince the customer with a wider range of same utility
products for the ultimate purchase.

OBJECTIVES OF MERCHANDISING

Like in any other business activity even in merchandising one must first set his/ her objective.
All the further activities can be guided with the principal objective. Some authors have also
termed this as merchandising philosophy. The core of your merchandising activity is to make
whatever is required by your target market. While setting up merchandising objectives a retailer
must keep in mind the following factors:

1) Diversity in requirements of the customers.

2) Fashions/Market trends.
3) Suppliers capacity to supply.
4) Competitors merchandising strategy.
5) Warehousing capacity and warehousing costs.

Customers have different set of requirements.

Thus a chain of store catering to the same type of target segment has a different set of assortment
of products kept in its separate stores depending upon the geographic location and demographics
of the place.

Fashions and Market trends are big time indicators of sales trends in the present as well as near
future. Especially in the apparels a retailer can on the basis of last couple of years and the current
trends can predict the type of demand which he will see during the year and the one to come.
Each retailer is depending on a set of suppliers for the supply of finished products to be resold to
the customers. Suppliers are critical participants of the total supply chain of the retailer. It is very
essential that the retailer has complete information about the ability and limitations of each of his
supplier. This would help him to plan his purchase of merchandise better from each of them.

Major players in the market have their individual strategies regarding merchandise management.
It is worth knowing their strategies (although difficult to do so but not impossible).
Merchandising strategy of any top player can throw ample light on the strategic use of
merchandising. It can also help you to know the economies of scale which the retailer must be
enjoying. Finally it helps you to know as to what is the calculation on the part of the particular
retailer regarding latest fashion trends and consumer requirements.

Storage is an important aspect of merchandising. All the merchandise procured should be

adequately stored in a proper manner before the sale. Some retailers prefer to showcase the total
material in the store itself. Their intention is to impress the customer with the range of the
products which they have. However if not displayed properly it may add to the clutter in the
outlet and give a very confused look. This may adversely affect the store atmosphere and
ultimately the sales. Again even if some part of the stocks is kept in the warehouse it should be
the endeavour of the retailer to put it in the outlet at the opportune time. This is besides the
general precautions against pilferage, loss due to various hazards etc.

MARCHANDISING PLANNING

Once we have set our objectives the stage is set for planning it-out. Significance of planning here
is worth discussing. Whenever you plan for merchandise it is based mainly on the sales
projections or forecasts as we call it in common parlance. These forecasts carry projections for
the overall company, product category, item wise and in case it is a retail chain then individual
store wise projections. While merchandise planning we have to keep in mind the following
considerations

 Types of Merchandise.
 Merchandising Objectives
 Category/Unit Forecasts
 Budget
 Assortments Planning
 Timing
 Strategic Considerations

Types of Merchandise

Essentially merchandising is of two types: staple/basic merchandise comprises of daily need

products as well as those commodities which the customers buy frequently throughout the year.
Fashion merchandise comprises of luxury items as well as products, related to fashion, style, and
status. Depending upon the type of merchandise the planning may differ. A retailer selling staple
merchandise will have lesser maneuverability regarding charging of premium brand of fashion
merchandise retailer. However, of fashion merchandise retailer will have a greater risk of
changing fashions than the staple merchandise retailer who will not have such risks at all.
Merchandising objectives

We have discussed about merchandising objectives earlier. It is most essential that we look into
the fashion trends and the category and unit forecasts before planning out our merchandise.

Category/Unit Forecasts

Forecasts put logic behind acquiring a particular assortment of goods as well as quantity to be
ordered. It is worth mentioning here that authenticity of the forecasting procedure makes it
dependable.

Budget

Every retailer would like to keep the correct quantity of merchandise in the correct place at the
most suitable time/month/season. Moreover he would like to achieve this within the limited
budget of his store.

Strategic Considerations

Each store starts its plan with setting its financial objectives. Once they are set the next stage is
to decide what to purchase for sale in the store. Here the retailer is cautious about his financial as
well as space limitations. Thus with his ground reality clearly known he now has many
merchandise related decisions to take -- For example if the store is a men's clothing store, then
the retailer has to decide whether to carry a large variety of different types of clothing technically
known as categories like shirts, trousers, jeans, t-shirts, suits, jackets or maintain fewer
categories but a larger assortment of more styles and colours within each category. The decision
problem does not end here. A retailer has to now decide as to how much stock to carry in each
unit, each category and so on. However from a business perspective it is very important to note
that more the retailer invests in back up stocks the less he would be able to invest in variety or
say deeper assortments. A retailer on the basis of his experience and market forecasts makes a
trade off between variety, assortment and back up stock. This is known is assortment planning.

Timing

In merchandise planning timing and the strategic considerations are the key determinants. We
should always keep in mind the importance of time in merchandising. Procuring grains by a big
grocery shop can become very strategic proposition if proper time is kept in mind. This can be
the harvest period. Similarly what is the strategy? This question decides the merchandising plan.

Strategic Assortment Planning

Each retail store is looking forward to have the best return on investment. For having the best
returns it is essential that the store is able to stock what the customer needs especially what is the
size requirements, and other preferences like colour, shade, design fragrance etc. for example if
you go to buy a shirt in a retail store you will have specific preferences. You'd like to buy shirt of
a particular size, selected from a set of your favourite colours along with your preferred designs.
The design can be either a check, or plains, stripes or prints. Therefore on the part of the retailer
to make you purchase from that particular store it will be necessary to have those very
combinations which you require. This makes it indispensable on the part of the retailer to have a
strategic assortment planning. This indeed feels a lot of research into the consumer psyche as
well as planning well in advance. It would include the following three steps:

Determine Product Categories

Organise the Buying Process Category Wise

Set Merchandise Budget Stipulations

Develop an Assortment Plan

CATEGORY

Each retailer groups various items stocked in his store. We can say that a category is an
assortment of items with a reasonable degree of substitutability. For instance when we go to a
readymade garment shop we expect that it would have readymade for men, women as well as
children. These three can he termed as distinct categories. However, you should note that there is
no hard and fast rule for defining a category. Categories can be defined in terms of brands in
terms of nature of products, or even in terms of specific consumer preference. You must also
know that unless the retailer groups various items under distinct categories it will be very
difficult rather impossible to procure items.

CATEGORY CAPTAIN

There are circumstances that for a particular item one supplier become the favourite of all the
retailers or say a majority. This may be due to the quality offered, prices or even miscellaneous
services. In such cases the supplier is known as category captain. Each retailer has to take
supplies from numerous suppliers or vendors. Both the retailer as well as the supplier has mutual
interest in seeing the customer purchasing their products in the shortest possible lead time after
the goods have been stocked in the store. Thus there lies a merit in maintaining a harmonious
relationship amongst them.

Organise Buying Process Category Wise

Once the categories have been determined, the next step is to plan the buying process
accordingly. Each product category may have a distinct feature or buying requirements. Buying
requirements can be different from the point of view that, specific expertise may be needed for
buying a particular category of products. For instance men's wear will be distinctly different
from women's wear from buying point of view. Similarly there can be other such differences in
procurement of different category products. Thus it will be in the interest of the retailer that
procurement of different categories of merchandise is looked into in their own unique ways.

Key Issues in Merchandise Assortment Planning

While initiating assortment planning you should always remember the key issues. You have to
take a decision of balancing amongst variety, assortment, and product availability. You have to
make an optimum level in all three. It's very simple to understand once you go into a retail store
you expect that first of all, the product you desire will be available and that, you will be shown
reasonable range of variety. Now once you have the product available and with a reasonable
variety, you will definitely expect that you will be able to access decent level of assortment. Now
from the retailer's perspective, in case you want to become a one-stop shop in ready-made shirts
then, you would give product availability and rightly more emphasis. Therefore, you cannot
carry large assortments. Similarly if you have in the shires to have wide assortments in the given
product category, then, you have to sacrifice variety.

One interesting dimension in this context will be in case, passed over is interests in the variety
aspect of merchandising then he/she will have to outsource his merchandise from numerous
vendors. This decision of whether to have a great variety or not is taken at the top level.
However, you must appreciate the limitations of a retail store while taking such decisions.

Set Merchandise Budget Stipulations

In any commercial activity financial discipline is what leads to profits and success. A retailer
cannot even dream to earn profits unless he is able to forest the financial implications of his
merchandising activities. Financial planning is done at the top level. This financial plan is broken
into various categories which percolate to the lowermost level of the store. Based on the financial
plan given by the top management the merchandise managers as well as the buyers develop their
own individual financial plans, It is here that decision regarding the cost profit margins, sales to
stock ratio, expected return on assets, and inventory turnover have to be decided. Some relevant
equations in this regard can be as follows:

Return on Assets = Net Profit Margin x Assets Turnover

Net Profit Net sales Net Profit

= x =

Net sales Total assets Total assets

Net sales

Sales to Stock Ratio =

Average Cost Inventory

 Net sales

Inventory Ratio =

Average Inventory (at retail)

This equation looks into the productivity of inventory. This means if I invest Rs. 1, 00,000 in our
specific product than harmony of these can be generated from that investment. This means
greater the preference of the customers, greater is the off take of that product, thus greater is the
cycle frequency.

Methods of Inventory Planning

Any merchandising planning can never be successful without proper inventory planning. Proper
inventory planning can be done through various methods.

In case the retailer has a strong belief that all times specific level of inventory should be on hand.
Then he should go for the basic stock method. In the basic stock method we simply deduct the
average monthly sales for a particular season from the average stock being kept for the particular
season. Here the beginning of month stock or BOM. stock as it is called will be a total of the
basic stock as well as the amount which the retailer intends to sell in the month.

In case retailers need to plan on a weekly basis then they should go for the week's supply
method. Here the retailer can calculate the average weekly sales and based on his way of
announcing capacity as well as affordability an economic order quantity can be derived.

In case the retailer wants to direct link his inventory with sales only then he can go for sales to
stock ratio. This is one of the elementary methods whereby the retailer based on his sales decides
upon what should be the size of his inventory. However, here the retailer has to decide as to what
should be his beginning of the month inventory size.

Develop an Assortment Plan

Once we have finalised the categories, and fixed our budget limitations then the important task
remains is assortment planning. As mentioned earlier in assortment planning we will have to get
down to the details of colour, size, brand, material, etc. We should keep in our mind that it is not
always possible to have an optimum assortment which can satisfy all the cross sections of the
customers and at same time suit our budget. However the merchandise manager with his field
experience can take a judicious decision in this regard. In assortment planning key terminologies
to be kept in mind are assortment breadth and assortment depth.

Assortment breadth: when you go to a bicycle shop you ask for how many brands of bicycles
that he has. This is the breadth of his assortment

Assortment depth: before you select any brand having in your mind which size of bike. you
require, which colour and maybe which style. This is the depth of assortment.
PRIVATE Vs NATIONAL BRANDS

Generally retailer pays the dilemma of achieving a suitable balance between old brands and
private labels and national assortments of products. Here we must know the fact that national
brands generally have smaller profit margins and maybe more stringent terms of payment. To top
it a more conservative goods return policy is also adopted by national brands. However it is
noteworthy that these brands have national advertising backup and a much better customer
reception. Such brands have national, regional and local promotional programmes running
throughout the year. Such brands strengthen store image and help boosting traffic flow into the
store. Moreover since the loyal customers have been using the brand for a long time they are
very comfortable in using them. Brands like Colgate, Rin, Ariel and Nirma are all manufacturers'
brands.

Of late private labels have become prominent and popular among the Indian masses. Some big
retailers like Shopper's Stop have developed their own brand labels. We have seen such private
labels at supermarkets and prominent grocery shops for a long time. These shops have been
acquiring the food grains, getting it cleaned, packing in polythene bags and branding them. They
have been pricing them a shade higher than the market rates.

QUALITY AS PER PARAMETER OF MARCHANDISING

At any given point of time the retailer is to keep in mind that, a range of quality exists for each
product. Therefore retailers must decide what levels of quality they want when purchasing
inventory and planning the merchandise assortments. Whenever we enter electronic consumer
goods store, we come across a range of televisions with different price ranges. However while
taking a decision a customer decides about the specific brand based on his judgment, past
experience, as well as various terms and conditions. Consumers in general have been purchasing
goods for a long time. Therefore they are used to making judgments about the product as well as
the brand in a way which is most beneficial to them. Here it becomes very critical for the retailer
to decide what sort of quality range to stock. This in turn sets the brand image for the store.
While deciding the quality range of merchandise to be stocked a retailer must have a fair idea
about this clientele. For instance a retailer located in a posh area uses premium modes of
communication, makes efforts to provide elegant store atmosphere as well as offer best of the
customer services possible. In such a case it becomes essential that he also carries the best
quality merchandise. On the other hand if we have a daily needs shop located in one of the
downtown areas, scenario will be very different. Here the store need not stress on providing best
of the store atmosphere more importantly his customers will not be in a position to pay for the
best quality products. The point to be noted here is the merchandise mix for any retail store
should reflect the clientele of that store.

Price points

Pricing is another important issue. India is a very price sensitive market. At any given point of
time what should be the price range of the merchandise? Is a very important question asked to
himself by the retailer. For the same product prices vary depending upon the type of quality as
well as brand name. There can be situations where despite being a price sensitive market high-
priced products are in high demand. There are many up market stores which stock brands which
are status symbols for the higher echelons of the society. Depending upon the location of the
shop as well as nature of commodities dealt with a retailer should decide what sort of price
points to deal within.

THE MARCHANDISE MIX

Before deciding upon the sourcing of merchandise a retailer has to decide about the merchandise
mix. He has to look into the variety, assortments and quality of merchandise decides the most
important merchandise price points. This in combination is known as the merchandise mix. One
must realise that the key to effective merchandise planning lies in exceeding the needs and wants
of the market. It is worth mentioning that while planning merchandise mix a retailer must
necessarily have complete information about this target audience as well as conduct the market
situation analysis.

FACTORS AFFECTING MERCHANDISE MIX DECISIONS

Budget constraints

In merchandising budget seems to be the biggest constraint. The range of merchandise as well as
variety has become so large that it is impossible for the retailer to stock all varieties of any given
product. The retailer has to decide within his limited resources what sort of depth in each product
line he should maintain.

Space limitations

Every day scores of new brands are hitting the market. With the limited space as well as
resources any retailer has to take a decision regarding number of products or brands to stock in
his store. This in fact has gone in the larger interest of the retailers. Nowadays reputed retailers
with strong customer loyalty are charging slotting allowances from the manufacturers and
dealers to display their products. This has led to a battle of slots amongst the multinational
corporations and prominent manufacturers. However this constraint does not exist in case of e-
tailing: But, we should take note that e-tailing is still at a very nascent stage in India.

The rate of product off take

As explained earlier a retailer makes efforts to keep the depth in his .merchandise assortment to
satisfy the maximum number of customers. However this leads to another problem in case the off
take of the total product line is not sufficient. The more variety of merchandise a retailer keeps;
he himself is in the danger of unsold stock. Thus the retailer has to decide whether he would like
to go for a small product line with a great depth or limited product lines with large variety. This
decision however would save him of investing in dead stock.

Stock replenishment schedule

It is most essential for the retailer to know the replenishment schedule for his stock. He should be
well aware about his present level of inventory, reordering level, danger level, as well as the lead
time taken by the supplier or vendor to supply the goods ordered for. At any given point of time
the retailer must discount various factors like festivals, strikes, seasons etc which may affect the
supply of merchandise by the vendor. Moreover it is advisable that the retailer has the required
quantity and quality of merchandise available in good number at his store at the onset of any
specific season. For instance in a ready-made garment shop it will be wise on the part of the
retailer to order for sufficient quantities of specific garments much before the onset of the season.
This enables the retailer to not only stock the goods but also charge a premium in case of high
demand and scarcity of the product.

MERCHANDISE LOGISTICS

Each retailer would like to receive his merchandise as early as possible. For this, he needs to do
logistics planning, select modes of transportation. Not only does the retailer plan to receive the
goods in time but also strategically plan the reverse logistics to send goods to other stores of the
chain. Similar reverse logistics can also be planned for returning any below standard goods back
to the vendor.

SUPPLY CHAIN MANAGEMENT

An efficient coordination within the supply chain of an organisation is known as supply chain
management. A typical supply chain would include producer, agents are brokers, wholesalers,
retailers, and consumers. A retailer must know all the key parties in the supply chain from
promulgated, producers to the end-user. By understanding each party's goals the retailer can
strategically devise their supply chain plan keeping in mind the constraints, environmental issues
and factors related to product availability.

Duties of a Merchandise Manager

Generally merchandising is looked after by the retailer personally as far as small size stores are
concerned. However, in large retail stores like shoppers stop, pantaloons, Chennai Central, there
are professionals to deal with. this vital function of the retailing. It is very much possible that one
retail store has got multiple merchandise managers depending upon specific categories.
Merchandise managers basically are to look into buying the best product at the reasonable price.
This in turn, makes it necessary for them to perform the basic functions like planning,
organising, directing, coordinating, and controlling the merchandising process as a whole.

Planning: This is the first basic step for merchandise manager to be successful in his endeavour.
Since, once the season starts the retail store may not have the time to fine tune their merchandise
plan. Based on the previous sales data a sales forecasting chart is prepared. Further based on the
available resources of the store the budgeting has to be done. The budget as well as the sales data
helps the buyers plan what to buy? and, what are other financial limitations for the present year's
purchase. 15 Product Merchandise

Organising: Merchandise manager has to organise the merchandising process which starts with
collecting the sales forecasting data and then proceeding onto the budget. Further all the
activities related to merchandising planning are to be initiated and seen that they work to achieve
organisational goals. Merchandising being the most important function of the organisation,
organising the process is an essential function.
Directing: It is the responsibility of a merchandise manager to not only guide the buyers
regarding what and how to purchase but also to train them to work efficiently. It is essential on
the part of the buyers to be vigilant about the quality and price aspects. Merchandise manager
has to direct from time to time as per the market situation.

Coordinating: The essence of merchandising lies in coordination. The merchandising manager

needs to coordinate with various people to achieve the required results. A retail store requires
many products at a given point of time. This in turn is handled by many buyers. An efficient
merchandising manager needs to coordinate with all the buyers as well as the seller parties. All
these activities run parallel to each other. Efficient coordination is therefore essentially needed.

Controlling: At any given point of time multiple factors influence the business of a retailer.
Therefore, it is possible that a retail store is unable to achieve its targets in merchandise
performance due to such factors. It is the duty of a merchandise manager to look into the reasons
and apply control. Corrective measures taken in time can minimise losses to the store at the same
time may be instrumental in maintaining goodwill of the firm.

SUMMARY

Merchandising is the primary function of a retailer. Procurement and reselling of merchandise is

the basic function of a retailer. Each retailer stocks hundreds of products. Each product has
further multiple brands. He has to keep an eye on the movement of each product and brand in the
market. He must have proper information about demand and supply situation of merchandise.
Customer is in prime focus here. A good merchandising strategy keeps a watch on diversity in
requirements of the customer needs. Merchandise Planning therefore is the most important step
of merchandising. Besides other factors one of the important aspects which influences
merchandising decisions are the financial objectives. Issues like assortment planning, price
points, etc. are based on the financial objectives. Finally a retailer has to decide whether to stock
national brands or develop own private brands.

KEY WORDS

Category: An assortment of similar items with reasonable degree of similarity. Eg. Men's
toiletries category.

Category Captain: When in a specific category one vendor becomes the most preferred by all
or majority of retailers.

Merchandising: The function of buying from some sources and making the same available to
the customer in convenient sizes and at a reasonable price. main line dealing in by the retailer.
This is done to arouse interest in the customer.

Price points: Price Range

SELF ASSESSMENT QUESTION

1. Describe various considerations to be kept in mind while doing merchandise planning.

 2. Select a category and make a list of national brands in that category. Now select some
private brands and evaluate the comparative performance and benefit to the retailer.

3. Explain what is merchandise mix and various factors affecting merchandise mix decision.

RETAL MANAGEMENT – PRICING

The bitterness of poor quality remains a long after low price is
forgotten.
− Leon M. Cautillo

We as customers, often get to read advertisements from various retailers saying, “Quality
product for right price!” This leads to following questions such as what is the right price and who
sets it? What are the factors and strategies that determine the price for what we buy?

The core capability of the retailers lies in pricing the products or services in a right manner to
keep the customers happy, recover investment for production, and to generate revenue.

What is Retail Pricing?

The price at which the product is sold to the end customer is called the retail price of the product.
Retail price is the summation of the manufacturing cost and all the costs that retailers incur at the
time of charging the customer.

Factors Influencing Retail Pricing

Retail prices are affected by internal and external factors.

Internal Factors

Internal factors that influence retail prices include the following –

1. Manufacturing Cost − The retail company considers both, fixed and variable costs of
manufacturing the product. The fixed costs does not vary depending upon the production
volume. For example, property tax. The variable costs include varying costs of raw material and
costs depending upon volume of production. For example, labor.

2. The Predetermined Objectives − The objective of the retail company varies with time and
market situations. If the objective is to increase return on investment, then the company may
charge a higher price. If the objective is to increase market share, then it may charge a lower
price.

3. Image of the Firm − The retail company may consider its own image in the market. For
example, companies with large goodwill such as Procter & Gamble can demand a higher price
for their products.
 4. Product Status − The stage at which the product is in its product life cycle determines its
price. At the time of introducing the product in the market, the company may charge lower price
for it to attract new customers. When the product is accepted and established in the market, the
company increases the price.

5. Promotional Activity − If the company is spending high cost on advertising and sales
promotion, then it keeps product price high in order to recover the cost of investments.

External Factors

External prices that influence retail prices include the following –

1. Competition − In case of high competition, the prices may be set low to face the competition
effectively, and if there is less competition, the prices may be kept high.

2. Buying Power of Consumers − The sensitivity of the customer towards price variation and
purchasing power of the customer contribute to setting price.

3. Government Policies − Government rules and regulation about manufacturing and

announcement of administered prices can increase the price of product.

4. Market Conditions − If market is under recession, the consumers buying pattern changes. To
modify their buying behavior, the product prices are set less.

5. Levels of Channels Involved − The retailer has to consider number of channels involved
from manufacturing to retail and their expectations. The deeper the level of channels, the higher
would be the product prices.

Demand-Oriented Pricing Strategy

The price charged is high if there is high demand for the product and low if the demand is low.
The methods employed while pricing the product on the basis of demand are –

1. Price Skimming − Initially the product is charged at a high price that the customer is willing
to pay and then it decreases gradually with time.

2. Odd Even Pricing − The customers perceive prices like 99.99 to be cheaper than 100.

3. Penetration Pricing − Price is reduced to compete with other similar products to allow more
customer penetration.

4. Prestige Pricing − Pricing is done to convey quality of the product.

5. Price Bundling − The offer of additional product or service is combined with the main
product, together with special price.
Cost-Oriented Pricing Strategy

A method of determining prices that takes a retail company’s profit objectives and production
costs into account. These methods include the following –

1. Cost plus Pricing − The company sets prices little above the manufacturing cost. For
example, if the cost of a product is Rs. 600 per unit and the marketer expects 10 per cent profit,
then the selling price is set to Rs. 660.

2. Mark-up Pricing − The mark-ups are calculated as a percentage of the selling price and not
as a percentage of the cost price.

The formula used to determine the selling price is −

Selling Price = Average unit cost/Selling price

3. Break-even Pricing − The retail company determines the level of sales needed to cover all the
relevant fixed and variable costs. They break-even when there is neither profit nor loss.

For example, Fixed cost = Rs. 2, 00,000, Variable cost per unit = Rs. 15, and Selling price = Rs.
20.

In this case, the company needs to sell (2,00, 000 / (20-15)) = 40,000 units to break even the
fixed cost. Hence, the company may plan to sell at least 40,000 units to be profitable. If it is not
possible, then it has to increase the selling price.

The following formula is used to calculate the break-even point −

Contribution = Selling price – Variable cost per unit

4. Target Return Pricing − The retail company sets prices in order to achieve a particular
Return On Investment (ROI).

This can be calculated using the following formula −

Target return price = Total costs + (Desired % ROI investment)/Total sales

For example, Total investment = Rs. 10,000,

Desired ROI = 20 per cent,

Total cost = Rs.5000, and

Total expected sales = 1,000 units

Then the target return price will be Rs. 7 per unit as shown below −

Target Return Price = (5000 + (20% * 10,000))/ 1000 = Rs. 7

This method ensures that the price exceeds all costs and contributes to profit.

5. Early Cash Recovery Pricing − When market forecasts depict short life, it is essential for the
price sensitive product segments such as fashion and technology to recover the investment.
Sometimes the company anticipates the entry of a larger company in the market. In these cases,
the companies price their products to shorten the risks and maximize short-term profit.

Competition-Oriented Pricing Strategy

When a retail company sets the prices for its product depending on how much the competitor is
charging for a similar product, it is competition-oriented pricing.

1. Competitor’s Parity − The retail company may set the price as close as the giant competitor
in the market.

2. Discount Pricing − A product is priced at low cost if it is lacking some feature than the
competitor’s product.

Differential Pricing Strategy

The company may charge different prices for the same product or service.

1. Customer Segment Pricing − The price is charged differently for customers from different
customer segments. For example, customers who purchase online may be charged less as the cost
of service is low for the segment of online customers.

2. Time Pricing − The retailer charges price depending upon time, season, occasions, etc. For
example, many resorts charge more for their vacation packages depending on the time of year.

3. Location Pricing − The retailer charges the price depending on where the customer is located.
For example, front-row seats of a drama theater are charged high price than rear-row seats.

Some Other Pricing Strategies

1. Manufacturer Suggested Retail Price (MSRP)

If you sell mass-produced items such as consumer electronics and household appliances, the
Manufacturer Suggested Retail Price (MSRP) is a good pricing strategy to adopt.

MSRP is a standard price for an item, regardless of who is selling it. It takes the guesswork
out of setting prices, but it can dull your competitive edge when your product sells at the same
price as other retailers.
2. Keystone Pricing

Keystone pricing is a type of markup pricing. With this strategy, you double each product’s
wholesale price to create a healthy profit margin.

With a fixed percentage, your calculations will be simple. Maybe too simple — it’s easy to end
up pricing products too low and too high.

Keystone pricing isn’t a good option if you offer highly unique products or custom items that
take a long time to create because you won’t make enough profit.

It’s just as poor a pricing strategy if you sell standardized, common products. Depending on the
availability and demand for an item, it might be unreasonable for a retailer to mark up items at
such a high rate.

3. Markup Pricing

Markup pricing also called cost-plus pricing is the most common and intuitive pricing strategy
for retailers. You add a percentage of the base cost of individual items to create a profit —
but you apply a different markup depending on the product.

When selling a high volume of products or seasonal and perishable items that need to be sold
quickly, it’s best to set the markup below 100%.

When selling custom products or privately labeled items like cosmetics, jewelry, alcohol, or
electronics, you can set the markup above 100%.

It is straightforward in theory, but markup pricing requires you to spend extra time evaluating
factors such as perceived customer value and competitor pricing.

4. Discount Pricing

When retailers mark down their products’ prices to encourage sales, it’s called discount
pricing.

One form of discount pricing is the high-low pricing strategy Products are introduced at a high
price point and marked down when demand decreases.

Electronics retailers use this strategy most often. Computers, game consoles, and smartphones
are the most expensive when they’re first released. But when the next model comes out, the
previous versions are sold at low prices.

Discount pricing is an effective strategy if you want to clear unsold inventory and increase sales.
But if you become known for discounting your products, customers may perceive them as low
quality or grow accustomed to waiting for the lower price.
 5. Penetration Pricing

Penetration pricing is another form of discount pricing. A business offers its new product or
service at a lower price to attract customers. The idea is to get consumers hooked with a sale
price, so they are willing to pay full price after the promotional period expires.

The penetration pricing strategy works best for subscription products, especially in a
competitive market.

Businesses that use this pricing model include:

 Netflix
 Hulu
 Spotify

Similar to penetration pricing is the loss-leader pricing strategy, in which products are sold at a
loss just to get customers in the door.

6. Bundle Pricing

Bundle pricing is another discount pricing strategy. It’s useful if you sell related items you can
package together. Bundling items lets you curate the customer experience and empowers
you to increase sales volumes through up-sells or cross-sells.

Common examples of bundle pricing are Christmas baskets or deli bundles that include
preselected wines, cheeses, and meats.

Similar to bundle pricing, multiple pricing sets products at a lower price when more than one is
purchased. For example, “buy one, get one free,” or “buy two, get 20% off.”

This strategy works best when you bundle less popular items with your high-demand products.
Sales are hard to resist, especially if the customer is buying something they already want. You
can simultaneously attract customers and get slow-moving items out the door.

7. Psychological Pricing

Psychological pricing is a value-based pricing strategy. Also known as charm pricing, it

depends on the customer’s perceived value of the item.

According to researchers at Carnegie Mellon, people experience pain when they spend money.
It’s up to merchants to minimize that pain.

You see psychological pricing almost every day when retailers give products a price that ends in
an odd number.
 For instance, instead of charging $6, retailers price a product at $5.99. The brain sees $5 and the
consumer is tricked into perceiving a lower price.

Psychological pricing is best applied to non-essentials, as it encourages customers to spend

impulsively.

8. Premium Pricing

Premium pricing (also known as prestige pricing or luxury pricing) is another value-based
pricing strategy. High-end retailers sell their products at an additional markup that gives their
customers the sensation of status.

Premium pricing works best when your product quality and customer service can match
the expensive price tag. It also depends heavily on successfully marketing your brand as high-
end.

It’s how Gucci sells their $1,200 Lady Lock bags. Other companies that use premium pricing
include:

 Rolex
 Ferrari
 Apple
 Cartier

As an online retailer, it may be difficult to replicate the luxurious feeling these companies have
spent decades cultivating. However, you can validate your premium pricing with a chic design
aesthetic, high-quality products, and a stellar customer experience — which includes a fast-
loading website.

9. Competitive Pricing

Competitive pricing entails consciously setting lower prices to gain a competitive

advantage. It works best if you’re in an industry with similar products, where your competitors’
prices are the only differentiator.

The competitive pricing strategy is most effective if you’re a larger retailer and can negotiate a
lower wholesale price from suppliers so you can still earn a decent profit. However, small
retailers can be driven out of business in a price war.

10. Dynamic Pricing

Dynamic pricing is a retailers pricing strategy where you adjust your prices according to
changes in supply and demand.
Ecommerce businesses are in the best position to use dynamic pricing because it can be done in
real-time. When you sell online, you can leverage technology and data to sell the same product at
different prices depending on the purchaser.

Final Thoughts: Retail Pricing Strategy for Ecommerce Stores

When deciding on a retailer’s pricing strategy, online sellers have several factors to consider,
including their company’s niche, competition, market behavior, and most importantly, financial
targets.

Of all the strategies we’ve shared, no single pricing tactic will be enough. Small business owners
should experiment and combine tactics to develop the right pricing strategy to ensure their
company’s profitability.

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RETAIL MANAGEMENT – PROMOTION

What is Retail Promotion Strategy?

Retail promotion strategy is nothing but activities undertaken to induce customers by providing
them with incentives, offers, deals, and other such things. It consists of advertising, publicity,
personal selling, and direct marketing as elements to increase sales and build a brand image.

A good promotion management strategy helps bring in new customers and retain existing ones.
Most importantly, become on top in this competitive market. A retail promotion strategy is a part
of the marketing mix and includes both in-door and out-door efforts. These efforts can be both
customer-oriented and business-oriented.

Every Retail promotion strategy program aims at increasing the sales of the retailer
like Pharmacy POS, Gift shop pos system, Optical pos. It helps in improving customers’
interest in the product, creates awareness about the product, builds the brand, and then eventually
converts all this into sales. The retail industry uses several techniques to achieve the same.
How Does Retail Promotion Strategy Differ From Advertising?

Retail promotion strategy is done for a limited timeframe, whereas advertising is a continuous
ongoing activity. A Retail Sales Promotion in retail is a direct means of reaching out to the
customers for sale while, on the other hand, advertising involves indirect methods to appeal to
prospective customers. Any sales promotions ideas give quick results and aim for short-term
benefits, while advertising gives slow results and aims for long-term benefits.
The Main Objectives Of Retail Promotion Strategy Are:
1. Encourage Stop and Shop:
It aims to attract passers-by so that they stop, enter the retail store, and take a look at the
products. Once the customers enter the store, inducing them to buy products by attracting them
with the prevailing deals and appealing displays.

2. Increase the Size of the Purchase:

Retail promotion strategy efforts also aim at luring customers to buy in greater quantities through
the existing deals, offers, and discounts and thereby increase sales.

3. Repeat Purchasing: Retailers use a Retail promotion strategy to make customers buy goods
repeatedly.
4. Fight Competitors: Due to the ever-increasing competition, businesses can survive only by
being a better choice for customers. Besides, efforts on retail marketing ideas speak a lot about
your competitive strategy. These are the efforts that help you stand out from your competitors.

5. Inventory Reduction: When the Retail promotion strategy is effective, it helps in-stock
clearance as customers tend to engage in buying more and repeated buying due to low prices and
cost-effective deals.
The Various Types of Retail Promotion Strategy in the Retail Industry Include:

1. BOGO (Buy One Get One): Buy One Get One method is used to increase the footfall of
customers. It offers two products at the price of one. In some cases, a monetary discount is given
on the second product. This method is widely used at the time of stock clearance. It tries to
encourage more sales by offering more to customers.
Some examples of BOGO might include providing a complimentary product with the main
product, for example, offering a free face wash with a face scrub. On the contrary, another
BOGO example is offering two same products at the price of one. For example, one pair of jeans
is free with the original purchase of one pair of jeans.

2. Percentage Discount is a part of Retail Promotion Strategy: This is the most used and most
effective technique for Retail promotion strategy. Loyalty programs like percentage discounts
attract new customers without spending much on marketing techniques. Moreover, it also
sometimes helps in converting the existing inactive customers. At times, when the discount offer
is for a limited period, it encourages prompt buying among the customers. For example, 60% off
on all items, 50% off on selected items, etc.

3. Multi-buys: These are offers in which one or more items are offered at a special discount,
which would not be applicable when they are purchased separately. Customer reward
program attract customers to make additional savings and hence help in sales conversions.
However, the success of these offers depends on the type of product being sold. For example,
buy three t-shirts, get one free or buy two t-shirts, get two free, etc.

4. Free Shipping: This is one of the most popular methods used by e-commerce platforms. They
attract customers and encourage them to make more and more sales transactions. For example,
buy worth USD 100 more to avail of free shipping. Such offers increase sales considerably.
5. Multi Save and Conditional Promotions: They go like “Buy and save off on the entire deal,”
“Buy and then save on some items,” “Buy some and get a discount on some,” and such other
schemes. Such a retail promotion strategy encourages customers to check out multiple products
and then avail offers available on them. They do not add a loss burden on the seller, either. For
example, buy one product and get 20% off on the second product.

6. Retail Promotion Strategy through Coupons and Gift Cards: It is the technique where the
buyers are given a discount in the form of a reduction in price through a coupon with that
feature.

A coupon mostly offers any other sales promotion method through it. On the other hand, Gift
Cards contain a pre-set amount of money, which can be used by the gift card receiver to buy
things from the brand. It is a popular gifting item in today’s times.

7. Try before you buy: Using this method, the customers get the product at their place, are
allowed to try it, and then decide if they want to go ahead with the purchase. It brings the
experience of physically checking the product without making a store visit and before paying for
it. Trial periods are also provided to give customers the time to decide.

8. Social Media Contests and Giveaways: Brands can organize contests on social media
handles and give out products for free to the winners.

This has a two-way impact. Firstly, the reach of your brand increases. Secondly, the customers
get to try the products and may become potential buyers if they have a good experience.

How To Decide On The Right Retail Sales Promotion Technique?

1. Trial and Error: By this method, you can experiment and see which technique works out the
best for your business. It helps you test the technique that will bring you maximum sales in a
practical scenario. However, it is also a time-taking method as the outcomes are to be checked
and compared before finalizing the best technique.

2. Set your Objectives: Every technique has its own perks. Before choosing any, you should sit
down and decide the bottom line of your Retail promotion strategy efforts. ‘What is it that you
are aiming to achieve?’ – is a very important question whose answer you should figure out
before deciding upon the method you want to follow.

3. Plan the Incentive and Values: It is also vital that before you settle for any technique, you
calculate and plan the monetary aspects of it. It will help you review the cost of your method and
contemplate whether you can afford it or not.

Once you decide the technique you wish to follow; the next step is to improvise and ensure its
effectiveness. This could be done by taking the following measures
4. Set a Timeframe: Define the period for which the ongoing promotions management will
prevail. This brings in a sense of urgency in the customers and helps in quick sales conversion.
Furthermore, limit the availability so that customers make a quick decision on the purchase.

5. Offer Various Promotions Together: It helps to grab shoppers’ attention and promote the
products well.

6. Provide Multiple Payment Options: Being flexible with payment options is also a very
effective way to increase sales. In this way, customers can purchase through various payment
modes, and it does not restrict them.

7. Define the Target Audience: It is also important to define the market and audience you want
to target in order to channel your efforts and increase their feasibility.

8. Evaluate the Results: You should also keep a close check on the results of your activities and
review them from time to time. This helps you understand places where you are going wrong and
improve them to earn greater profits.

Therefore, retailers must put great focus on their Retail promotion strategy as these accelerate
sales, serve as the base for competitive advantage, build customer loyalty, and increase the
frequency and volume of customer purchases.

RETAI MANAGEMENT – COMMUNICATION MIX

Creating a marketing campaign can take a long time. When a company develops a
new product, marketers cannot simply say, "Let's create some billboards and hope that
consumers notice our product!". Promotional objectives must be specific, and the promotion
itself has to be targeted. This is where the promotion mix comes into play. Read along to find out
how to create the most effective promotion mix.

Promotion Mix Meaning

Promotion mix is an essential component of marketing communications. That is why we
sometimes call it marketing communications mix. Marketing communications aim to reach the
target audience and influence the customer purchase journey. Its main tasks
include differentiating the product and brand from the competitors, reinforcing the brand's
presence and message, informing customers about the product's benefits & features,
and persuading them to buy. This process is known as the DRIP model.

Definition

The DRIP framework stands for: differentiate, reinforce, inform, and persuade.
Marketers use various promotional techniques to achieve these goals, giving rise to the
promotion mix.
Promotion mix is a combination of promotional tools marketers use to communicate with their
target audience.

Marketers can use more than one channel to communicate brand value. Here are six key
components of a communications mix:

1. Advertising,
2. Personal selling,
3. Sales promotions,
4. Direct marketing,
5. Public relations (PR),
6. Branding.
Example: Nike uses a combination of promotional tools. They offer a variety of seasonal sales
promotions, advertise their products using traditional (print) and digital (social) media, and run
various public relations campaigns.

Promotion Mix Marketing

The promotion mix plays a significant role in marketing. Before we look at the promotion mix in
more detail, let's examine the steps in developing effective marketing communications.

Overall, there are three stages in marketing communications:

1. Identify the target audience,

2. Determine communications objectives,
3. Select the appropriate communications channel and media.
The main goal of marketing communications is to guide customers through the buyer-readiness
stages.

Buyer-readiness stages are the stages a customer passes through before making a purchase.

The buyer readiness stages include awareness, knowledge, liking, preference, conviction, and
purchase. It is important to note that the buyer readiness stages are not the same as the buyer
decision-making process.

Promotion Mix Elements

Promotion mix is made up of three key elements: promotion mix budget, tools, and strategy. An
integrated marketing campaign would require marketers to combine all these three elements.

Promotion Mix Budget

The first step to developing a promotion mix is to calculate promotion budget. It is a crucial task
as marketers do not want to waste precious dollars.
Let's look at four methods to determine a promotion budget:

1. Percentage-of-sales method: this is a relatively simple method of calculating

the promotion budget. Managers simply determine a percentage of sales or forecasted sales the
company will spend on promotion. For example, 20% of forecasted sales. The disadvantage of
this method is that it is entirely dependent on sales. At times, increased spending on promotion is
needed to boost sales, which this method ignores.

2. Affordable method: another simple method of calculating a promotion budget, often used by
small businesses. The business simply determines how much it can spend on promotion - how
much can we afford to spend? After subtracting total costs from revenues or forecasted revenues,
managers determine how much of the remainder to allocate to promotion.

3. Objective-task method: a more complex but effective method of determining the

communications budget. To use this method, marketers have to define the objective of the
promotion and figure out how the company should allocate resources to achieve set goals. The
process is as follows: determine the promotional objectives, decide which tasks must be
conducted to achieve the objectives, and estimate the costs of performing said tasks. This method
helps management understand the relationship between advertising spending and performance.

4. Competitive parity method: other companies decide to spend the same amount on promotion
as their competitors. This method involves setting the promotion budget to match industry
averages. However, it fails to consider the qualitative aspects of promotion - each company has
different advertising needs - and thus, only the company itself knows how much it should spend
on promotion.
It is essential to keep in mind that the promotion mix budget is different
from product pricing methods.

Types of Promotion Mix

We have outlined the different promotion mix elements but let's look at them in more detail. The
types of promotion mix elements are as follows:

1. Advertising: one of the most popular forms of marketing communications. Brands can use a
variety of traditional and digital advertisements to create awareness and engagement.
Advertising may also benefit from mass-market exposure and is a relatively low cost per
exposure technique. Marketers can also use advertising to capture the target audience's attention
creatively and use a variety of advertising appeal.

2. Sales promotions: an effective tool for encouraging purchases and increasing sales in the
short term. Marketers can use a variety of discounts, offers, coupons, contests, etc., to attract
consumer attention. Although sales promotions are effective in the short term, they are
ineffective for building long-term customer relationships.

3. Public relations (PR): can reach segments that do not respond to advertisements. Public
relations include press releases, features, events, press conferences, addressing any controversies
about the brand, etc. This is known as media relationship management. Rather than directly
addressing consumers through ads or sales promotions, this form of communication creates a
more subtle 'buzz' around a product or brand.

4. Personal selling: is especially important in the B2B context. Personal selling often involves
numerous parties communicating with one another and plays a significant role in the buying
process. It is an effective communication method as it can quickly address the buyer's wants and
needs - the sales team can quickly respond to problems and questions - thus influencing the
buying process. Personal selling is also effective at building long-term relationships with
customers.
5. Direct marketing: involves communicating with customers directly, in other words, without
using any intermediaries. Direct marketing includes e-mail, catalogues, mail, SMS,
telemarketing, etc. Direct marketing is effective at reaching a specific target group or
demographic. Marketers have a lot of freedom in customising messages to suit the target
segment's needs, and direct marketing may also encourage two-way communication. However,
customers may feel uncomfortable when bombarded with frequent direct communications.

6. Branding: may also be considered a promotional tool. It includes the different packaging,
logos, designs, catchphrases, etc., marketers use to attract customer attention.
For example, Red Bull hosted a New Moon Party to increase publicity for its brand, during
which skydivers jumped out of helicopters in wingsuits above the city of Los Angeles. The
skydivers' suits were equipped with LED lights and pyrotechnics, making it look like something
supernatural was flying down the city.1 Now, you may wonder whether this is an appropriate
promotion for an energy drink brand. Well, Red Bull is known for its involvement in racing,
diving, motorsports, and numerous other extreme sports. As a result, promotional events like the
New Moon Party fit well into Red Bull's integrated marketing communications mix.

Promotion Mix Strategies

Another important step in promotion mix creation is developing a promotion strategy.There are
two main strategies to consider here: pull and push strategies.

A push strategy involves 'pushing' the product to the customer. Push strategies start with the
product's producer, who pushes their marketing communications through various channels to
intermediaries who eventually promote the product to the final consumer. The producer's goal is
to encourage these intermediaries to take on the product. They may use various promotional
techniques like personal selling or sales promotions to convince channel members to carry the
product and promote it to the end user.
On the other hand, a pull strategy involves directing communications efforts to the final
customer. The producer may use traditional (e.g. print or outdoor) or digital (e.g. social or
search) media to directly address end users and trigger action. Thus, creating demand for
the product. As a result, consumer demand ends up 'pulling' the product through various
channels. This process is known as a demand vacuum.
It is important to note that the two strategies are not mutually exclusive. Many companies use a
mixture of both push and pull strategies.
Importance of Promotion Mix
Let's now examine the importance of the promotion mix.

Why do marketers spend so much time and resources constructing the promotion mix? Well, the
ultimate goal is to integrate marketing communications.

After setting a promotional budget, marketers have to choose effective tools and strategies to
promote their products. Both of these must work together to deliver a cohesive message across
all channels. This is essential to maintaining a consistent brand image and position.

However, promotion must match customers' needs. Customers' wants and needs should always
be the starting point for all communications efforts. Marketers must address these needs
thoroughly in marketing messages while conveying unique selling points. To avoid confusing
customers, marketers must ensure cohesive marketing messages across channels.

Finally, an integrated marketing communications strategy will allow the company to evaluate
its marketing performance and generate actionable insights for future campaigns.

Promotion Mix - Key takeaways

 The promotion mix is a combination of promotional tools marketers use to communicate

with their target audience.

 The six key promotional tools used in the communications mix are advertising, personal
selling, sales promotions, direct marketing, public relations, and branding.

 The buyer-readiness stages are the stages a customer passes through before making a
purchase.

 Percentage of sales, affordable, objective-task, and competitive parity are some of the
methods marketers may use to set a promotion budget.

 There are two main promotion mix strategies: push and pull strategies.

 The ultimate goal of a promotion mix strategy is to integrate marketing communications.