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