Merchandise Planning
Importance of Merchandize planning :
Key activity in Retail management
Has immense cost and profit implications
It influences the business strategy of any retailer
Activities involved
Decision to offer private level or national brand or both
Kind of product to be sold
Selection of the right quantity of the product and to ensure its
availability at the right place and time
To understand influencing shopping factors and consumer
behaviour
To keep into consideration along with the cost factors while
planning the merchandize
Product Management
Product are goods, services, events, ideas or any tangible and non-
tangible thing that is sold and purchased in retail transaction
Retailers: Grocery shop, paan shop, general merchant, showrooms,
beauty parlour, gymnasiums, banks, cinema halls, child care facility,
food home delivery services, etc.
Product management involves decisions related to the selection and
removal of products from the retailers portfolio along with the related
product and market analysis
It is critical for the consumer satisfaction and success of any retailer
It is also part of the segmentation and positioning strategy of any
firm
Merchandise Planning
Product Selection Process
It involves the following:
To consider type of product to be retailed, life cycle of the product,
trends in the product category and retailers vision
Review of the performance of the existing product range
• Performance review is done on the basis of information from source
such as sales report, product profitability reports, quality reports,
return figures, promotional campaign results, consumer research, etc.
• Product review assists in taking decisions regarding deletion of
product range, increase in variety and range, identification of new
suppliers, addition to product features,
Merchandise Planning
Merchandise Management
It is the process by which a retailer attempts to offer the right quantity
of the right product at the right place and time while meeting the retail
firm’s financial goals
Components of Merchandise Management
Planning: Establishing objectives & devising plans for procurement
Analysis: To study various available alternatives and take decision
Control: Designing the policies and procedures
Acquisition: To take decision on the procurement
Handling: To arrange for the storage
Merchandise Mix management covers Variety, Assortment and
Support
Merchandise Planning
Merchandise Budget
It is a financial plan on the allocation of investments in inventories
Components of Budget plan
• Projected sales
• Inventory plan
• Estimated reductions
• Estimated purchases
Merchandise Planning
Criteria of merchandise classification
Unit Value
Purpose of purchase by the customer
Time and efforts spent by the consumer in purchasing
Rate of technological change
Technical Complexity
Consumer need for service
Frequency of purchase
Rapidity of consumption
Merchandise Planning
Merchandise assortment planning
Organize the buying process by categories
Set merchandise financial objectives
Develop an assortment plan
Organizing the buying process
The Category:
It is an assortment of items that the customer perceive as a
reasonable substitutes for each other
Girls, boys or infant apparels are some of the categories with similar
characteristics such as vendors, pricing & promotion targets same
audience, timing of promotion and positioning is also similar
Categories may assigned by the retailers on the basis of usage or
brands
Merchandise Planning
Category Management
It is the process of managing a retail business with the objective of
maximizing the sales and profits of a category
A category manager overseas every aspect of merchandising
function and is responsible for the success of the whole category
He coordinates various functions such as advertising, purchasing,
distribution, etc.
He decides the size and quantity of the products and various
assortment to be kept for display on the shelf
Merchandise Planning
Buying Organizing
Merchandise Group
Departments
Classifications
Categories
Stock keeping units (SKUs)
Setting Objective for the merchandise plan
Defining the target market
Establishing the performance goals
Deciding the emphasis to be placed on each merchandise
Merchandise Planning
Sales Forecasting
Sources of forecasting:
Previous Sales Volumes
Published Sources
Customer Information
Focus Group
Competitors
Vendors and local buying office
Merchandise Planning
Assortment Planning Process
Variety
Assortment
Product Availability
Profitability of merchandising mix
Corporate strategy
Physical Characteristics of the store
Merchandise Planning
Buying and Handling
Buying Systems
A staple merchandise system
Used for merchandise that follows a predictable order receipt order
cycle.
Used for buying most of the merchandise found in food and discount
stores
A merchandise budget for fashion merchandise
It specifies the inventory investment in a category over time
It specifies money required to be spent each month to support sales
and achieve turnover
Buying and Handling
Allocating merchandise to Stores
After buyer has purchased the fashion or staple merchandise, it is
allocated to the stores by the merchandise planners
Historical sales information but they pay close attention to the current
supply and demand situations to determine the proper inventory
allocation
Chain stores classify their stores as A,B,C category stores based on
their potential sales volume.
Smaller stores require higher than average stock to sales ratio
Buying and Handling
Analyzing Merchandise Performance
Procedures for analyzing merchandise performance;
ABC Analysis : Method of rank order merchandize to make
inventory stocking decisions
Comparison of actual and planned sales to determine whether early
markdown are required or whether more merchandise is needed to
satisfy the demand
Method of evaluating vendors using the multiattribute model. It
uses a weighted average score for each vendor
Buying and Handling
Branding Strategies
Manufacturer Brands or national brands are products designed,
produced and marketed by a vendor
Private Label Brands also called as Store brands are products
developed by a retailer and available for sale only from that retailer.
Various options are;
Bargain branding, Premium branding, Copycat branding, parallel
branding
Licensed Brands is a special type of manufacturer brand in which the
owner of a well known brand name enters contract with the licensee to
develop, produce and sell the branded merchandize
Buying and Handling
International Sourcing Decisions
Various issues related to global sourcing are;
Country of origin effect
Foreign currency fluctuations
Tariffs
Free Trade zones
Quality control
Building Strategic partnership
Geographical location of the sourcing country
Buying and Handling
Various markets for sourcing the merchandise
Internet
Wholesale market centres
Trade Shows
Resident buying offices
Factors to be considered while negotiating with the vendors
Consider past transaction
Set goals
Additional markup opportunities
Terms of purchase, transportation, delivery and exclusivity
Communication, advertising allowance, showcase
Continuous relationship, testing new items, etc.
Merchandise Pricing
Retailers must plan goods and services in a way that achieves
profitability for the firm and satisfies customers, while adapting to
various constraints
Pricing strategy must be consistent with the retailers overall image,
sales, profits and return on investments plans
Pricing options for the Retailers:
Discount orientation with low prices, low status image, few
shopping frills, low operating costs and high inventory turnover
Average pricing offering decent services and atmosphere to the
middle class. Margins are moderate
Upscale orientation, prestigious image, high operating costs, high
per unit margins, low inventory turnover, smaller market
Merchandise Pricing
External factors affecting the Retail Pricing Strategy
Consumers
Government
Manufacturers
Wholesalers
Competitors
Merchandise Pricing
Price Elasticity of Demand
It relates to the sensitivity of customers to price changes in terms of
the quantities they will buy
qty 1 – qty 2 / qty 1 + qty 2
Elasticity = ---------------------------------------
Price 1 – Price 2 / Price 1 + Price2
Price sensitivity varies with the segment based on shopping
orientation
Economic Consumers
Status oriented consumers
Assortment oriented consumers
Personalizing consumers
Convenience oriented consumers
Merchandise Pricing
Horizontal Price fixing
It involves agreement between manufacturers, wholesalers,
retailers, to set certain prices
Vertical Price Fixing
When manufacturer or wholesaler seek to control the retail prices of
their goods and services
Price Discrimination : Manufacturers charge different prices from the
retailers. It is allowed in following cases;
If product are physically different
Retailers paying different prices are not competitors
Competition is not injured
Market condition change
Price difference is due to difference in supply costs
Merchandise Pricing
Broad Price Policy
A retailer generates a coordinated series of actions, a consistent image
and a plan. A broad price policy translates price decisions into an
integrated framework
Price Strategy : Various types of Strategies are:
Demand oriented
Cost oriented
Competition oriented
Customary and variable pricing
One price policy and flexible pricing
Odd pricing, leader pricing, multiple unit pricing, bundled pricing
