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
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