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Retail Information Systems
Sales, loyalty cards,
store cards
Ad hoc Research
Projects
Market Intelligence:
Consumer,
Competitor,
Environment
Suppliers
Third Party Data:
Credit rating,
consumer panel,
demographics
Data
Input
Data
Warehouse
Data
Processing
Operational
Database
Buying Plan
Merchandising
Sales
Management
Inventory
Management
Location
Retail Information Systems - Types
Retail information systems can be divided into 4 basic types.
Transaction Processing Systems (TPS)
Management Information Systems (MIS)
Decision Support Systems (DSS)
Executive Support Systems (ESS)
Transaction Processing Systems
Transaction Processing Systems (TPS) are used to facilitate customer
transactions and other routine business processes necessary to conduct
business on day-to-day basis.
Examples include sales recording by:
EPOS (Electronic Point of Sale) systems,
EFTPOS ( Electronic fund transfer at point of sale),
Self Scanning.
Management Information Systems
The purpose of Management Information Systems(MIS) is to assist the middle
managers in their monitoring, controlling and decision making activities.
The reports from MIS are usually summaries of transaction data from TPS
indicating the firms current performance.
The monitoring and controlling function of the management at advance level
has resulted in the development of:
Quick Response(QR) Replenishment Systems
ECR (Efficient Consumer Response)
CPFR ( Collaboration, Planning, Forecasting & Replenishment)
Decision Support Systems
Designed to assist managers in making non routine semi structured and
unstructured decisions.
Combines models and data from various sources to conduct “what if ”
analysis by changing the assumptions underlying various decisions.
In retailing for instance, the DSS can be employed in assisting store location
decisions by working upon the data from existing locations and criteria for the
new locations.
While taking some unstructured decisions, a retailer would require instant
information from suppliers , that’s where Electronic Data Interchange (EDI)
comes to play.
IT & Retail
Electronic Loyalty Cards:
EPOS data carries information about the sales & not about the customer. This
limitation was overcome by retailers by setting up EPOS based Electronic
loyalty cards.
Personalized Electronically Readable Magnetic Card
Purchases are recorded by scanning the card.
Customer earns loyalty points to be redeemed anytime.
A major driver of the loyalty schemes is that they enable the retailers to build
up, relatively cheaply, a database of their customers that’s used in
“Micromarketing & Micro-merchandising.”
IT & Retail
Electronic Shelf Edge Labels:
An electronic LCD label to give customers information about the product & the
prices.
Its linked to the EPOS system, making sure the price charged at check out
point is similar to the one displayed on shelf.
Gives retailers the ability to change the price anytime as per the traffic &
demand.
IT & Retail
Electronic Kiosks:
According to Harvard Business Review, customers using Tech devices like
Kiosks, spend more money on average than ordering from a human Being.
Merchandise Management
“The activity of acquisition, handling, and monitoring of merchandise
categories for an identified retail organization”
What is Merchandising?
Merchandising is planning, buying & selling of merchandise (product).
The American Marketing Association defined merchandising as:
““The planning involved in marketing the right merchandise at the right place
at the right time in the right quantity at the right price”
Factors affecting Merchandising Function:
Merchandising
function
Size of organization
Org
an
iza
tion
stru
ctu
re
Me
rcha
nd
ising to
be
carrie
d
Types of stores
Merchandise Planning
“Planning & control of the merchandise inventory of the retail firm, in a manner which
balances between the expectations of the target customers & the strategy of the firm”
Implications of Merchandise Planning
Merchandise Planning
Finance
Payments to suppliers Profitability measurements
Store Operations
Space planning Communication about new products & their features
Ma
rke
ting
Ne
w p
rod
uct in
trod
uctio
ns
De
ve
lop
ing
ad
ve
rtise
me
nts
Wa
reh
ou
se
& L
og
isti
cs
De
tails
of P
urc
hase
Ord
er
De
tails
of allo
catio
ns
Merchandise Procurement / Sourcing
Sourcing: Finding or seeking out products from different places, manufacturers or suppliers.
Process of Procuring Merchandise:
Identifying the sources of supply
(National Global)
Contacting & Evaluating the sources of supply
(Vendor initiated, Retailer Initiated)
Negotiating with the sources of supply
(Trade, Chain, Quantity, Seasonal &Cash Discounts)
Establishing Vendor Relations
(Strategic Partnership, Trust, Common Goals, Credible Commitments)
Analyzing Vendor Performance
(Order Execution, Return Policies, Lead time)
Category Management
“The distributor/supplier process of managing categories as SBUs, producing
enhanced business results by focusing on delivering customer value”.
A category is an assortment of items that a customer sees as reasonable substitutes of
each other.
Focuses on a better understanding of consumer needs forming the basis of retailer’s &
supplier’s strategies, goal, & work processes.
Category Management is now considered as the “new science of retailing” because of it
being highly systematic & replacing the brand bias that stems from supplier’s interest.
Components of Category
Management
Strategy/
Business Process
Performance Measurement
Organizational Capabilities
Information Technology
Trading Partner Relationships
Category Management - A Process
Brain Harris Quadrant Category Assessment
Opportunities
- Harmonise product mix with market trends
- Improve price image via low prices for key products
- Maximise shelf space at category level
- Give promotional support to key items
Questionable
- Limit product mix to core assortment & delist marginal
products
- Look for price raises
- Minimise self space at category level
- Transfer logistical & operational work to third parties
Winners
- Continue current policies
- Be alert to adaptation of new products
- Minimise operational problems like “out of stock”
- Optimise margin mix
Sleepers
- Identify key products within category
- Delist slow movers & marginal products
- Give quick movers more self space
- Optimize margin mix
Ma
rke
t Sh
are
Market Growth
Some Key Merchandising Terms
Staple/basic merchandising – Products always in demand (basic
necessities)
Fashion merchandising – Products has high demand for a relatively short
period of time
Seasonal merchandising – Seasonal products
Fad merchandising – Enjoy popularity for a limited period of time;
generated high sales for a short time
Style – Unique shape or form of any product (taste in music)
Assortment – Variety of merchandise mix
Merchandise Planning Process
Stage I: Developing the Sales Forecast
1. Reviewing past sales
2. Analyzing the changes in the economic conditions
3. Analyzing the changes in the sales potential
4. Analyzing the changes in the marketing strategies & the competition
5. Create the sales forecast
Stage II: Determining the Merchandise Requirements
1. The creation of the Merchandise Budget
2. The Assortment Plan
Merchandise Planning Process
1. The creation of the Merchandise Budget .
Planned sales – Planned sales are projected sales for a period that is planned.
Planned purchase – Planned purchases represent the merchandise that is to be
purchased during any given period.
Planned reduction – Markdowns (deductions in prices), employee discounts &
inventory shrinkage due to theft or pilferage come under planned reduction.
Merchandise Budget
Sales Plan Stock
support plan Planned reduction
Planned Purchase
Gross Margins
Merchandise Planning Process
1. The creation of the Merchandise Budget .
Planned markup – After calculating the level of inventory that needs to be purchased, the
retailer needs to determine the initial markup for the products.
Markup in Rs. = Selling Price – Cost Price
Markup % = Markup in Rs.
Retail Price
Gross Margin – Gross margin is the difference between the selling price & the cost of the
product, less reductions from markdowns, shrinkage & employee discounts.
Profit = Gross margin – operating expenses
Stock Support Plan: Availability of the required stock leading to planned purchases &
reductions.
Merchandise Planning Process
2. The Assortment Plan
Assortment
Company Department Merchandise
Classification
Merchandise
Category
Sub
Category
Style
Price Unit
SKU
Stock Keeping Unit
Merchandise Planning Process
Stage III: Merchandise Control – The Open to Buy
The concept of Open to buy has two folds:
1. depending on sales of the month & the reduction, the merchandise buying can
be adjusted.
2. the planned relation between the stock & sales can be maintained.
Open to buy ensures that the buyer –
Limits overbuying & under buying
Prevents loss of sales due to unavailability of the required stock
Maintain purchases within the budgeted limits
Reduce markdowns i.e., reduction in price which may arise due to excess
buying
Merchandise Planning Process
Stage IV: Assortment Planning
Assortment Planning involves determining the quantities of each product that will be
purchased to fit into the overall merchandise plan.
Details of color, size, brand, materials etc. have to be specified.
To create a balanced assortment merchandise for the customer.
Depth
Breadth
Product Line
Department Menswear
Shirts
Zodiac
Styles Color ……
Van Heusen Louis
Philippe Arrow
Trousers Accessories
Merchandise Planning Process
The Range Plan:
The aim of the range plan is to create a balanced range for each category of products that
the retailer choose to offer.
Range planning should take care of -
The no. of items/options available to the customer should be sufficient at all times &
should be such that it helps the customer make a choice.
The overbuying & under buying is limited.
Sufficient quantities of the product are available, so that all the stores can be serviced &
the product is available at all the stores across various locations
The lower limit of the range width is often called aesthetic minimum
Merchandise Planning Process
The Model Stock Plan:
After determining the money available for buying, a decision needs to be taken on what to
buy? & in what quantity?
Steps:
1. Identify the attributes that the customer would consider while buying the product.
2. Identify the number of levels under each attribute.
3. Allocate the total units to the respective item category.
The Model Stock Plan Men’s shirt
100% (1000)
Casual
40% (400)
Small
25% (100)
Medium
40% (160)
Full Sleeve
30% (48)
Half Sleeve
70% (112)
Button Down
40% (45)
White
40% (18)
Cotton
25% (4)
Cotton Blend
75% (14)
Blue
30% (14)
Cream
20% (9)
Grey
10% (4)
Other
60% (67)
Large
25% (100)
Extra large
10% (100)
Dress
10% (100)
Formal
20% (200)
Sport
30% (300)
Merchandise Pricing
Significance of Pricing
Pricing decision is important because customers have alternatives to choose from, and are
better informed.
Customer are in a position to seek value.
Value = Perceived Benefits
Price
So retailers can increase value or stimulate sales, either by increasing benefits or by reducing
price.
Price – Value Trade off
A retailer may generate value/image through pricing & the value overwhelms the price
shocks to the customer.
“Price may be transparent,
while value is opaque”
“Quality is long remembered,
while price is forgotten over time”
“Product is gain,
while price is pain”
“Marketing and promotions are
anesthetics that numb the pain of price”
Pricing Problems
Price Management:
Markups and Markdowns
Outdated and incorrect
Link to the strategic operations of the business
Ad hoc or reactive ( to competition)
Myth – Reducing price brings customer.
The key issue to examine is the extent to which retailer has control over pricing.
Pricing Considerations
Retail Pricing
Competition Price
Sensitivity
Cost Legal
Constraints
Price
3 Approaches to Pricing
Economics
Approach
Demand
Supply
Finance
Approach
Fixed Cost
Variable Cost
Marketing
Approach
Segmentation
Targeting
Positioning
Margin
Costs
A retailer’s pricing objectives should be in agreement with its mission statement &
merchandising policies. These include:
Profit Oriented Objectives
Sales Oriented Objectives
Status Quo Objectives
EDLP (Every Day Low Pricing):
When a retailer charges same low prices every day throughout the year & seldom runs the
product on sale.
Pricing Objectives/Policies
Profit Oriented Objectives:
Target Return Objective
Profit Maximization
Skimming
Penetration
Sales Oriented Objectives:
They seek some level of unit sales, Dollar sales or market share. The achievement of such
objectives does not necessarily guarantee the profits.
Status Quo Objectives:
Seek to maintain the retailer’s current market share position or level of profits or to compete
on grounds other than price.
Pricing Objectives …… Cont
Pricing Policy:
Rules of action that ensure uniformity of pricing decisions within a retail operation. It should
reflect the expectations a retailer has from its target market.
1. Pricing Above the Market: Relying on high volume, low prices to produce satisfactory
profits.
2. Pricing at Market Levels: Competition based pricing, depends on:
Pricing Zones (range) for a Product
The Size of the retail store.
3. Pricing Above the Market: Certain market sectors are receptive to high prices because
non-price factors are more important than price.
Differentiated products
Services offered
Convenient locations
Extended hours of Operation.
Pricing Policies
Why do People Matter ?
Retailing is about the people and their aspiration ….( People Inside, People Outside)
Front-liners are the key. …. Take their insights
People know you through your staff.
“Technology will play a greater role than before, but I don’t think it will replace the
person-to-person interaction. About 80% of transactions are still taking place in a brick
and mortar environment.” ……
Adam Pressman …. A.T. Kearney
“ A good team of staff & an appropriate working relationship together create an important
& valuable asset”
People In Retailing
“Ethos is the prevailing view or collective thinking that drives the stakeholders of a
company”
The attitude towards staff and customers is part of the Company Ethos.
Ethos determines the selling approach & the strategies. For instance large multiples will have
a prevailing view regarding price, location and merchandise
In Contrast
Many small independent retailer may have a different predisposition towards their retailing
activities …. To stay small and maintain a low cost base.
Ethos motivates the staff to perform
Company Ethos
Short term employment leaves the manager with the discretion as to the level at particular
times. But this discourages the enthusiasm and diligence of the employee.
Short term employment helps to cope with peaks and troughs in the daily operations or
weekly cycles.
“Zero-Hours Contract: Does not guarantee the employee any specific number of work hours.
The discretion lies with the retailer”
Tesco and Sainsburry’s made thousands of their temporary employees permanent & cut the
proportion of temporary staff from 10% to 3%.
A Flexible Workforce
“When customers buy a product or service, they buy into a total(holistic)
image & reputation of the retailer . A good reputation is built up over time
through a succession of satisfied customers who receive an appropriate
combination of Price, Quality and Service”
Good service is delivered through people.
While customer satisfaction reflects from the vision of almost every
retailer, employee satisfaction reflects from the visions of successful
businesses only.
Building a Vision – People
Significance
Changing Attitude of the People.
Organizational Structure
Workforce Planning
Division of Work
Empowerment
Induction
Training
Etc
People Considerations