MERCHANDISING

• Process involved in marketing :• Right Product

• Right Place

• Right time

• Right Price

• MERCHANDISE

Understanding the Lifecycle

• Introduction

• Trials

• Growth

• Stagnancy

• Decline

• Death

WHO IS A MERCHANDISER?

• Understands the customer

• Product Knowledge

• High levels of integrity

• Analytical and Organising skills

• Negotiating Skills

• Understanding of the Financials

Terms to Remember

• Merchandise

• Category

• Assortment

• Variety

• Backupstock/Safety stock/Bufferstock

• Base stock or Cycle stock

• Fill rate

Terms to Remember

• Order level = Sales per day*( leadtime + Review time)+ buffer stock

• Order qty = Order level-Avl qty

• Inventory Turnover = Net Sales @ cost/Avg Inventory @ Cost

• Stock to sales ratio = Stock @BOM (SP)/Net Sales @SP

• Sales to stock ratio = Net Sales/ Avg Stock @ cost

• GMROII = Gross margin ratio * Sales to stock ratio

• Sales per Sq ft

• Mark ups

• Markdowns

Merchandise

• A group of items that customers seek to fulfill their needs.

• Can be managed brand wise or categorized and managed at category level.

• Best from a retailer point of view is to manage it at a category level

Merchandise Management

• What product to buy

• When to buy, how much to buy

• How to buy-credit terms,logistics,imports,domestic

• How to display-planogram

• How to promote-tactical schemes

Category Management

Strategy for productTactical plans for product placement/offtakeInventory managementPlanograms- Display plans

Category

• Group of items which customer see as substitutes , which cater to a similar need.

• Apparel (Merchandise level)– Women’s wear (Dept)– Women’s ethnic/western/formals/mix n match(Sub-Dept )– Blouses/skirts(Category)– Full sleeves/half sleeves(Sub category)– Cotton,Silk(Class)– Styles and collars( Sub class)– Size 32,Size 34 (SKU)

Category management

• Caters to customers needs for products not brands

• Retailer aims at maximizing customer service levels with an optimum inventory level so as to achieve maximum profit possible.

• Aims at a product assortment which achieves the above.

It involves

Strategic • Define a category and its

product assortment

• Define its role in the strategy

• Define Strategies based on growth /share matrix

Tactical• Tactics of

(Pricing,promotion,place,product)

• Managing assortment mix

• Assessment and feedback

Defining a Category-Factors

• Category fit to the format• Profitability and market share in the category and

targets• Image fit with the format• Legal issues• Internal competition• Variety and Depth• Brands to keep ;SKUs to keep (Both from

customers perspec and retailers perspec)• Define complementary categories

Scheme of Categorization

Staples

grains,

Niche

Diapers, Pet food,

Variety

Biscuits, Beverages

Fill ins

Batteries, apparel, plastic items

Freq of purchase

High

Low

Market PenetrationHigh Low

Filling in a category

• COMPETITION

• MANUFACTURING COMPANIES

• CUSTOMER DATA INFERENCES

• CUSTOMER FEEDBACK

• USE OF THE PRODUCT

• LAWS OF THE COUNTRY

DATABASE DEVELOPMENT

• SKU – DEFINITION

• BARCODING

• FORM /SIZE

• PACK WEIGHT

• USES

• VENDOR

Assigning a role to a category

• Compare categories from the customers,retailers and competition’s perspective

• Helps in targeting the category to specific customers

• Efficient management of resources

• Better at tackling competition

Strategy:Role of a Category

Destination:

5-7% of categories

Unmatched value ,USP of retailer,

Objective:

Increase cust satisfaction,

achieve and retain market share manufacturer aided promotion

Preferred:

Categories used to entice customers from competition

55-60% of categories in this role

Build volume, generate cash, Ret on assets

Lot of promotion, displays, feature ads

Convenience

Provide convenience, enhance retail stores image

15-20%

High profit margins

Occasional/Seasonal

Meet customer needs

Enhance stores value offering and image

Profit margins and volume building

Developing category strategies

Growth Share based Strategies

Sleepers

Strategy:Try to convert them to winners by inc usage

Review prodt mix

Review space allocated and margins

Link them to the winning cat if possible

WINNERS

Strategy:Maintain and Defend

Increase to full range

Add new items not stocked

Review pricing and gross margin

Increase promotional spend

Questionmarks

Phase them out

Morning Stars

Strategy:create excitement, earn mre margins

Is the category dieing or is it only your store

Create excitement, or skim the market

High

Growth

Low

Low Market Share High

Role based decisions

• Each of the strategies reflect in decision making in areas of – Procurement

– Placement

– Pricing

– Promotion

– Inventory management

– Performance measurement

– Purchase behavior of customers

Category Tactics

Tactics and Cat. RolesRole Assortment Pricing Shelf

PresentationPromotion

Destination Complete variety

All sub cats, skus,all brands, all segments

Leadership pricing best value

Prime area, high exposure to high traffic

High level of activity

Multiple vehicles

Preferred Broad variety

Major brands, major SKUs, major sub cat

Competitor consistent, equal to comp

Average location, but high cube allocation

Average freq of activity, selected media vehicles

Seasonal Time variety

Ltd sub categories

Competitive seasonally

Good store location, high traffic , but average cube allocation

Seasonal, multiple vehicles

Conveinience Selected varieties Acceptable within 15% (+or-) of competition

Low cube allocation

Low level of activity

Tactical

• On Pricing

• On Promotions

• On Shelf Presentation

• Managing category Mix

• Assessment and Feedback

Pricing

• Influenced by – Customer perception of price elasticity– Govt – min procurement price, price cabals– Suppliers– Competition

Basic Strategies

• Demand Oriented – Price –value proposition

– Prestige pricing Eg:Swarovski,Benz,Hidesign

• Cost oriented– Mark up pricing

– Direct Product Profitability

– Per unit costs are added, then desired margin to get sales

• Competition Based pricing

DPPRetail Selling Price Rs.20Product Cost Rs.10Disc allowances Re.1Adj Gross Margin Rs.9

Warehouse cost Re.1Transport cost Re.1Re packing cost Re.1Direct selling cost Re.1Other direct operating cost Re.1DOC Rs.5

DPP Rs.4.00Useful for assessing competitiveness

Implementing strategies

• Flexible pricing– EDLP– Seasonal pricing– Auction/Bid Price

• Fixed pricing– Customary pricing– Odd pricing– One price policy (Dollar store)

Implementing Strategies…

• Multiple pricing– Volume based pricing– Bundled Pricing/offer– Unbundled pricing in case of complementary

price –tv/set top box; bed spread ,pillow case

• Price lining– Range of prices to diff qlty– Rs.250 tshirt, Rs.450 tshirt, Rs.600 tshirts

Based on

• Basis of pricing – Demand– Supply – Cost– Competition

• Policy is also based on intention to – Build volume, Build image or Balance price

and value

Promotion

• Feature Advt (Product based)

• Displays ,Kiosks,Sampling (Usage based)

• Discounting,Coupons,Freebies(Price/value based)

Promoting a product can lead to

• Brand Switching (Pantene to Dove hair care)

• Purchase time acceleration(Pre budget durables offer)

• Stockpiling ( typical in cat like toiletries)– Dangerous as post promos sale falls.– So time your promotions well enough– Manage inventory pre and post promos

Planograms

Visual or graphical representation of space allocated for selling ,merchandise, personnel,display,customer as well as product categories.

Planograms

• Gondolas

• Aisle space

• Classification of store offerings

• Where to place the destination categories

• Special handling products – flowers, bakery,freeze

• Traffic flow .. Customer walk through

Planograms…

• Straight grid pattern

• Curving or Free flow pattern

• Designing customer service areas – Cash tills– Packing and Bagging– Allocation of space for rest and comfort– Allocation of space for communication

Product display

• Which categories to place next to each other

• Which SKUs to take prominence

• What height to stock products at

• Ease of access

• Allocation of sales staff

Shelf Presentation

• Size and position of shelf (Top or midlevel (Visibility or bottom shelf for value offered)

• Placement –context of the product– Mixed display structure – Precedence given to one brand gives it a quality

image edge– Unfamilar context

Some guidelines

Transaction building Direct attention to higher priced SKUS

Traffic building Attarctive shelves to attract more customers and also to make them repeat purchase

Turf protecting Attract attention to higher margin skus, private labels,impulse items in destination category

Cash generating Highlight new high profile SKUs /Segments /high margin items