Merchandise Planning

Retail Merchandising refers to the various activities which contribute to the sale of
products to the consumers for their end use. Every retail store has its own line of
merchandise to offer to the customers. The display of the merchandise plays an important
role in attracting the customers into the store and prompting them to purchase as well.
Merchandising helps in the attractive display of the products at the store in order to
increase their sale and generate revenues for the retail store.
Merchandising helps in the sensible presentation of the products available for sale to
entice the customers and make them a brand loyalist.
Promotional Merchandising
The ways the products are displayed and stocked on the shelves play an important role in
influencing the buying behavior of the individuals.
A merchandiser maximizes the sale of the products by:
Attractive packaging
The packaging of the merchandise goes a long way in improving the brand value of the product.
A product kept in a nice box would definitely catch the attention of the customers.
Impressive presentation of the Product
The display of the products at the retail store must entice the customers. The merchandiser in
coordination with the store manager must ensure that the products are according to the season as
well as latest trends.
The merchandiser must:
Source something which is unique and not available at any other retail store.
Never compromise on quality of the merchandise. Compromising on quality costs later.
Source merchandise as per the season and climate.
By mid of August and early September, the summer merchandise is generally on a close out and
stores begin stocking merchandise for the winter season. Warm clothing, full sleeves apparels,
jackets, pullovers start replacing cut sleeves, capris, ankle length dresses, shorts and so on.
Colourful clothes dominate the shelves as compared to the subtle colours in summers.
The type of product sourced also depends on the climatic conditions of the place.

A Reebok store in Central India or Southern India would stock summer merchandise between
April to September whereas a retail store under the same brand somewhere in a cold area would
source woollen merchandise along with summer clothing as per the demand of the season.
Unique Pricing (Discounts)
Attractive prices, discounts, rebates also bring customers to the store.
Promotional schemes, gifts
Coupons and attractive gifts make shopping a pleasurable experience for the customers.
Merchandising Tips
The merchandiser must source products according to the latest trends and season.
The merchandise should be as per the age, sex and taste of the target market.
Merchandise for children should be in line with cartoon characters (like Barbie, Pokemon
etc) to excite them.
Creative Portico Pvt Ltd sources bed sheets, curtains specially inspired from characters (Disney,
Harry Porter, Hannah Montana) - a hit amongst kids.
Youngsters prefer funky clothes (colourful T Shirts, faded denims) as compared to professionals
who would go for subtle colours.
The target market of Zodiac Clothing Company Limited mainly comprises of office goers and
professionals. The merchandise (shirts, trousers, neck ties, belts) is as per the taste of the
professionals. Beach house shirts would have no takers in such a store.
The merchandiser ideally works on the invariant right principle.
Since most of us are right handed, it is a common tendency that customers entering into
retail store would first go towards the right side of the store. The merchandiser should
display the unique and expensive collections on the right side of the store to entice the
customers.
The set up of the store should be such that once a customer enters into a store, he has to
walk through each and every department.
The shelves should be stocked with the latest trends. The merchandise should be well
organized on the racks according to their size and pattern.
It is the key responsibility of the merchandiser to create an attractive display to pull the
customers into the store. Once the customer steps into the store, he would definitely buy
something or the other.

Category Management
The mechanism of selling merchandise in small quantities from a fixed location directly to the
individuals for their end use is called as retailing. The fixed location can be anything like super
market, hyper market, department stores and so on.
Merchandise - Merchandise refers to the various products available at the store for sale to the
end-users. It is the display of the merchandise which actually attracts the customers into the
store.
Let us suppose all the products available at the store are stocked at one place only. Would such a
display impress the customers ?
The answer is NO. Presentation of products is essential.
As a solution to the above problem, the retailers came out with the concept of category
management.
The concept of segregating similar products into separate groups is called as category
management. The complete range of merchandise available at the retail store is divided into
separate product categories consisting of related products.
Categories in a retail store refer to the various groups which consist of products belonging to a
similar family. The retailer smartly displays all the related products together as distinct
categories for his as well as the end-users convenience.
Example
Toothpaste, Tooth Brush, Mouth wash, Tongue cleaner, soap, shampoo, body wash, cosmetics
etc, can be displayed together under a single category called personal care section.
Vegetables, Fruits, Tinned Food, Juice, meat, dairy products form a single category.
Certain retail stores also classify their merchandise into women, men as well as kids category.
Department stores also have separate categories like:
Apparels, Footwear, Jewellery, Electronic appliances, Mobiles, Watches, Home furnishings,
house hold appliances and so on.
Category

The complete range of merchandise at the store is divided into separate groups consisting
of related products. Such groups are called as categories.
Each category is treated as a separate business entity.
The retailer calculates the profit and loss of each category separately.
Each category contributes in its own way to the profitability of the store.
The retailer does not promote a single brand but the complete category.
The concept of categories has gone a long way in developing a strong bond between the
retailer and the supplier.

Why Separate Categories ?
The classification of products into separate category benefits the customers and makes
their shopping a pleasurable experience.
The customers as per their interest, pocket and need can walk up to the respective
categories, check out the various options and decide what to buy and what not to buy.
Eight Step Process of category management
Define the Category
The retailer must sort out the similar products which can be included in a single category. He
must make sure that the products bear a strong connection with each other.
Role of the Formed Category
Evaluate the current Performance of the category
Decide targets for the category.
Devise an overall Strategy to promote the category.
Formulate specific steps to increase the sales of the category.
Implementation of the above steps.
Review and feedback.
However some retailers find the above process cumbersome and only follow the below five
steps:
Form and Review the category.
Decide the target consumers of the particular category.
Planning and formulating strategies for the category.
Implementation of the above strategies
Results Evaluation
Category Captains

The retailer generally appoints one individual who supplies all the products of a single category.
This individual also called as supplier is known as a category captain.
The suppliers are equally responsible for the category and contribute their level best to maximize
the revenue of the particular category. He works in close coordination with the retailer and is
responsible for the profit and loss of his assigned category.




The Buying Organization
A group purchasing organization (GPO) is an entity that is created to leverage the purchasing
power of a group of businesses to obtain discounts from vendors based on the collective buying
power of the GPO members.
Many GPOs are funded by administrative fees that are paid by the vendors that GPOs oversee.
Some GPOs are funded by fees paid by the buying members. Some GPOs are funded by a
combination of both of these methods. These fees can be set as a percentage of the purchase or
set as an annual flat rate. Some GPOs set mandatory participation levels for their members, while
others are completely voluntary. Members participate based on their purchasing needs and their
level of confidence in what should be competitive pricing negotiated by their GPOs.
Group purchasing is used in many industries to purchase raw materials and supplies, but it is
common practice in the grocery industry, health care, electronics, industrial manufacturing and
agricultural industries. In recent years, group purchasing has begun to take root in the nonprofit
community. Group purchasing amongst nonprofits is still relatively new, but is quickly becoming
common place as nonprofits aim to find ways to reduce overhead expenses. In the healthcare
field, GPOs have most commonly been accessed by acute-care organizations, but non-profit
Community Clinics and Health Centers throughout the U.S. have also been engaging in group
purchasing.
Measuring Inventory Turnover
In accounting, the Inventory turnover is a measure of the number of times inventory is sold or
used in a time period such as a year. The equation for inventory turnover equals the Cost of
goods sold divided by the average inventory. Inventory turnover is also known as inventory
turns, stockturn, stock turns, turns, and stock turnover.

Application in Business
A low turnover rate may point to overstocking,
[2]
obsolescence, or deficiencies in the product
line or marketing effort. However, in some instances a low rate may be appropriate, such as
where higher inventory levels occur in anticipation of rapidly rising prices or expected market
shortages.
Conversely a high turnover rate may indicate inadequate inventory levels, which may lead to a
loss in business as the inventory is too low. This often can result in stock shortages.
Some compilers of industry data (e.g., Dun & Bradstreet) use sales as the numerator instead of
cost of sales. Cost of sales yields a more realistic turnover ratio, but it is often necessary to use
sales for purposes of comparative analysis. Cost of sales is considered to be more realistic
because of the difference in which sales and the cost of sales are recorded. Sales are generally
recorded at market value, i.e. the value at which the marketplace paid for the good or service
provided by the firm. In the event that the firm had an exceptional year and the market paid a
premium for the firm's goods and services then the numerator may be an inaccurate measure.
However, cost of sales is recorded by the firm at what the firm actually paid for the materials
available for sale. Additionally, firms may reduce prices to generate sales in an effort to cycle
inventory. In this article, the terms "cost of sales" and "cost of goods sold" are synonymous.
An item whose inventory is sold (turns over) once a year has higher holding cost than one that
turns over twice, or three times, or more in that time.Stock turnover also indicates the briskness
of the business. The purpose of increasing inventory turns is to reduce inventory for three
reasons.
Increasing inventory turns reduces holding cost. The organization spends less money on
rent, utilities, insurance, theft and other costs of maintaining a stock of good to be sold.
Reducing holding cost increases net income and profitability as long as the revenue from
selling the item remains constant.
Items that turn over more quickly increase responsiveness to changes in customer
requirements while allowing the replacement of obsolete items. This is a major concern
in fashion industries.
When making comparison between firms, it's important to take note of the industry, or
the comparison will be distorted. Making comparison between a supermarket and a car
dealer, will not be appropriate, as supermarket sells fast moving goods such as sweets,
chocolates, soft drinks so the stock turnover will be higher. However, a car dealer will
have a low turnover due to the item being a slow moving item. As such only intra-
industry comparison will be appropriate.

Sales Forecasting
Forecasting assumes further significance when, because of size, planning in a firm becomes a
cooperative rather tan a one man's job. As large firm decentralize authority, specialization and
coordination become more necessary. Control mechanism are required, and forecasting becomes
a major feature.

An efficient forecast helps management to decide to proper and reasonable arrangement
regarding plant-production capacity, purchase of raw materials, necessary land and building for
establishment of the plant and availability of the plant an availability of labour and capital etc.
With the help of forecasting the producer can prepare production schedule according to the
demand of the product and inventory, production and other related costs.
Sales forecasting is valuable because it prepares management for change as lasting pressures for
change are foreseen in order to be communicated. As far as sudden and temporary pressures are
concerned, forecasting helps the management to avoid them.

Sales forecasting also sets the goal to which the sales department has to run and reach. If the
department reaches the goal it may be regarded as well-organised and efficient department;
otherwise it will be called as inefficient department. In order words, sales forecasting helps in
measuring the efficiency of sales department.

Conclusively, it can be said that sales forecasting is a necessary and an effective tool for
management to have the finished goods of right quality, in right time and at controlled cost.

Sales forecast is depended on how much amount of resources can sell if it implements a
particular marketing programme.


Sales Forecast Methods:-
1) Qualitative method a) Experts opinion.
b) Survey of buyers expectation.
c) Sales Force composite.
d) Delphi technique.
e) Historical analogy.

2) Quantitative method a) Test Marketing.
b)Nave method.
c)Trend method.

d)Moving average
e)Regression method.
f)Exponential smoothing.

[B]1) Qualitative method [/B] it based on judgments-expert/collective.

a) Experts opinion method Simplest method used in commercial organisation for forecasting
future demand of product/service. Marketing professionals/channel members and professional
bodies (market consumers) are asked to give their opinion method works in 2 days.
1) Seasoned industries.
2) Group of industries
Discussion takes place based on key executive sub their op. and discussion is done based on it
and consensus is reached.

b) Delphi Method: - Improvement over expert opinion method forecast is based on likely time
period of occurrence of certain future Group of exp and a Delphi coordinator. Gives their opinion
include to co-ordinate. The co-or processes, complies, refers then back to the panel member.
(Process is on for at least 3 rounds) Process stops when consensus is obtained and deviant
opinion given with reason.
Coordinator carries out stats analysis of the response, deriving average answers, variability etc.
Only coordinator is aware of the members present in the team and access to all responses. Delphi
for is median forecast-Method widely used

c) Sale force composite method Sales people come up with forecast. Since people in direct
contact like sales people/ channel members are better informed about the trends and demand for
the product. Ind forecast is combined with over all demand forecast.
Results can be affected by the staffs biases, lack of interest in the process, eg. About economic
changes and trends. This method is used to generate forecast for industrial equipment
manufacturing industries.
Eg: - PET mach/ Printing machinery.

d) Survey of buyers expectation- Buyers intention and market test sample of potential buyers
information about product performance etc.
Likes/ dislikes.
(4 Ps)

Gathering this information for demand forecasts.
Negative point:- Actual demand varies from stated intention.

Positive point:- method effective for relatively few buyers usually for ( OEM) and B2B buyers.


e) Historical analogy method- Used where there is not past demand data.

Eg: - New product, but markets sold other product with similar features.
Marketing person may use historical analogy between eg: - two products and derive the demand
for the new product using historical data.

Sales forecasting- Quantitative method

Test Marketing- Companys selected a limited no of cities with population which are
representative of target customer- demographic terms age, income, lifestyle and shopping
habits etc.

A product is made available at outlets and features are highlighted either thro in store promotion/
small advertising campaign. Then the performance is tracked through consumer research and
modification-before national launch.
Target objective is
1) To study level of acceptance.
Second type of test market with similar characteristics is identified- one is called test market-
same as above mention without promo campaign 2nd is called Control Market where
Product is sold with a promotional campaign.


The different between both markets is a measure of effectiveness of promotion campaign. Any
inconsistency with sales variation in both the market is an indicator of the gap between customer
perception and performance of the product feature.

Result- One can measure effectiveness of product helps in making customer loyal, campaigns
effectiveness and in store promotion.

Naive Method:
This is one of the simplest method- future sales are forecasted as the value of sales for previous
period .i.e. Next months sales are predicted based on the months performance.

Negative method ignores irregular component and assumes that seasonality and cyclicality do
not exist and trend is flat.

A more complex form, trend is projected in a/c s for influence of trend components in time
series. The sales manager is required to calculate the rate of change in sales by dividing the most
recent period by the time period immediately preceding it.
Next years sale= this years sale* This years sale/ Last years sale

Product mix trends
The product mix is the variety of products a company produces or sells to the marketplace. A
product line often evolves, as manufacturers want to take advantage of a brand's value and the
success of other products in the mix. Retailers carry a mixture of products to satisfy various
customers. The product mix includes four common elements: Length, breadth, depth and
consistency.

Length
The length element of the product mix refers to the number of products in a given product
line. You could also describe it as the number of stock keeping units or SKU's a company
carries in a product line. For instance, the length of a grocery retailer's soft drink product
line is the number of distinct brands it carries. A longer product line means consumers
have more options and access to greater assortment.
Breadth
Breadth of the product mix refers to the number of product lines that a company offer or
the variety a company offers. Offering a wider array of product lines is common for
discount and department that sell products in a number of different product categories.
Manufacturers develop breadth to diversify risks of a given product becoming obsolete.
Retailers with wide variety often attempt to market themselves in a virtual one-stop shop.
Depth
Depth is closely related to length in the product mix in the sense that it offers the
consumer options when selecting a given product. Depth refers to the different ways that
you can buy a particular product in a product line. For instance, you can buy soft drink in
a 2-Liter bottle, a six or 12-pack of cans, a 20-ounce bottle or other sizes. You can buy
dish soap in liquid, powder or gel form. These options further enhance your flexibility as
a buyer.

Consistency
The consistency element of the product mix refers to the connection between products
within the product line and the way they reach the consumer. For manufacturers,
consistency refers to how closely related production processes are for various products.
The more consistent production is, the more efficient and cost-effective. For retailers,
consistency in a product mix makes it easier to perform suggestive selling and
recommend close products. Distinct products in the mix typically translate to a unique
selling process for that product.

Merchandise Budget Plan
The financial budgets are the second part of the master budget. The financial budgets
usually include the cash budget, the budgeted balance sheet, the budgeted statement of
cash flows, and the budget for capital expenditures.
Note that the master budget and the associated financial budget are plans for one year.
The capital expenditures budget is a financial plan outlining the expected acquisition of
long-term assets, typically over a number of years.
A. The Cash Budget
The cash budget is a detailed plan that shows all expected sources and uses of cash.
Much of the information needed to prepare the cash budget comes from the operating
budgets.
The cash budget includes five main sections:
1. The total cash available section shows that:
Total cash available = Beginning balance + Cash receipts
Cash receipts include primarily:
a. Cash sales.
b. Collection from sales on account (credit sales).
The collection pattern of credit sales can be determined by past experience
using an accounts receivable aging schedule.
2. The total cash disbursements section includes all planned cash outlays for the
period, including the purchase of materials, payment of wages, and payment of other
expenses.
The cash disbursements section does not include:
a. Interest payment on short-term loans (these appear in the financing section).
b. Noncash expenses such as depreciation.
3. The cash excess or deficiency section compares the cash available with the cash
needed.

Total cash needed = Total cash disbursements + Minimum cash balance
The minimum cash balance is the lowest amount of cash on hand that the firm
finds acceptable.
4. The financing section of the cash budget consists of:
a. Borrowings.
b. Planned repayments, including interest.
5. The planned ending cash balance section reflects the inclusion of the minimum cash
balance, which was subtracted to find the cash excess or deficiency.
B. Budgeted Balance Sheet
The preparation of the budgeted balance sheet depends on information from the current
balance sheet and the information in the other budgets in the master budget.

IV. Operating Budgets for Merchandising and Service Firms
A. A merchandising firm has a merchandise purchases budget to identify the quantity of
each item that must be purchased for resale, the unit cost of the item, and the total
purchase cost.
B. In a for-profit service firm, the sales budget identifies each service and the quantity
that will be sold.
The sales budget is also the production budget because the service produced will
be identical to the service sold.
C. In a not-for-profit service firm, the sales budget identifies the level of various services
that will be offered for the coming year and the associated funds that will be assigned
to the services.

Merchandise Buying and Handling Process
Examine nonfinancial merchandise planning and management
Developing and instituting a merchandise plan is a key element in a successful retail strategy.
Merchandising consists of the activities involved in a retailer's buying goods and services and
making them available for sale.
Outline the merchandise buying and handling process
This is an integrated, systematic way of acquiring and processing merchandise. It consists of ten
steps:
1. setting up a buying organization;
2. outlining merchandise plans;
3. gathering data on consumer demand;
4. determining merchandise sources;
5. evaluating merchandise;

6. negotiating the purchase;
7. concluding the purchase;
8. handling merchandise;
9. reordering merchandise; and
10. re-evaluating regularly.
Discuss each element in the merchandise buying and handling process in detail
Buying-organization decisions include the level of formality, degree of centralization, amount of
specialization, inside versus outside personnel, cooperative efforts, merchandising versus buying,
and staffing. A buying philosophy includes only the purchase of goods and services and not their
sale; a merchandising philosophy entails both activities. Some firms separate buying and selling
functions.
Merchandise plans involve the four basic decisions noted under this chapter's objective 4. Data
from customers, sources of supply, personnel, competitors, and others must be collected to help
the retailer forecast and adapt to demand.
A retailer must choose firm-owned; outside, regularly used; and/or outside, new supply sources.
Inspection, sampling, and/or description in merchandise evaluation must be planned.
Purchase terms may have to be negotiated in their entirety (such as with opportunistic buying) or
uniform contracts may be used. The purchase must also be concluded (automatic-manual,
management approval, and transfer of title).
Merchandise handling decisions include receiving and storing, price and inventory marking,
displays, on-floor assortments, customer transactions, delivery or pickup, returns and damaged
goods, monitoring pilferage, and control.
Reorder procedures depend on order and delivery time, inventory turnover, financial outlays, and
inventory versus ordering costs.
Both the overall merchandising procedure and specific goods and services need to be regularly
reviewed.
To place special emphasis on what merchandise a retailer should carry, how much to stock,
when to stock items, and where to store items

First, in choosing what items to handle, a retailer must pick the quality of merchandise (below
average, above average, or medium) to stock and how innovative (progressive or conservative)
to be. The product life cycle is useful for projecting the sales of a product over its life and the
types of customers who purchase during different time periods.

Second, how much merchandise to stock is a decision involving width and depth of assortment.
A product assortment can range from wide and deep to narrow and shallow. In planning an
assortment, these factors should be reviewed: sales, profit, investment costs, space requirements,
turnover, complementary and substitute products, manufacturer insistence, and the brand mix
(manufacturer, private, and/or generic).
A third required decision is when merchandise is to be stocked. An accurate sales forecast is
needed for efficient planning. Among the points to consider are peak seasons, order and delivery
time, routine versus special orders, stock turnover, discounts, and the efficiency of inventory
procedures.
A fourth decision concerns where merchandise is stored. The retailer must resolve whether to use
warehouses or to have items shipped directly to its store(s). Merchandise also has to be allocated
among store branches.
Merchandise Pricing

The prices of a more efficient retailer may lead to losses on particular items. It is also required an
understanding of the importance of the pricing policies of the competition from a consumer
perspective. Competitive pricing is reactive rather than proactive form of pricing as a retailer
with a strong brand image does not necessarily need to march competitors offers. Market
penetration Market penetration pricing is similar to competitive pricing but is adopted when a
company or brand wants to establish itself quickly in a market. Prices are set below those of the
completion in order to create high initial acceptance for the companys retails offers. A company
selling fast moving consumer goods FMCGs may use market penetration pricing in the first
couple of years and then, when the product becomes established, will slowly increase the prices.
In1996 there was all-out war between the food retailers and major oil companies over the price
of petrol, based upon various supermarkets trying to obtain a major market share. It is estimated
the petrol price war of 1996 cost Tosco 30 million and 2000 in depended companies were forced
out of business. According to an article in Super Marketing(1996),at the height of the price war
the average gross profits were only 0.03pa litter and these rose to 5.5p a lire when the war
subsided in July of the same year. The penetration strategy quickly established a 21.5 percent
share of the petrol market in the UK for the combined supermarkets. Psychological pricing This
is sometimes referred to odd pricing. Retailers will often price products below a round figure:
changing a price from say 9 to 9.95 or 9.99 to foster the perception of the price as being that a
which the customer is willing to buy. Just as 9.95 may appear to be significantly less than 10, so
a price of 488 may seem more on a 400 level than a 500 level. However, there is no conclusive
evidence that such pricing policies make any significant difference of profits. Everyday low
pricing numbers of retailers now adopt the strategy of everyday low pricing (EDLP). This
strategy stresses the use pricing policy with the continuity of prices at a level between the normal
own store price and the price or the deep discount competitors. The term low does not mean
lowest; it simply refers to a price position, which is competitive and therefore, can remain

stable. A number of retailers who operate EDLP do not believe in markdown policies and sales
but attempt to generate all-year-round demand by setting the prices at the right level. One of the
most well known retailers to have adopted this strategy is toys51. EDLP is a strategy, which is
open to large operators who have significant economies of scale and buying power.EDLP can
offer a number of benefits, as the following list

1 . P e r c e p t i o n o f f a i r n e s s . M a n y c u s t o m e r s h a v e b e c o m e
i n c r e a s i n g l y s k e p t i c al about the mark-up and mark-down strategies of retailers.
There has been a trend by customers to wait for sale periods or to attempt to get the best bargains
by shopping around for promotions. EDLP allows retailers to withdraw from sale period pricing
wars and to concentrate on creating a market position that imparts a perception of fairness of
pricing.

2 . R e d u c e d a d v e r t i s i n g . T h e s t a b l e p r i c e p o l i c y o f E D L P s
e l i m i n a t e s t h e n e ed for communication of sale or special price offer. Instead, the
retailer can use the budget to concentrate on improvement of image or the building of
relationship marketing schemes.

3 . I m p r o v e d c u s t o m e r s e r v i c e m a n a g e m e n t . I f t h e p o l i c y
I S s e t t o b a n i s h , s ale period then the demand created is less seasonal and volatile,
and sales staff are able to spend adequate rime in dealing with customers. This will improve the
customers perception of the level of service they receive. The lack of high demand sales period
also has the benefit of allowing staff levels to remain relatively constant.

4 . R e d u c e d s t o c k o u t s a n d i m p r o v e d i n v e n t o r y
m a n a g e m e n t . W i t h m o r e e v e n d e mand for the products it is easier to control
the stock situation. EDLP reduces the large variations in demand and, therefore, periods of stock
out when customers may feel dissatisfaction with the retailers service. Increased profit margins.
If a retailer can import to the customer an image of fair pricing then, although the prices may be
generally lower, the overall effect can be to increase turnover and consequently
profitability.EDLP has come major benefits to recommend it; it could not be appropriate for all
retailers. Some retailers would find it difficult to maintain low prices for continuous period due
to lack of economies of sale in buying or due to the competitive nature of their business. Also,
retailers selling goods which have strong fashion content are more likely to want to set initial
prices at a high level as this is good business practice. Fashion goods are often priced differently
because if a subsequent sale is created for this type of merchandise, if often creates a high level
of excitement. The motivation to purchase created from the sale enables the retailer to move a
large amount of merchandise in a short period. Therefore, EDLP is not a sensible strategy for
some retailers to adopt.

Factors affecting price sensitivity

As number of factors will affect the price sensitivity of products. From a marketing viewpoint a
deeper understanding of price sensitivity assists with an understanding of the different retail

segments and the development of strategic planning. The main factors when considering retail
pricing are listed below.


Perceived substitutes effect
Buyers are more sensitive the higher the products price is in relation to another product or
substitute they could purchase. Therefore, the consumer may choose a substitute or forgo the
purchase if they believe the overall value is unacceptable. For example, local residents may
avoid an area with higher priced shops frequented by tourists who are unaware of the
alternatives.

Unique value effect
Buyers are less sensitive to a products price the more they value any of its attributes that
differentiate it from competing products. For example, may customers are loyal to Heinz or
Nestle products because they perceive them to offer superior benefits.

Importance of purchase effect

If the risk of the purchase increases then the price will not be the most important aspect of the
purchase. The occurs when the item is an important present or when there is a need to purchase
medicines. The greater the importance of the product, the less price sensitive (more inelastic) the
purchase will be. Difficult comparison effect Buyers are less sensitive to price when they find it
more difficult to compare alternatives. This may lead to a demand for the more established
brands, or greater store loyalty, in order to reduce the perception of risk. Price quality effect A
higher price may signal that the product is of superior quality. The result may be less sensitivity
to price. This is not a conclusive effect as it applies to some products, while others may generate
different reactions. For example, whisky at a higher price may signal improved quality but very
few people would think higher priced petrol offered any quality advantage.

Expenditure effect

Buyers become more price sensitive when the expenditure is larger, either in absolute money
amounts or as a percentage of their income. This is most prevalent in low income households in
which all expenditure is carefully controlled. This effect is also stronger and more likely to occur
in times of recession.

Fairness effect
If the buyer believes the price falls outside a band of what would be judged reasonable and fair
then they becomes more price sensitive. With some types of products it is relatively easy to
judge the offer of alternative brands and products and therefore easy to switch demand to
cheaper alternatives. At certain times alternatives are not easy to find. Consumers will perceive
retailers or the brands they stock, to be ripping off customers if they exploit situations of
shortage by being greedy. For example, street vendors are often seen to be selling drinks or ice
creams at highly inflated prices when the temperature is extremely high.


Pricing adjustment

Price-Adjustment Strategies
Companies usually adjust their basic prices to account for various customer differences and
changing situations. Fig summarizes six price-adjustment strategies: discount and allowance
pricing, segmented pricing, psychological pricing, promotional pricing, geographical pricing, and
international pricing.

a. Discount and Allowance Pricing
Most companies adjust their basic price to reward customers for certain responses, such as early
payment of bills, volume purchases, and off-season buying. These price adjustmentscalled
discounts and allowancescan take many forms.
A cash discount is a price reduction to buyers who pay their bills promptly. A typical example is
"2/10, net 30," which means that although payment is due within 30 days, the buyer can deduct 2
percent if the bill is paid within 10 days. The discount must be granted to all buyers meeting
these terms. Such discounts are customary in many industries and help to improve the sellers'
cash situation and reduce bad debts and credit collection costs.
A quantity discount is a price reduction to buyers who buy large volumes. A typical example
might be "Rs10 per unit for less than 100 units, Rs9 per unit for 100 or more units." By law,
quantity discounts must be offered equally to all customers and must not exceed the seller's cost
savings associated with selling large quantities. These savings include lower selling, inventory,
and transportation expenses. Discounts provide an incentive to the customer to buy more from
one given seller, rather than from many different sources.
A functional discount (also called a trade discount) is offered by the seller to trade channel
members who perform certain functions, such as selling, storing, and record keeping.
Manufacturers may offer different functional discounts to different trade channels because of the
varying services they perform, but manufacturers must offer the same functional discounts
within each trade channel.
A seasonal discount is a price reduction to buyers who buy merchandise or services out of
season. For example, lawn and garden equipment manufacturers offer seasonal discounts to
retailers during the fall and winter months to encourage early ordering in anticipation of the
heavy spring and summer selling seasons. Hotels, motels, and airlines will offer seasonal
discounts in their slower selling periods. Seasonal discounts allow the seller to keep production
steady during an entire year.
Allowances are another type of reduction from the list price. For example, trade-in allowances
are price reductions given for turning in an old item when buying a new one. Trade-in
allowances are most common in the automobile industry but are also given for other durable

goods. Promotional allowances are payments or price reductions to reward dealers for
participating in advertising and sales support programs.
b. Segmented Pricing
Companies will often adjust their basic prices to allow for differences in customers, products,
and locations. In segmented pricing, the company sells a product or service at two or more
prices, even though the difference in prices is not based on differences in costs.
Segmented pricing takes several forms. Under customer-segment pricing, different customers
pay different rices for the same product or service. Museums, for example, will charge a lower
admission for students and senior citizens. Under product-form pricing, different versions of the
product are priced differently but not according to differences in their costs. Using location
pricing, a company charges different prices for different locations, even though the cost of
offering at each location is the same. For instance, theaters vary their seat prices because of
audience preferences for certain locations. Finally, using time pricing, a firm varies its price by
the season, the month, the day, and even the hour. Public utilities vary their prices to commercial
users by time of day and weekend versus weekday. The telephone company offers lower off-
peak charges, and resorts give seasonal discounts.
For segmented pricing to be an effective strategy, certain conditions must exist. The market must
be segmentable, and the segments must show different degrees of demand. Members of the
segment paying the lower price should not be able to turn around and resell the product to the
segment paying the higher price. Competitors should not be able to undersell the firm in
the segment being charged the higher price. Nor should the costs of segmenting and watching the
market exceed the extra revenue obtained from the price difference. Of course, the segmented
pricing must also be legal. Most importantly, segmented prices should reflect real differences in
customers' perceived value. Otherwise, in the long run, the practice will lead to customer
resentment and ill will.
c. Psychological Pricing
Price says something about the product. For example, many consumers use price to judge
quality. An Rs1000 bottle of perfume may contain only Rs300 worth of scent, but some people
are willing to pay the Rs 1000 because this price indicates something special.
In using psychological pricing, sellers consider the psychology of prices and not simply the
economics. For example, one study of the relationship between price and quality perceptions of
cars found that consumers perceive higher-priced cars as having higher quality. By the same
token, higher-quality cars are perceived to be even higher priced than they actually are. When
consumers can judge the quality of a product by examining it or by calling on past experience
with it, they use price less to judge quality. When consumers cannot judge quality because they
lack the information or skill, price becomes an important quality signal:
Another aspect of psychological pricing is reference pricingprices that buyers carry in their
minds and refer to when looking at a given product. The reference price might be formed by
noting current prices, remembering past prices, or assessing the buying situation. Sellers can

influence or use these consumers' reference prices when setting price. For example, a company
could display its product next to more expensive ones in order to imply that it belongs in the
same class. Department stores often sell women's clothing in separate departments differentiated
by price: Clothing found in the more expensive department is assumed to be of better quality.
Companies can also influence consumers' reference prices by stating high manufacturer's
suggested prices, by indicating that the product was originally priced much higher, or by pointing
to a competitor's higher price.

d. Promotional pricing,
Companies will temporarily price their products below list price and sometimes even below cost.
Promotional pricing takes several forms. Supermarkets and department stores will price a few
products as loss leaders to attract customers to the store in the hope that they will buy other items
at normal markups. Sellers will also use special-event pricing in certain seasons to draw more
customers. Manufacturers will sometimes offer cash rebates to consumers who buy the product
from dealers within a specified time; the manufacturer sends the rebate directly to the customer.
Rebates have been popular with automakers and producers of durable goods and small
appliances, but they are also used with consumer-packaged goods. Some manufacturers offer
low-interest financing, longer warranties, or free maintenance to reduce the consumer's "price."
This practice has recently become a favorite of the auto industry. Or, the seller may simply offer
discounts from normal prices to increase sales and reduce inventories.
Promotional pricing, however, can have adverse effects. Used too frequently and copied by
competitors, price promotions can create "deal-prone" customers who wait until brands go on
sale before buying them. Or, constantly reduced prices can erode a brand's value in the eyes of
customers. Marketers sometimes use price promotions as a quick fix instead of sweating through
the difficult process of developing effective longer-term strategies for building their brands. In
fact, one observer notes that price promotions can be downright addicting to both the company
and the customer. The point is that promotional pricing can be an effective means of generating
sales in certain circumstances but can be damaging if taken as a steady diet.
e. Geographical Pricing
A company also must decide how to price its products for customers located in different parts of
the country or world. Should the company take risk of losing the business of more distant
customers by charging them higher prices to cover the higher shipping costs? Or should the
company charge all customers the same prices regardless of location? Because each customer
picks up its own cost, supporters of FOB pricing feel that this is the fairest way to assess freight
charges. The disadvantage, however, is that Peerless will be a high-cost firm to distant
customers? Uniform-delivered pricing is the opposite of FOB pricing. Here, the company
charges the same price plus freight to all customers, regardless of their location. The freight
charge is set at the average freight cost. Other advantages of uniform-delivered pricing are that it

is fairly easy to administer and it lets the firm advertise its price nationally.
Zone pricing falls between FOB-origin pricing and uniform-delivered pricing. The company sets
up two or more zones. All customers within a given zone pay a single total price; the more
distant the zone, the higher the price. Using base point pricing, the seller selects a given city as a
"basing point" and charges all customers the freight cost from that city to the customer location,
regardless of the city from which the goods are actually shipped. If all sellers used the same
basing-point city, delivered prices would be the same for all customers and price competition
would be eliminated.
Industries such as sugar, cement, steel, and automobiles used basing-point pricing for years, but
this method has become less popular today. Some companies set up multiple basing points to
create more flexibility: They quote freight charges from the basing-point city nearest to the
customer. Finally, the seller who is anxious to do business with a certain customer or
geographical area might use freight-absorption pricing. Using this strategy, the seller absorbs all
or part of the actual freight charges in order to get the desired business. The seller might reason
that if it can get more business, its average costs will fall and more than compensate for its extra
freight cost. Freight absorption pricing is used for market penetration and to hold on to
increasingly competitive markets.
f. International Pricing
Companies that market their products internationally must decide what prices to charge in the
different countries in which they operate. In some cases, a company can set a uniform worldwide
price. The price that a company should charge in a specific country depends on many factors,
including economic conditions, competitive situations, laws and regulations, and development of
the wholesaling and retailing system. Consumer perceptions and preferences also may vary from
country to country, calling for different prices. Or the company may have different marketing
objectives in various world markets, which require changes in pricing strategy. Costs play an
important role in setting international prices. Travelers abroad are often surprised to find that
goods that are relatively inexpensive at home may carry outrageously higher price tags in other
countries. In some cases, such price escalation may result from differences in selling strategies or
market conditions. In most instances, however, it is simply a result of the higher costs of selling
in foreign marketsthe additional costs of modifying the product, higher shipping and insurance
costs, import tariffs and taxes, costs associated with exchange-rate fluctuations, and higher
channel and physical distribution costs.

Price discrimination
Price discrimination or price differentiation
[1]
exists when sales of identical goods or services
are transacted at different prices from the same provider.
[2]
In a theoretical market with perfect
information, perfect substitutes, and no transaction costs or prohibition on secondary exchange
(or re-selling) to prevent arbitrage, price discrimination can only be a feature of monopolistic and

oligopolistic markets,
[3]
where market power can be exercised. Otherwise, the moment the seller
tries to sell the same good at different prices, the buyer at the lower price can arbitrage by selling
to the consumer buying at the higher price but with a tiny discount. However, product
heterogeneity, market frictions or high fixed costs (which make marginal-cost pricing
unsustainable in the long run) can allow for some degree of differential pricing to different
consumers, even in fully competitive retail or industrial markets. The effects of price
discrimination on social efficiency are unclear. Output can be expanded when price
discrimination is very efficient. Even if output remains constant, price discrimination can reduce
efficiency by misallocating output among consumers. Price discrimination requires market
segmentation and some means to discourage discount customers from becoming resellers and, by
extension, competitors. This usually entails using one or more means of preventing any resale:
keeping the different price groups separate, making price comparisons difficult, or restricting
pricing information. The boundary set up by the marketer to keep segments separate is referred
to as a rate fence. Price discrimination is thus very common in services where resale is not
possible; an example is student discounts at museums: In theory, students, for their condition as
students, may get lower prices than the rest of the population for a certain product or service, and
later will not become resellers, since what they received, may only be used or consumed by
them. Another example of price discrimination is intellectual property, enforced by law and by
technology. In the market for DVDs, DVD-players are designed and produced- by law- with
hardware or software to prevent inexpensive copying or playing of content purchased legally
elsewhere in the world (for example legally purchased in India) from being used in a higher price
market (like in the US or Europe). The Digital Millennium Copyright Act has provisions to
outlaw circumventing of such devices to protect the enhanced monopoly profits that copyright
holders can obtain from price discrimination against higher price market segments. Price
discrimination can also be seen where the requirement that goods be identical is relaxed. For
example, so-called "premium products" (including relatively simple products, such as
cappuccino compared to regular coffee with cream) have a price differential that is not explained
by the cost of production. Some economists have argued that this is a form of price
discrimination exercised by providing a means for consumers to reveal their willingness to pay.

Types of price discrimination
First degree price discrimination
This type of price discrimination requires the monopoly seller of a good or service to know the
absolute maximum price (or reservation price) that every consumer is willing to pay. By
knowing the reservation price, the seller is able to absorb the entire consumer's surplus from the
consumer and transform it into revenues. The seller produces more of his product than he would
to achieve monopoly profits with no price discrimination, which means that there is no
deadweight loss. Examples of where this might be observed are in markets where consumers bid

for tenders, though, in this case, the practice of collusive tendering could reduce the market
efficiency.
[4]

Second degree price discrimination
In second degree price discrimination, price varies according to quantity demanded. Larger
quantities are available at a lower unit price. This is particularly widespread in sales to industrial
customers, where bulk buyers enjoy higher discounts.
[5]

Additionally to second degree price discrimination, sellers are not able to differentiate between
different types of consumers. Thus, the suppliers will provide incentives for the consumers to
differentiate themselves according to preference. As above, quantity "discounts", or non-linear
pricing, is a means by which suppliers use consumer preference to distinguish classes of
consumers. This allows the supplier to set different prices to the different groups and capture a
larger portion of the total market surplus.
In reality, different pricing may apply to differences in product quality as well as quantity. For
example, airlines often offer multiple classes of seats on flights, such as first class and economy
class. This is a way to differentiate consumers based on preference, and therefore allows the
airline to capture more consumer's surplus.
Third degree price discrimination
In third degree price discrimination, price varies by attributes such as location
[6]
or by
customer segment, or in the most extreme case, by the individual customer's identity; where the
attribute in question is used as a proxy for ability/willingness to pay.
Additionally to third degree price discrimination, the supplier(s) of a market where this type of
discrimination is exhibited are capable of differentiating between consumer classes. Examples of
this differentiation are student or senior discounts. For example, a student or a senior consumer
will have a different willingness to pay than an average consumer, where the reservation price is
presumably lower because of budget constraints. Thus, the supplier sets a lower price for that
consumer because the student or senior has a more elastic Price elasticity of demand (see the
discussion of Price elasticity of demand as it applies to revenues from the first degree price
discrimination, above). The supplier is once again capable of capturing more market surplus than
would be possible without price discrimination.
Note that it is not always advantageous to the company to price discriminate even if it is
possible, especially for second and third degree discrimination. In some circumstances, the
demands of different classes of consumers will encourage suppliers to ignore one or more classes
and target entirely to the rest. Whether it is profitable to price discriminate is determined by the
specifics of a particular market.

Fourth degree price discrimination
In fourth degree price discrimination, prices are the same for different customers, however
costs to the organization may vary. For example, one may buy a plane ticket, but call ahead to
order a vegetarian meal, possibly costing the company more to provide, but your ticket has no
greater cost to you. This is also known as reverse price discrimination, as the effects are reflected
on the producer.
Combination
These types are not mutually exclusive. Thus a company may vary pricing by location, but then
offer bulk discounts as well. Airlines use several different types of price discrimination,
including:
Bulk discounts to wholesalers, consolidators, and tour operators
Incentive discounts for higher sales volumes to travel agents and corporate buyers
Seasonal discounts, incentive discounts, and even general prices that vary by location.
The price of a flight from say, Singapore to Beijing can vary widely if one buys the ticket
in Singapore compared to Beijing (or New York or Tokyo or elsewhere).
Discounted tickets requiring advance purchase and/or Saturday stays. Both restrictions
have the effect of excluding business travelers, who typically travel during the workweek
and arrange trips on shorter notice.
First degree price discrimination based on customer. It is not accidental that hotel or car
rental firms may quote higher prices to their loyalty program's top tier members than to
the general public.

Communication

Retail means selling the product or service to the end users or consumers for direct consumption.
General store, super market, speciality store, mall, doctors clinic and beauty parlour etc these
are examples of retail .In retail effective communication is required to attract customer and to
increase the sale. Communication is defined as a transfer of ideas, emotions, and thoughts from
one person to another person to get expected response. Communication in retail business
includes listening skill, team communication, oral communication, nonverbal communication,
handling difficult customer interactions, feedback skill. Verbal communication means the
communication where the words are used. Nonverbal communication means communication
without words but using nonverbal cues. Retailers conscious use of these communication skills
can foster positive relationship between retailer and customer. As retailing is a people oriented
business and job of retailer requires that he has to be in constant contact with customer.

Communication skills important in retail job in all selling and buying are listening, team
communication, oral communication, nonverbal, handling difficult customer interactions and
feedback skills.
1) Effective listening: -
Retailer has to listen to informal customer remarks, formal
statements and comments, complaints, arguments, uncalled question, professional and non
professional discussion, sales interaction, customer feedback, listening with patience and
understanding is needed in retailing for retaining customers.

2) Team communication:-
In order to take an active part in the team process in retail, retailer requires team communication
as it can do wonders for his business to get professional success.
Required traits for fostering team communication are as follows-

Ability to interact.
Ability to persuade your group.
Ability to present personal view in effective way.
Capacity to develop your ideas logically.
Ability to analyse and respond the views expressed by other members.
Ability to become leader while working in a team.

3) Oral communication
Skill : - Oral interaction, telephone calls, customer meeting,
product discussion, sales conferences are significant needs of retail. Oral communication is a tool
to retail professional for successful business interactions.
The retailer should know how to-
Ask and answer questions.
Express opinions and comments.
Ask opinions

Express general comment.
Agree and disagree.
Seek suggestions.
Give suggestions.
State the point of views.
Interact with customers.
Discuss with customers and peers.
Invite discussions.
Initiate discussions.
Initiate topic shifts.


4) Handling difficult customer:-
Not all customers are pleasant and friendly some may
difficult to interact, tactful interaction is needed. Retailer can follow following tactics:-
Understand customers better.
Prevent difficult situations.
Be sensitive to customers needs and requirements.
Engage in more productive customer interactions.


5) Assertiveness skills: -
Assertiveness is an important skill that retail professional
should learn because it is crucial in retailing. It creates positive image, respect for othersand
emotional intelligence in retailer.

6) Feedback skill: -
As communication is two way process. . Retailer needs to give and
receive feedback. The basic purpose of feedback is facilitating the process of improvingand
managing retail.

7) Use of Nonverbal in retail:-
Non verbal communication includes the factors like-
Facial expressions, eye contact, physical appearance, haptics, proxemics, vocalics, physical
appearance etc. Conscious use of nonverbal is skill required to get maximum customers.

Importance of nonverbal in retail can be discussed as follows-
Facial expressions: -
Facial expressions of the retailer are way to make relationship
with the customers. Face with smile can establish positive relationship with the customers. The
pleasant face always builds positive communication. Facial expressions of customerare also
important to know whether the customers are satisfied or not.
Eye contact:-
Maintaining eye to eye contact with customers enables retailer to know
many things which words alone may not express. When the store keeper does not cover all the
customers, possibility is that he may lose those neglected customers. So the retailer
always tries to cover all the customers. In large stores like super markets, malls various
attendants are kept to pay separate attention towards every customer. Sales person who can keep
positive eye contact can increase sale. Retailer can understand likings with eye contact with the
customer.

Haptics :-
Haptics means communication with touch. Doctor and beauticians are retailers who provide the
service to the customers. In the medical profession; doctors use the touch therapy for some

treatments. Beautician applies haptics in massage and skin treatments. Thus touch is also capable
of communicating with customers.

Proxemics:-
When Place communicates it is called as proxemics. For growing business
location of store should be right. To attract the customers the location of the store is always kept
convenient for customers. Thus place of store communicates its importance. So every
businessman wants to get the market place for his shop.

Artefacts:-
Some objects kept in the certain place communicate. The furniture kept in
Barbers shop is not suitable for Medical shop. The layout of store is a factor where we consider
the interior and exterior of the store. These factors affect the sale of the store.

Vocalics:-
Vocalics means using voice and tone for communication. Retail in Indian
scenario is different from those developed countries. Hawkers, peddlers use to go place to place
to sell. These retailers have to attract the customers for that they shout. Thus they use vocalics.

Physical appearance:-
All sales persons, air hostesses, front office personal, as well
as lead actors are chosen carefully to lessen the resistance to them and have a favourable
impression of the firms they represent. All these personalities mainly have attractive physical
appearance. The attractive personality or appearance has major role in communication to make it
effective. So retailer should consciously try to make better appearance and grooming.

Retail Communication Forms: -

Most retail stores have established many forms of communication to assist customers even prior
to trekking to the store. These systems include a web site, email, fax, online shopping, automated
attendant, custom call routing
(CCR) and enhance the customer experience. After all, the ultimate goal is to quickly and
efficiently service the needs of the customer while maximizing a return.

Challenges in Retail Communication:-
Due to modernization and globalization communication in retail is facing following challenges-
Analyse and prioritise product information and relate it to customer.
Knowledge of high-tech communication capabilities.
Ability to understand and appreciate customer sensitiveness.
Skills to analyse and handle difficult sale situation.
Ability to handle difficult customer reaction.
Inter cultural communication competence.


Importance of communication for retail professional:-
In addition to the product
knowledge and sales efficiency, effective communication with customer result in-
Increased sales.
Better customer relationship.
Steadier work flow to improve gain ability.
To add value in numerous ways.
Foster work teams.
Get feedback.
Positive attitude.
Motivation

Cooperation in organisation.

Business customer and maintenance of good professional relation.

Conclusion

To conclude, Communication skills in retail should be learnt by the retailer to
make it effective communication so that customer can trust retailer. Communication is two way
process. Communication cycle results maximum buying customers that means maximum profit.
In the age of modernization and globalization retailer needs to be aware of communication skills
viz. listening skill, oral skill, feedback skill, assertiveness skill, nonverbal communication. By
knowing various retail communication forms, importance
and challenges in retail communication, retailer can manage his business easily.