Retail Marketing Notes
Merchandising and Category Management

We Considered Retail Benchmarks – indicators of success or failure
Sales per square foot, per employee, per display, per checkout and so forth
Productivity per employee
Problems are often indicated by the financial ratios.
We then work our way backward through the measures that contribute to the ratios.
These are measures that help us to diagnose problems at the store level

Merchandising
Now we move to merchandise planning
Sets the guiding principles for all the merchandise decisions that a retailer makes
Should reflect


Key Concepts
Merchandising: Activities involved in acquiring particular goods and/or services and making them available at the places, times, and prices and in the quantity that enable a retailer to reach its goals.
Decisions:


Variations on Merchandising


Figure 14.2 The Attributes and Functions of Buying Organizations
 

Buying View
Buyers manage buying functions
Buying
Advertising
Pricing
In-store personnel manage other functions
Assortments
Point-of-sale displays
Employee utilization
Personal selling approaches

Figure 14.4 Merchandising Versus Store Management Career Tracks

Forecasts
Forecasts are projections of expected retail sales for given periods
Components:

Retail Consistency
Consider how consumers look at a retailers' products or services
Determine whether the merchandising, presentation,  and assortment exhibit something I like to call "retail consistency."
That is, does the way that the business is run, match what the customers really are looking for?

Types of products
Convenience goods, impulse items, staple goods, unsought goods
Shopping goods:  homogenous and heterogeneous
Specialty goods
Seasonal merchandise
Fad merchandise
Consumers have sets of expectations for each type of goods -  can you suggest some?
What do people expect for staple goods?

Category Management and Benchmarks Tell the Story
Categories of products – we’ll consider a Case on condiment use
Relate category emphasis to financial benchmarks
For instance, if your shoppers focus on price comparisons, then your firms benchmarks should be consistent with merchandising homogeneous shopping goods.
Customers are likely to be indifferent to branding, and instead are more likely to be knowledgeable on pricing.
“categories should be arranged as they would be if consumers could stock the shelf themselves.”
Retailers receive support from manufacturers
Suppose consumers think of one product in multiple categories?

Departmental and product line performance is considered in the same way
If customers consider certain goods to be staples, they may be included on the retailer's "never outs" list.
Being without those goods is likely to turn customers away.
Example of the cold beer versus the deli dept.
In the specific elderly neighborhood, deli should be never out, even though other chain markets were selling more beer as their "never out“
Model Stock plan:  projects specific items, by type, color, size based on past purchasing patterns

Merchandise Categories as Seen by the Consumer
This whole analysis then relates to the issues of merchandise depth and width.
How much choice does the consumer really want and how do they make it?
How much choice is needed in types of catsup and mustard – in store? On the web?
What type of decision tree is the consumer using?
Unwanted Merchandise - when to divest

Using the Product Life Cycle in Retailing
The retailer has to understand the Product Life Cycle of products in determining the correct handling of the merchandise.
The stage of the product can determine the correct retail strategy to use
Can you develop a model stock plan? How much in each set will bring you optimal sales?
How many categories, depth, width
Types of shopping: convenience, impulse, etc.
PLC phase: new, growth, mature, decline

Figure 14.9 Retail Assortment Strategies

Examples
When products are in the growth phase, they are often marketed through consumer trials, given that many shoppers may be seeking information.
Profitablities of products in the intro and growth phases often have to be offset by profitabilities of products which are mature, and can be predicted.
If a retailer has too many  products in the intro stage, for example, they are likely to experience low profitability, if any at all, in their early stages.
When products are in the mature phase, there are many competitors. Assortments can be adjusted
When products are in the decline stage, a critical analysis must be made whether to eliminate or support it.

Structured Guidelines for Pruning Products
Select items for possible elimination on the basis of declining sales, prices, and profits, appearance of substitutes
Gather and analyze detailed financial and other data about these items
Consider nondeletion strategies such as cutting costs, revising promotion efforts, adjusting prices, and cooperating with other retailers
After making a deletion decision, do not overlook timing, parts and servicing, inventory, and holdover demand

Fad and Fashion  Cycles
Products also cycle in and out of favor with consumers There are several types - boom, bust, etc.
Consider forecasting the “hot toys” for the upcoming holiday season – toy shows and fairs
Consider Pokemon - would you expect it to be selling 20 years from now? Yi-gi-oh?
There are also several ways that products diffuse throughout a group
Suppose you owned a toy store - how would you stock your merchandise?
Suppose there was a major dock strike that was going to delay your toy shipments?

Figure 14.8 A Selected Checklist for Predicting Fashion Adoption

Planning Merchandise Quality
Match merchandise quality to the wishes of the desired target market(s)
Relate merchandise quality directly to the perception that customers have of retailer
Recognize that high quality goods generally bring greater profit per unit than lesser-quality goods; turnover may cause total profits to be greater for the latter
Understand that, for many, manufacturer brands connote higher quality than private brands

Branding Decisions
Manufacturer (national) brands vs. store brands?
What is the interaction of your store image with the brand?
Will the brand help your store? Will it detract?
Will your store image help the brand? Will it detract?
In Oct. 2002, Levis announced that it would sell its branded jeans in discount stores like Wal-Mart
In Oct. 2002, Amazon.com announced that it would offer merchandise/brands from the Gap, Lands’ End, and others

Once these decisions are made, category mgt can be used to track sales and develop strategies
Category management focuses on the performance of product categories rather than on individual brands. The products are treated like strategic business units.
Category captains – key advisors within the industry
Categories should be arranged as if consumers could stock the shelves themselves – like our soup example
Retailers and manufacturers can act like partners

Some key measures in category management
Sales per linear foot of shelf space
Inventory turns
DPP: Direct product profitability – what is the avg contribution per item?
Unit sales:  how many units of each type are selling per week?
Analyze whether actions you take in-store can affect  these measures
Use plannograms to map out desired shelf arrangement based on prior profits and performance
Identify if any related product purchases occur

A Useful Classification
High potential items (sleepers), can generate high profits, but have low sales:more promotion, better displays, …
Winners:  high profits, high sales; more promotions, better displays, …
Underachievers:  low profits, low sales: raise prices, less promos, …
Traffic builders:  low profits, high sales – consumers are attracted to your store; change prices, expand, display creatively, …