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8/3/2019 11 & 12 CRM & Planning Merchandise Assortments
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Prof. Vikram Parekh on Retail Management
Chapter 11
CRM
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Prof. Vikram Parekh on Retail Management
CRM
Customer relationship management (CRM) is a businessphilosophy and a set of strategies, programs, and systems that
focuses on identifying andbuilding loyaltywith a retailer's
most value customers.
CRM is based on the philosophy that retailers can increaseprofitabilityby building relationships with their better
customers.
Effectively managing merchandise inventoryand the stores
provides value and supports the primary objective of buildingcustomer loyalty. The goal is to develop a base of loyal
customers who patronize the retailer frequently.
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Content: CRM
The CRM Process Collecting Customer Data
Analyzing customer data & identifying target
customers Developing CRM programs
Implementing CRM programs
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Content: CRM
The CRM Process Collecting Customer Data
Analyzing customer data & identifying target
customers Developing CRM programs
Implementing CRM programs
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The CRM Process
Retailers are now beginning to concentrate on providing morevalue to their customers using targeted promotions and
services to increase theirshare of the walletthe percentage
of the customers' purchases made from the retailers with
these customers. This change in perspective is supported by research indicating
that it nowcosts over six times more to sell products and
services to new customers than existing customers and that
smallincreases in customerretention can lead to dramaticincreases inprofits
What is loyalty?
Overview of CRM Process
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The CRM Process
What is loyalty?
Customer loyalty, the objective of CRM, is more than having customers
make repeat visits to a retailer and being satisfied with their experiences
and merchandise they purchased. Customer loyaltyto a retailer means
that customers are committedto purchasing merchandise and services
from the retailer and willresistthe activities of competitors attempting to
attract their patronage.
Loyal customers have an emotional connection with the retailer. Their
reasons for continuing to patronize a retailer go beyond the convenience of
the retailer's store or the low prices and specific brands offered by the
retailer. They feel such goodwill toward the retailer that they will
encourage their friends and family to buy from it(WOM Publicity).
Emotional connections develop when customer receivepersonal attention.
Unusualpositive experiences also build emotional connections.
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The CRM Process
Overview of CRM Process
CRM is an interactive process that turns customer data into
customer loyalty throughfour activities:
(1) Collecting customer data
(2) Analyzing the customer data andidentifying target
customers
(3) Developing CRM programs
(4) Implementing CRM programs.
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The CRM Process
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Content: CRM
The CRM Process Collecting Customer Data
Analyzing customer data & identifying target
customers Developing CRM programs
Implementing CRM programs
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The CRM ProcessStep 1: Collecting Customer Data
A. Customer database Transactions
Customer contacts
Customer preferences
Descriptive information
Responses to marketing activitiesB. Identifying Information
Asking for identifying information
Offering a frequent shopper card (also called loyalty program)
Linking checking account number and third party credit cards
C. Privacy and CRM Programs Privacy concerns
Protection customer privacy
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Content: CRM
The CRM Process Collecting Customer Data
Analyzing customer data & identifying
target customers Developing CRM programs
Implementing CRM programs
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The CRM ProcessStep 2: Analyzing customer data & identifying target customers
The next step in the CRM process is analyzing the customer database andconverting the data into information that will help retailers develop
programsfor building customer loyalty.
Data mining is one approach and is a technique used to identify patterns in
data, typically patterns that the analyst is unaware of prior to searching
through the data.
Market basket analysis is a specific type of data analysis that focuses on
the composition of the basket, or bundle, of products purchased by a
household during a single shopping occasion. This analysis is often used for
suggesting where toplace merchandise in a store.
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Market Basket Analysis Taught Wal-Mart to Change!
Product Placed NearBananas cornflakes, produce
Kleenex paper goods, cold medicine
Measuring spoons housewares, Crisco shortening
Flashlights hardware, Halloween costumes
Little Debbie snack cakes coffee
Bug spray hunting gear
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The CRM ProcessStep 2: Analyzing customer data & identifying target customers
A. Identifying market segments
B. Identifying best customers
LTVLife Time Value
Customer pyramid (Platinum top 25%, goldnext 25%, iron, & Leadlowest segment)
C. RFM (recency, frequency, monetary)Analysis
often used by catalog and direct marketers
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Customer Pyramid
PlatinumBestMost loyalLeast price sensitive
GoldNext bestNot as loyal
IronDoesnt deserve
much attention
LeadDemands attentionMay have
negative value
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Content: CRM
The CRM Process Collecting Customer Data
Analyzing customer data & identifying target
customers Developing CRM programs
Implementing CRM programs
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The CRM ProcessStep 3: Developing CRM Programs
The next step in the CRM process is to develop programs for thedifferent customer segments. These include:
1. Retaining best customers Frequent shopper programs
Special customer service
Personalization Community
2. Converting good customers into high-LTV customers Customer alchemy
Cross selling
Add-on selling3. Getting rid of unprofitable customers.
Offering less costly approaches for satisfying the needs of lead
customers
Charging the customers for the services they are abusing.
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Content: CRM
The CRM Process Collecting Customer Data
Analyzing customer data & identifying target
customers Developing CRM programs
Implementing CRM programs
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The CRM ProcessStep 3: Implementing CRM Programs
Increasing sales and profits from the CRM program is a challenge. Theeffective implementation of CRM programs requires the close coordination
of activities by different functions in a retailer's organization.
The MIS departmentneeds to collect, analyze, and make the relevant
information readily accessible for employees implementing the programs
thefront-line service providers andsales associates and the marketersresponsible forcommunicating with customers through impersonal
channels (mass advertising, direct mail, and e-mail).
Store operations andhuman resource managementneeds to hire, train,
and motivate the employees who will be using the information to deliver
personalized services.
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RECAP: CRM
The CRM Process What is loyalty
Overview of CRM process
Collecting Customer Data
Customer database
Identifying information
Privacy and CRM processes
Analyzing customer data & identifying target customers
Developing CRM programs
Customer retention Converting good customers into best customers
Dealing with unprofitable customers
Implementing CRM programs
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Chapter 12
Planning
Merchandise
Assortments
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Content: Planning Merchandise Assortments
Intro to Merchandise Management Organizing the planning process by categories
Setting objectives and merchandise plan
Sales forecasting
Assortment planning process
Assortment plan
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Content: Planning Merchandise Assortments
Intro to Merchandise Management Organizing the planning process by categories
Setting objectives and merchandise plan
Sales forecasting
Assortment planning process
Assortment plan
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Introduction
Merchandise managementis the process by which a retailerattempts to offer the right quantity of the right merchandise in
the right place at the right time while meeting the companys
financial goals.
Small and large retailers are required to make decisions aboutthousands of individual itemsfrom hundreds of vendors. If
the buying process is not organized in a systematic, orderly
way, chaos will result.
As in any business, a retailer's ultimate objective is to achievean adequate return on the investmentto the owners. This
chapter shows how financial objectives trickle down the
merchandising organization, and how these objectives are
used to make buying decisions.
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Introduction
Once the financial objectives are set, the retailer starts thetask of determining what to buy. Retailers are limitedby the
amount ofmoneyavailable for merchandise and the space in
the store. They must decide whether to carry a large variety
of different types of categories or carryfewer categories but a
larger assortmentwithin each category. The process of
trading off variety, assortment, and backup stock is called
assortment planning.
An assortment plan is a list of merchandise that indicates invery general terms what should be carried in a particular
merchandise category.
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Content: Planning Merchandise Assortments
Intro to Merchandise Management Organizing the planning process by categories
Setting objectives and merchandise plan
Sales forecasting
Assortment planning process
Assortment plan
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Organizing the Buying Process by Categories
The category is the basic unit of analysis for making merchandising decisions.
In general, acategoryis an assortment of items that the customer sees asreasonable substitutes for each other, such as girls' apparel, boys' apparel,and infants' apparel. Each of these categories has similar characteristics.
Category managementis the process of managing a retail business withthe objective of maximizing the sales and profits of a category.
Some retailers turn to one favored vendor to help them manage a particularcategory. Known as theCategory Captain, this supplier forms an alliancewith a retailer to help gain consumer insight, satisfy consumer needs, andimprove the performance and profit potential across the entire category.
A stock keeping unit (SKU)is the smallest unit available for keepinginventory control.
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Content: Planning Merchandise Assortments
Intro to Merchandise Management Organizing the planning process by categories
Setting objectives and merchandise plan
Sales forecasting
Assortment planning process
Assortment plan
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Setting objectives and merchandise plan
Retailers cannot hope to financially successful unless theypreplan the
financial implications of theirmerchandising activities. Financial plans
startat the top of the retail organization and are broken down into
categories, while buyers andmerchandise planners develop their own
plans & negotiate up the organization.
Top management looks at the overall merchandising strategy. Buyers and merchandise planners, on the other hand, take a more micro
approach.
Thefinancial planning process start with the firms overall financial goals
and break them down into categories.
The resulting merchandise plan is afinancial buying blueprintfor each
category.
Once the merchandise plan is set, the category managers andplanners
develop the assortment plan
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Setting objectives and merchandise plan
Putting Profits, Sales, and Turnover Together: GMROI. At the corporate level, return on assets is used to plan and evaluate
performance of overall retail operations.
Return on assets = Net profit margin X Asset turnover
Also, Return on assets = Net profit / Total assets
GMROI (gross margin return on inventory investment) is a similar concept
to return on assets, only its components are under the control of the buyer
rather than other managers.
GMROI= Gross margin percentage X Sales-to-stock ratio Also, GMROI= Gross Margin
Average Inventory
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Setting objectives and merchandise plan
Measuring Inventory Turnover
Inventory turnover= Net Sales / Average Inventory at Retail
Inventory turnover= Cost of goods sold / Average Inventory at cost
Sales-to-stock ratio = Net Sales / Average Cost Inventory
Retailers normally express inventory turnover rates on an annual basis rather thanfor parts of a year.
Average inventory= Month1 + Month2 + Month3 + . . .
--------------------------------------------
Number of months
Most retailers no longer need to use physical "counts" to determine averageinventory. Point-of-sale (POS) terminals capture daily sales and automatically
subtract them from on-hand inventory.
Retailers with POS systems can getaccurate average inventoryestimates by
averaging the inventory on hand for each day in the year.
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Setting objectives and merchandise plan
Measuring Inventory Turnover
Advantages of High Inventory Turnover
Increased sales volume
Less risk of obsolescence and markdowns
Improved salesperson morale
More money for market opportunities
Decreased operating expenses
Increased asset turnover
Dis-advantages of High Inventory Turnover
Lowered sales volume
Increased cost of goods sold
Increased operating expenses
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Content: Planning Merchandise Assortments
Intro to Merchandise Management Organizing the planning process by categories
Setting objectives and merchandise plan
Sales forecasting
Assortment planning process
Assortment plan
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Sales Forecasting
An integral component of any merchandising plan is the sales forecast. A
retailer needs to forecast sales to determine how much to buy.
Product categories typically follow apredictable sales pattern--sales start
off low, increase, plateau and then ultimately decline. Yet the shape of that
pattern varies considerably from category to category.
The category life cycle describes a merchandise category's sales patternover time, and is divided into four stages; introduction, growth, maturity,
and decline.
Knowing where a category is in its life cycle is useful for predicting sales.
However, the shape of the life cycle can be affected by the activities
undertaken by retailers and vendors.
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Sales Forecasting
An integral component of any merchandising plan is the sales forecast. A
retailer needs to forecast sales to determine how much to buy.
Category Life Cycles
Product categories typically follow apredictable sales pattern--sales start
off low, increase, plateau and then ultimately decline. Yet the shape of that
pattern varies considerably from category to category.
The category life cycle describes a merchandise category's sales pattern
over time, and is divided into four stages; introduction, growth, maturity,
and decline.
Knowing where a category is in its life cycle is useful for predicting sales.However, the shape of the life cycle can be affected by the activities
undertaken by retailers and vendors.
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Sales Forecasting
Variations on the Category Life Cycle
Fad Fashion Staple Seasonal
Sales over many seasons No Yes Yes Yes
Sales of a specific style No No Yes Yesover many seasons
Sales vary dramatically No Yes No Yesfrom one season to the
next
Illustration
(Sales against Time)SALES
SALES
SALES
SALES
TIMETIMETIME TIME
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Sales Forecasting
Developing a Sales Forecast A simple way to develop a sales forecast for a merchandise category is to
adjust thepast sales to make projections into the future.
This type of sales forecasting is done at the category, rather than SKU level,
and is used primarily forfashion merchandise. Forecasting sales ofstaple
merchandise is typically done at the SKU level.Sources of Category-Level Forecasts
Previous sales volume
Published sources
Customer information Shop competition
Vendors and resident buying office
Store-level forecasting
CPFR
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Sales Forecasting
CPFR collaboration, planning, forecasting, and replenishmentis a
natural outgrowth of the EDI technology. CPFR is a collaborative inventory
management system in which a retailer shares information with vendors.
Since the forecast is more accurate, thefill rate (the percentage of an order
that is shipped by the vendor) increases. A higher fill rate means that in-
store merchandise availability increases, resulting in fewer out-of-stocks.Thus, the goal of CPFR is to increase on-shelf availability while lowering
inventory throughout the supply chain.
The CPFR methodologycomprises of a nine-step process designed for
planning, forecasting, and replenishment of retail inventory by enhancing
coordination of all trading parties in a supply chain. It centers on sharingof: business plans, promotion plans, new-product plans, inventory data,
POS data, production and capacity plans, and lead-time information.
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Content: Planning Merchandise Assortments
Intro to Merchandise Management Organizing the planning process by categories
Setting objectives and merchandise plan
Sales forecasting
Assortment planning process
Assortment plan
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Assortment Planning Process
Merchandise decisions are constrained by the amount of money available
to invest on inventory and the amount of space available in the store.
Retailers need to make strategic trade-offs between variety, assortment,
and product availability. There also additional special issues that must be
considered by e-tailers.
Varietyis the number of different merchandising categories within a storeor department. Stores with a large variety are said to have goodbreadth.
Assortmentis the number of SKUs within a category. Stores with large
assortments are said to have gooddepth.
Product availability, also referred to as the level of supportorservice
level, defines the percentage of demand for a particular SKU that is
satisfied.
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Assortment Planning Process
Determining Product availability
Product availability defines the percentage of demand for a particular SKU
that is satisfied. The higher the product availability, the higher the amount
of back-up stock necessary to ensure that the retailer won't be out of stock
on a particular SKU when the customer demands it.
Cycle stock, also known as base stock, is inventory that results from thereplenishment process and is required to meet demand when the retailer
can predict demand and replenishment times (lead times) perfectly.
Unfortunately, most retailers are unable to predict demand and
replenishment times without error, so, they carryback-up stock, also
known as safety stockorbuffer stock, as a safety cushion for the cycle
stock so they won't run out before the next order arrives.
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Assortment Planning Process
Determining Product availability
Several issues determine the level of required back-up stock. First, since every SKU shows a
unique demand and lead-time pattern, inventory management systems should calculate
safety stock requirements for each SKU.
Second, backup stock and therefore, overall inventory investment depend on the product
availability the retailer wishes to provide.
Third, the higher the fluctuations in demand, the greater the need for backup stock.
Fourth, the amount of backup stock also depends on lead time from the vendor. Lead time is
the amount of time between recognition that an order needs to be placed and the point at
which the merchandise arrives in the store and is ready for sale.
Fifth, the fluctuations in lead time also affect the amount of backup stock. Many retailers
using quick response inventory systems are forcing their vendors to deliver the merchandise
within a very narrow window to reduce the fluctuations in lead time and thus the amount of
required backup stock.
Finally, the vendor's product availability also affects the retailer's backup stock requirements.
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Content: Planning Merchandise Assortments
Intro to Merchandise Management Organizing the planning process by categories
Setting objectives and merchandise plan
Sales forecasting
Assortment planning process
Assortment plan
A Pl
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Assortment Plan
An assortment plan describes in very general terms what should be
carried in a particular merchandise category.
The more fashion-orientedthe category, the less detailwill be
found in the assortment plan because the merchandise planner
requires more flexibility to adjust to fashion changes.
The merchandise planneruses the sales, GMROI, andturnover
forecastalong with the assortment plan from the previous season to
develop the plan for the current season. Adjustments are then made
based on the merchandise planners expectations for what items or
fashions will be important in the coming season.
A good assortment plan requires a good forecastfor sales, GMROI,
and inventory turnover along with a mix of subjective and
experienced judgment.
D th & B dth f h di
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Depth & Breadth of merchandise
DEPARTMENT
PRODUCT LINE
BREADTH
DEPTHSTYLES COLOURS SIZES
ZODIAC VAN HEUSENLOUIS
PHILLIPPEARROW
SHIRTS TROUSERS ACCESSORIES
MENSWEAR
M d l St k Pl
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Model Stock Plan
The model stock plan gives the precise items and quantitiesthat should be on hand for each merchandise line. A model
stock plan needs to be compiled for each line of
merchandise.
Steps for Model Stock Plan
Identify the attributes that the customer would consider in
buying the product.
Decide on the levels under each attribute.
Allocate the total money or the units to the respective item
categories.
C ti d l t k l
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Creating a model stock plan
A retailer has allocatedRs. 1 lakh to buyingshirts. Assuming that the purchase price for
the shirts is Rs.100, he will be able to stock
1,000 shirts.
Create a model stock plan?
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Identify the number of levels under eachattribute.
Type of shirtDress, Casual, Formal, Sport
Size Small, Medium, Large, Extra Large
Sleeve Length Full Sleeves, Short Sleeves
Collar Type Saville, Button Down
ColorWhite, Blue, Cream, Grey FabricCotton, Cotton Blend
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Type Dress Casual Formal Sport
% of Sales 10 40 20 30
Sizes Small Medium Large Extra Large
% of Sales 25 40 25 10
Sleeve
LengthFull Sleeves Half Sleeves
% of Sales 30 70
Allocate the total units to the respective item categories
Mens Shirts
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Men s Shirts
100% (1,000)
Dress
10% (100)
Casual
40% (400)
Formal
(20%) 200
Sport
30% (300)
Small
25% (100)
Medium
40% (160)
Large
25% (100)
Extra Large
10% (40)
Full Sleeves30% (48)
Half Sleeves70% (112)
Button Down
40% (45)
Saville
60% (67)
White
40% (18)
Blue
30% (14)
Cream
20% (9)
Grey
10% (4)
Cotton
25% (4)
Cotton Blend
75% (14)
RECAP Pl i M h di A
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RECAP: Planning Merchandise Assortments
Intro to Merchandise Management Organizing the planning process by categories
Setting objectives and merchandise plan
Sales forecasting
Assortment planning process
Assortment plan
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