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Retail Marketing Mix
Merchandize Management
Merchandise management can be termed as the analysis, planning, acquisition, handling and control
of the merchandise investments of a retail operation.
The process of merchandise management includes the developing of strategies to ensure that the
right product is bought at the right price and available at the right place, at the right time, in the
right amount, in order to satisfy the needs of the target customer. No one in retail can completely
avoid any contact with merchandising activities.
Merchandising is the day-to-day business of all retailers. As inventory is sold, new stock needs to be
purchased, displayed and sold. Hence, merchandising is often said to be at the core of retail
management. Merchandising traces its growth to the rise of organized retail in the world.
Initially, as the retailers operated only one or two stores, the function of buying the merchandise,
pricing it, etc., were much simpler. In many cases, the retailer did it himself. However, as retailers
started adding stores and categories, the workload on the buyers increased significantly.
Factors Affecting Selection of Goods
Merchandising does not function in isolation. It is affected by various factors, like the organization
structure, the size of the retail organization and the merchandise to be carried.
As in every retailing endeavor, the most fundamental activities are buying merchandise and reselling it to its customers. The owner or the manager, who may be assisted by the sales person, may
perform the buying function in the case of a single store. As the single store grows in terms of
business, it may add departments. Functional departmentalization may occur and the number of
persons involved in the buying process may increase.
In the case of a chain store, the buying function may be centralized or decentralized geographically,
depending on the retail organization. Thus, the nature of the organizations is an important factor
affecting the function of merchandising.
The merchandise to be carried by a retailer largely determines responsibilities of the merchandiser.
The buying for basic merchandise is fairly different from the buying of fashion merchandise. Basic
are those products or items, which their retailer will always keep in stock. This primarily because
these products are always in demand and the sales variance is minimal from year to year. Example of
basics would be times like white shirts in clothing or items or items like pulses, oil, etc. Fashion
products on the other hand, are products, which may sell very well in one season or year and may
not have any demand in the next season.
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A merchandiser, who is handling fashion products, will need to spend more time in the market,
looking for products, which will suit the needs of the store’s consumers. He will also need to be
aware of the fashion forecasts and the trends in the international markets.
The organization structure that the retail organization adopts also affects the merchandising
function. Some organizations may demarcate the role of the buyer and the role of a merchandiser as
separate functions, which in a smaller organization, one person may carry out the all the duties.
Elements of Pricing in Retail
Pricing
In order to arrive at the retail price, one needs to first consider the elements that go into the
calculation of the price. The first element to be considered is the Cost of Goods, which is the cost of
the merchandise and various other expenses that are involved in the movement of the goods from
the manufacturer to the actual store. These expenses may be fixed or Variable.
Fixed Expenses are those, which do not vary with the quantity of the sale or business done. Sop
rents and head office costs fall into this category. The level of sales directly affects the variable
expenses. Merchandise margins and the product mix, however, are variable, and their management
can either enhance or destroy.
Pricing Strategies
The pricing strategies that can be followed include:
1. Market skimming: The strategy here is to charge high prices initially and then to reduce
them gradually, if at all. A skimming price policy is a form of price discrimination over time
and for it to be effective, several conditions must be met.
2. Market Penetration: This strategy is the opposite of market skimming and aims at capturing
a large market share by charging low prices. The low prices charged stimulate purchases
sand can discourage competitors from entering the market, as the profit margins per time
are low. To be effective, it needs economies of scale, either in manufacturing, retail or both.
It also depends upon potential customers being price sensitive about particular item and
perhaps, not perceiving much difference between brands.
3. Leader pricing: Here, the retailer bundles a few products together and offers them at a deep
discount so as to increase traffic and sales on complementary items. The key to successful
leader pricing strategy is that the product must appeal to a Large number of people and
should appear as a bargain. Items best suited for this type of pricing are those frequently
purchased by shoppers, e.g., bread, eggs, milk, etc.
4. Price Bundling: Here, the retailer bundles a few products together and offers them at a
particular price. For example, a company may sell a PC at a fixed price and the package may
include a printer and a web camera. Another example is that of the Value Meal offered by
McDonald’s.
5. Price bundling may increase the sales of related items.
6. Multi-unit Pricing In multi-unit pricing, the retails offers discounts to customers who buy in
large quantities or who buy a product bundle. This involves value pricing for more than one
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of the same item. For example, a retailer may offer one T-shirt for Rs 255.99 and two Tshirts for Rs 355.99. Multi-unit pricing usually helps move products that are slow moving.
7. Discount pricing: It is used as a strategy by outlet stores who offer merchandise at the
lowest market prices.
8. Every Day Low Pricing: Every Day Low Pricing or EDLP as it is popularly known, is a strategy
adopted by retailers who continually price their products lower than the other retailers in
the area. Two famous examples of EDLP are Wal- Mart and Toys “R” Us, who regularly follow
this strategy.
9. Odd Pricing Retail: prices are set in such a manner that the prices end in odd numbers, such
as Rs 99.99 or Rs 199, Rs 299,etc.
Markdown Pricing
Markdowns are reductions in the original retail price. Markdowns are discussed in detail later in this
chapter, in the section on adjustments to retail prices. Discounts offered to customers and
employees who buy the products, also reduce the mark up percentage. Shrinkage includes loss of
merchandise due to thefts, or damaged / soiled goods. All these costs reduce the profit margin and
hence must be accounted for.
Mark up Pricing
Make Up Per cent (Based on Retail Price) = Mark Up in Rupees / Retail
Price and, Mark Up Per cent (Based on Cost) = Mark up in Rupees / Cost.
Let us under strand this concept with the help of the following illustration.
Assume that the cost of the merchandise of an item I s Rs 200 and the mark up is Rs 150. The mark
up percentage based one the retail price would work out to 37.5%.
The retail price has been calculated as 200+150 = 350.
Mark Up percentage on retail = 150 / 350 = 42.86%
Based on the cost price, the mark up percentage can be calculated as under:
Mark Up percentage on cost = 150 / 200 = 75 %.
The mark up thus fixed is termed as the Initial Make Up. Rarely are all products sold completely at
the fixed price.
Value Pricing
Value pricing is a customer-based pricing procedure which is an outgrowth of the multi-attribute
product concept. From the customer’s viewpoint, a product is the total package of benefits that is
received when using the product. Therefore, the customer- oriented company should set its price
according to customers’ perceptions of product benefits and costs. To determine the price, the
marketer needs to understand the customers’ perceptions of benefits as well as their perceptions of
the costs other than price. Customers balance the benefits of a purchase against its costs. When the
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product under consideration has the best relationship of benefit to cost, the customer is inclined to
buy the product
Supply Channel
Principles of SCM
In 1997, Supply Chain Management Review published one article called “The Seven Principles of
Supply Chain Management” written by David Anderson, Frank Britt and Donavon Favre.
At that time, Supply Chain Management (SCM) was a pretty new term so this article did the
excellent job to explain important supply chain management principles in one shot.
More than 10 years pass and this article is considered the “classic” article and got republished in
2010, and again in 2013.
As of now, it got more than 160 citations from both scholarly articles and trade publications.
To help managers decide how to proceed, we revisited the supply chain initiatives undertaken by the
most successful manufacturers and distilled from their experience seven fundamental principles of
supply chain management.
1. Principle 1: Segment customers based on the ser-vice needs of distinct groups and adapt the
supply chain to serve these segments profitably.
2. Principle 2: Customize the logistics network to the service requirements and profitability of
customer segments.
3. Principle 3: Listen to market signals and align demand planning accordingly across the supply
chain, ensuring consistent forecasts and optimal resource allocation
4. Principle 4: Differentiate product closer to the customer and speed conversion across the
supply chain
5. Principle 5: Manage sources of supply strategically to reduce the total cost of owning
materials and services
6. Principle 6: Develop a supply chain-wide technology strategy that supports multiple levels of
decision making and gives a clear view of the flow of products, services, and information
7. Principle 7: Adopt channel-spanning performance measures to gauge collective success in
reaching the end-user effectively and efficiently
Computerized Replenishment System
Automatic Store Replenishment is a powerful strategic weapon for retailers. New features are: Nice
Shelf Stock to improve commercially attractive shelves, Counting by Exception to improve data
integrity and store productivity and Store Order Leveling™ to improve logistics productivity.
Automatic Store Replenishment is: “the preparation of orders by a computer integrating information
about product movement (as recorded by point of sale equipment), outside factors that affect
demand (such as seasonal changes), actual inventory levels, product receipts, and acceptable safety
stock levels. Inventory data integrity is maintained by cycle-counting.
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Promotion
Promotion Communication System
One of the most important purposes of promotion is to inform and influence the buyer behaviour. It
achieves this purpose through promotional communication. The marketer informs the potential
customer audience about the product, its distinguishing features, functions, price, dealer location,
etc. The marketer also uses his communication to convince the potential customers about the
product so as to induce them to purchase it.
The communication source sends promotional messages to customer audience. These messages
may be about the functional utility of the product, quality, price, status value, etc. For example,
Lipton Tea Co. focuses on the theme “Tea is warm in winter and cool in summer”. It thus aims at
convincing its customers that tea, though a hot drink is good not only in winter but also in summer.
The Life Insurance Corporation is now attempting to promote insurance by emphasizing that
investment in an insurance policy is as lucrative as a recurring deposit account in a bank as it does
not attract income tax on the insured amount when received, and insurance premium are also tax
exempted.
The marketer has a number of communication channels available to him. Important among them are
advertisements in newspapers and magazines, direct mail, hoardings, radio, television, movie strips,
face-to face contacts by salesmen, publicity, and sales promotion displays, discounts premiums,
gifts, coupons, etc. Word-of-mouth communication among consumers is also an effective
promotional tool although it is riot controllable by the marketer. Other elements of marketing such
as the product, packaging, brand name and pricing also inform, influence and induce the buyers. The
marketer generally uses a number of these communication modes in combination so as to reinforce
each other.
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Factors Affecting Promotion
The factors that guide a marketer’s decision in selecting a promotion mix are:
(a) Nature of the product: Promotion mix significantly depends on the nature of the product.
For example, industrial goods need a different kind of promotion than consumer goods.
Industrial goods, particularly plant, machinery and other expensive installations need a
heavy emphasis on personal selling. Advertising and direct mail may perform the
informational role. The buyer wants to know detailed specifications and uses of the product
as well as demonstration of the product which requires a salesman to do it. Sales of these
speciality items also require a considerable amount of after-sales services
(b) Nature of the Market: Market characteristics exercise an important influence in the design
of promotion mix. A firm operating in a small local market generally prefers to concentrate
heavily on personal selling. On the other hand a firm dealing in goods having regional or
national market has to depend more on advertising.
(c) Overall marketing strategy: i.e. whether the firm wishes to “push” the product or create a
“pull” for the product. The “push” refers to selling the product aggressively to the marketing
network. In this strategy the emphasis is on personal selling and trade promotion. But in
“the “pull” strategy the firm creates consumer demand for its product or brand such that the
customer demands the brand at the retail outlet. Advertising and consumer promotion go a
long way in creating the desired pull for the brand.
(d) Buyer readiness stage: The choice of different elements of promotion mix is also dependant
on the buyer’s readiness and awareness of the brand. Depending on where the buyer is in
the hierarchy of response models, promotion mix can be assembled. Like advertising will
play a major role in creating awareness, demonstration and samples will help bring about a
change at the affective and behavioural levels while personal selling.
(e) Product life cycle stage: will also play a role in deciding on the promotion mix. For example,
in the introduction stage, advertising and publicity have a significant role and prove to be
cost effective in creating awareness, desire and finally the trial. Even samples· play a key
promotional role in industrial products. But in the maturity stage, sales promotion and
personal selling help make the product steer through the competition maze. Thus it is
important to know where the product is in its life cycle.
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Human Resource Management in Retailing
HRM Process In Retailing
1. Recruiting retail personnel: Recruiting retail personnel Recruitment is the activity where by a
retailer generates a list of job applicants. Many retailers have a career or job section at their
websites through which the applicants can apply for the prescribed job. For entry-level sales
jobs, retailers rely on educational institutions, ads, walk-in-interviews, employee
recommendations etc. For middle management positions, retailers rely on employment
agencies, ads, and current employee referrals etc.
2. Selecting retail personnel: Selecting retail personnel Here the retailer selects new employees
by matching the traits of potential employees with specific job requirements. J ob analysis
and description, the application blank, references are some tools used by the retailer in this
process; they should be integrated.
3. Training retail personnel: Training retail personnel Every new employees should receive pretraining about firms history and policies, as well as job orientation on hours, compensation,
the chain of command, and job duties etc. Training program teach new(and
existing)employees how best to perform their jobs or how to improve themselves
4. Compensating retail personnel: Compensating retail personnel Compensation should be fair
to both the retailer and its employees. It will help to motivate employees and improve their
efficiency. Compensation may be direct monetary payments (salaries, commissions and
bonuses) and indirect payments (paid vacations, health and life insurance and retirement
plans)
5. Supervising retail personnel: Supervising retail personnel Supervision is the manner of
providing a job environment that encourages employee accomplishment. The goals are to
attain good performance, maintain morale, motivate people, control cost communicate, and
resolve problems Supervision is provided by personal contact, meetings, and reports.
Performance Appraisal in Retail
1. Critical incident method: The critical incidents for performance appraisal are a method in
which the manager writes down positive and negative performance behavior of employees
throughout the performance period.
2. Weighted checklist: This method describe a performance appraisal method where rater
familiar with the jobs being evaluated prepared a large list of descriptive statements about
effective and ineffective behavior on jobs
3. Paired comparison analysis: Paired comparison analysis is a good way of weighing up the
relative importance of options. A range of plausible options is listed. Each option is
compared against each of the other options. The results are tallied and the option with the
highest score is the preferred option.
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4. Graphic rating scales: The Rating Scale is a form on which the manager simply checks off the
employee’s level of performance. This is the oldest and most widely method used for
performance appraisal.
5. Essay Evaluation: This method asked managers / supervisors to describe strengths and
weaknesses of an employee’s behavior. Essay evaluation is a non-quantitative technique.
This method usually use with the graphic rating scale method.
6. Behaviourally anchored rating scales: This method used to describe a performance rating
that focused on specific behaviours or sets as indicators of effective or ineffective
performance. It is a combination of the rating scale and critical incident techniques of
employee performance evaluation.
7. Performance ranking method: Ranking is a performance appraisal method that is used to
evaluate employee performance from best to worst. Manager will compare an employee to
another employee, rather than comparing each one to a standard measurement.
8. Management By Objectives (MBO): MBO is a process in which managers / employees set
objectives for the employee, periodically evaluate the performance, and reward according to
the result. MBO focuses attention on what must be accomplished (goals) rather than how it
is to be accomplished (methods)
9. 360 degree performance appraisal: 360 Degree Feedback is a system or process in which
employees receive confidential, anonymous feedback from the people who work around
them.
10. Forced ranking (forced distribution): Forced ranking is a method of performance appraisal to
rank employee but in order of forced distribution. For example, the distribution requested
with 10 or 20 percent in the top category, 70 or 80 percent in the middle, and 10 percent in
the bottom.
11. Behavioural Observation Scales: Behavioural Observation Scales is frequency rating of critical
incidents that worker has performed. Most of the companies or organisations follow 360
degree performance appraisal
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