Exam 2 Retl 366 USC study guide
Exam 2 Retl 366 USC study guide RETL 366 002
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This 8 page Study Guide was uploaded by Sarah Albert on Friday January 29, 2016. The Study Guide belongs to RETL 366 002 at University of South Carolina taught by Addie Martindale in Summer 2015. Since its upload, it has received 71 views. For similar materials see Retail Buying in Retail at University of South Carolina.
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Date Created: 01/29/16
Study Guide Exam 2 Retl 366 Chapter 6 Product Selection Decisions ● Merchandise Mix the types or mix of products that are available for customers to purchase o The merchandise mix must be frequently monitored because an appropriate mix today may not contain the right products tomorrow ● Product line a group of products that are closely related because they function in a similar manner ● Decisions made by top management in the following areas will determine the image that the store projects to its customers: Target market, competition, store location and layout, merchandise selection, and personnel o Skilled knowledgeable personnel are necessary when stores offer some products such as designer gowns, cameras, or computers ● Products based on Availability availability refers to the amount of effort customers are willing to exert to obtain a particular product. Products purchased can be grouped into four categories: Convenience products, impulse products, shopping products, and specialty products o Convenience examples Batteries, candy, toothpaste, fast food, and gas o Seeing a product demonstrated in a department store stimulates impulse purchases o Specialty product examples Perfume a customer always wears or a new Barbie to add to collection ● Products based on Durability and Quality how long a product will last o Durable products are capable of surviving many uses and usually last for years such as cars furniture or appliances ▪ During difficult economic times, consumers tend to stretch the life of durable products o Nondurables products that are used up in a few uses or become out of date as styles changes ▪ Largest category of nondurables food products ● Purchases based on fashion appeal o Style is a basic and distinctive mode of expression the appearance of a product ▪ Can be eye catching or may never excite shoppers o Fashion is the currently accepted or popular style. The key element that causes change in fashion is the customer o Retailers welcome the addition of fashion items into their inventory because it encourages customers to buy new products; fashion items give your store a competitive advantage, stimulates sales, and enhances store image ● Purchasing new products before adding new products consider o The compatibility, potential profitability, the placement of existing products within the product life cycle, the appropriateness of the new product, do customers expect your store to have new products, and the ability of the competition to offer the same or similar products ● Purchasing fads Fads are products that enter the marketplace quickly, are purchased with zeal, and then see sales that decline quickly. Help keep store vital and attract customers. Inflexible ▪ Fads change so quickly that buyers must frequently monitor trends in the marketplace ▪ Frequently buyers over purchase products that are fads ▪ The end is near for a fad when goods are offered in all types of stores at constantly lower prices o Trend gradual sale growth that turns into stable business Product life cycles and Fashion Adoption theories ● The product life cycle illustrates the expected behavior of a product over its lifet me ▪ Items are typically priced at their highest during the introduction stage, Price cutting usually happens during the decline stage o Introduction stage low sales and losses as well as high risk. A high price strategy is probably used o Growth Stage at this stage innovative customers purchase the product and recommend them to friends ▪ These are the most desireable products because they are characterized by accelerating sales and the highest profit levels of any stage o Maturity stage sales increase at a slower rate and finally begin to level off ▪ Highly competitive market, falling prices and profits, and more intense advertising o Decline stage The target market is composed of price conscious individuals and laggards ▪ Heavy markdowns are taken on remaining inventory ▪ Price cuts, high risk low reward ● Different consumer groups o Innovators more likely to purchase a new style o Early adopters purchase products in its early rise stage o Late adopters accept product past its peak o Laggards adopt products during decline stage ● Fashion Adoption theories o Downward flow theory fashion innovators are those people at the top of the social pyramid such as royalty, world leaders, and the wealthy o Horizontal flow theory fashion adoption moves horizontally within groups ▪ Within each social class, there are innovative customers who act as opinion leaders o Upward flow theoryfashion innovators are the young Using product life cycles and adoption theories ● Timing product selection must reinforce the stores reputation as either a leader or a follower ● Forecasting by knowing what the innovators are purchasing, you may be able to pick the next hot product for your customers ● Product elimination knowing the stages of the product life cycle in which the product happens to be allows you to determine when products should be eliminated from stock Creating product differences ● Brand names o National brands products that are sold almost everywhere o Private brands belong to a particular retailer and can be found on products sold exclusively at that store o Generic brands typically found at grocery and drug stores, attach no significant identity to the product through the name ● Licensed products designed and sold through identification with a celebrity or corporate name, logo, slogan, or fictional character o Sales for many licensed products drop off very quickly. It is therefore crucial that these products are available for purchase while theyre hot (timing) ● Mass customization Customers choose their options, and their product is assembled according to their specifications o Provides customer with exactly what they want Chapter 7 Scope of Forecasting ● The most important forecast the sales forecast prediction of future sales for a specified period under a proposed marketing plan ● Sales forecasts can include: Specific products or services( brands or models), Specific consumer groups, time periods, specific store location ● Preparing sales forecasts requires buyers to think about target market group the store is trying to serve, existing and potential competitors, and future trends occurring in the market and the economy Developing Sales Forecasts ● The most important source of information when buyers develop sales forecasts is past sales records ● Examining Internal forces future sales can be affected by: increasing or decreasing advertising expenditures, liberalizing or tightening credit policies, increasing or decreasing retail prices, and changes in store hours or physical facilities o Such as expansion of sales space or reduction in the number of salespeople ● Examining external forces o Economic conditions both the national and local economic climate should be analyzed. Headlines from the newspapers affect buyers decisions ▪ A downturn in the economy and business closings could cause a buyer to project a decrease in sales o Demographic trends must be alert to all changes in the composition of your customer base. Even lifestyle changes in your target market are noteworthy o Competitive conditions be aware of current competitors closing their doors and new competitiors openings. Your competitors promotional strategies may also change ▪ New competitors moving into a market or the competition making a large increase in promotional activities could cause a buyer to project a decrease in sales Acquiring Needed Data ● Primary data sources retailers use customer surveys to forecast future consumer buying patterns o Techniques include: holding weekend focus group sessions, reading comments from the suggestions box, and speaking with customers and employees ● Secondary sources data that are gathered for some other purpose but are applicable to solving your problem may be out of date o in volatile times, data more than five years old is likely of little value. Determine the bias of the source that collected the data o Easier to obtain and is usually free or can be obtained at a low cost o The survey of buying power contains information on markets by state, country, and MSA Making Sales Forecasts ● Review past sales ● Analyze changes in economic conditions ● Analyze changes in sales potential for specific products ● Analyze changes in marketing strategies of your firm and the competition ● Forecast sales o Forecast that underestimates sales Underestimating sales will result in an inadequate amount of inventory, causing the store not be able to satisfy customer demand. Customers could therefore be lost to the competition o Forecast that overestimates sales cause expense percentages to increase and profits to fall below expectation ● Sales forecasts stimulate planning of other decisions such as planned inventory levels and prices, promote coordination between merchandising and other areas of the store, and support control activities by becoming the basis for measuring the success or failure of a buyers efforts Making adjustments ● Actual sales should be periodically monitored to determine the accuracy ● Overestimating sales will require changes in marketing strategies Forecasting decisions ● Forecasting sales Practice and experience will enable you to make more precise and reliable forecasts o The accuracy of a forecast will depend on the accuracy of past records and the buyers ability to interpret that information in relation to current trends o Forecasts are affected by: internal and external factors, and different numbers of selling days in a month during different years ▪ Internal forces that should be considered along with past sales records when forecasting sales increasing or decreasing advertising expenditures, liberalizing or tightening credit policies, or increasing or decreasing retail prices ▪ External factors economic conditions, demographic trends, and competitive conditions o Percent increase or decrease in sales= difference in sales from last year to this year divided by previous years sales ● Planning inventory levels merchandise in stock must be sufficient to meet sales expectations while allowing for unanticipated demand o Stock to sales ratio maintaining inventory at a specific ratio to sales ▪ =value of stock/ actual sales ▪ Sources for industry wide stock to stock ratios the merchandising and operating results of department and specialty stores and Industry norms and Key business rations o The stock to sales ratio is used to calculate planned BOM stock levels ▪ Planned BOM inventory stock to sales ratio x planned sales ● Determining stock turnover o Stock turnover rate the number of times the average stock is sold during a given period ▪ = sales/ average stock ▪ Increased stock turnovers reduce the number and amount of markdowns required to move old merchandise. Merchandise that is being replaced frequently always looks fresh and generally has greater appeal to customers ▪ Stock turnover is impacted by the type of merchandise carried by a store and store policies; less frequently purchased items vs. more frequently purchased items o The average stock for any period of time equals ▪ The value of inventory at the beginning of the period ▪ Plus the value of inventory at predetermined periods during the period(such as end of the month) ▪ Plus the value of inventory at the end of the period divided by the total number of stock listings Future direction of sales forecasting ● Quantitative skills of buyers must improve ● More competitive conditions and more volatile markets will increase the difficulty of making accurate forecasts ● The successful buyer can merge computer forecasts with personal insights about the market Chapter 8 Merchandising Management ● Merchandise plan a projection in dollars of the sales goals of the store or department over a specified period of time, usually six months ● After the development of a merchandise plan, turnover should increase. Merchandise customers wants should be readily available for them to purchase ● Top down planning top level management estimates total sales for the period. Expected sales for each department are planned according to past contributions to the sales of the entire store o Top management tends to have a better perspective of all economic and competitive conditions facing the business than would other employees ● Bottom up planning sales for the store are determined by adding together the planned sales figures developed by each department manager ● Using top down and bottom up planning involves more views in the planning process. Employees who have to carry out the plan are involved in the proves and may be more likely to adopt the plan as their own ● Six month merchandising plan translates profit objective into a framework for merchandise planning and control o Normally conforms to two selling seasons spring to summer or fall to winter ● Purpose of the plan To provide an estimate of the amount of capital required to be invested in inventory for a specific period and to provide an estimate of planned sales for the period that translates into cash flow estimates for store management and accounting personnel o If a merchandise plan is used successfully, the following outcomes should occur: Increased turnover, reduced amount of markdowns, improved ability to maintain markups, maximized products, and minimized inventory investment ● Components of the plan: Initial markup for the period, planned net sales, planned beginning of the month inventory, planned end of the month inventory, planned reductions, planned purchases at retail, planned purchases at cost o Each of these components is further divided by: Last year(actual), Plan(this year), revised(this year), actual( this year) Preparation of a six month merchandise plan ● Planned sales obtain sales data from last years merchandise plan o Calculate last years monthly sales figures as a percentage of last years total sales ▪ Revised(this year) gives the buyer the opportunity to make adjustments in months later in the season if trends during the first months of the plan vary greatly from actual results o You would plan for the following percent of sales to occur each month, assuming you detected no major changes during the current season and a sales analysis of previous years indicates that the percentage of total sales has remained fairly constant o Determine the total planned sales volume for the season o These figures would then be enterned on the 6 month merchandise plan on the planned line ● Planned BOM inventory o Stock to sales method there must be an adequate opening merchandise assortment to meet anticipated customer demand o Buyer must define the relationship between: the planned BOM inventory for a given month and the planned sales for that month o Calculate stock to sales ratios from trade sources and an examination of past years sales and inventory data o Calculate planned BOM inventory using the stock to sales ratio and planned sales for the current year ● Planned EOM inventory the eom stock for any month is the planned BOM stock for the following month ● Planned reductions reductions include: Markdowns, employee discounts, and shrinkage o Estimates are based on past experience and are presented as a percent of planned sales o Total reduction in dollars total planned sales multiplied by the reduction perent ● Planned purchases at retail purchases must be planned at retail first because all the other figures are based on retail o Planned purchase= planned sales + planned EOM + Planned reductions – Planned BOM ● Planned purchase at cost= (100% initial markup %) x planned purchase at retail Basic stock planning ● For basic merchandise, purchases can be calculated using: sales volumes per week, reorder period, delivery period, and reverse stock levels ● The maximum is the amount of merchandise that must be on hand at any reordering point o Maximum= sales volume pre week(reorder period + delivery period) + reserve ● A basic stock list provides information such as: a description of the item, the retail price, the cost to the store, the maximum, the rate of sale, and the minimum reorder quantity Open to buy planning ● Not all the required monthly stock is purchased at the beginning of the month ● Open to buy is the amount the buyer has left to spend for a period, and is reduced each time a purchase is made ● Benefits and uses of open to buy: limit over and underbuying, prevent loss of sales due to inadequate amount of stock, maintain purchases within budgeted limits, reduce markdowns, increases sales, improve stock turnover, and ● hold back purchase dollars to reorder fast selling merchandise, to take advantage of off price merchandise or to sample new merchandise ● Planned purchases would equal open to buy if no purchases have been ssued for merchandise to be ordered for the period ● Overbought situations occur when buyers make inaccurate sales forecasts, fail to reorganize sales or fashion trends, or have the wrong merchandise in stock Chapter 9 Planning merchandise assortments Determine the specific quantities and characteristics of each product in relation to : brands, colors, sizes, materials Factors affecting merchandise assortments ● Type of merchandise o Fashion or basics ▪ fashion high demand over a relatively short period of time, usually a season ● buyers must quickly identify best sellers and place reorders immediately ▪ Basics items customers expect in stock at all times ● Seasonal basics desired by customers only during certain times of the year o Convenience or specialty products ▪ Convenience goods items customers expect the store to have readily available such as candy, hardware, health and beauty aids, and stationary ▪ Specialty goods products customers will usually accept only in well known brands such as silverware, china, appliances, designer apparel, and cosmetics ● Store policies o Quality and price range ▪ if quality is a strong appeal, prducts should be constructed from the best material available ▪ if your customers are price conscious, the highest quality materials may not be as important as the desired price range o Exclusivity most customers prefer shopping at stores that have the reputation for carrying exclusives o Brands ▪ National brands in most product classifications, dominate sales because of national advertising support. Represent quality to many customers ▪ Private brands usually more profitable to retailers because they have more control over merchandising decisions ▪ Generics unbranded items in plain packages that receive secondary shelf locations and obtain little or no advertising support ● Variety of merchandise available o Product line a broad category of products having similar characteristics and similar uses o Breadth the number of product lines carried or brands carried within a product classification ▪ Broad stock breadth allows the retailer to appeal to a larger market ▪ Narrow stock breadth usually allows the store to offer fewer brands in a larger number of styles, colors sizes and materials o Depth the number of choices offered to customers within each brand or product classification ▪ narrow and deep large stocks of a few product categories or brands ▪ broad and shallow wide stock breadth and very little depth ▪ balanced assortment when the breadth and depth meet the demands of your customers ▪ cannibalization when potential sales of existing products are lost to new items Merchandise classifications ● a system is needed to provide the means for better planning and control of this inventory ● classifications refer to the particular kinds of goods in a store ● for merchandising and control purposes, each classification and subclassification is usually assigned an identification number ● The product characteristics most important to your customers as they make decisions o Brand you must determine if your customers exibit brand loyalty when they purchase specific products ▪ If most are not brand loyal, you will not need to offer a broad selection of brands o Price if one product classification has appeal to several income ranges, you will need to offer variations of that product at more than one price ▪ Customers for higher priced merchandise tend to buy in the early part of the season o Size size requirements for customers remain fairly consistent from one period to another ▪ Decisions for a product classification are therefore based almost entirely on past records o Color the popularity of products in certain colors allows you to determine the degree to which your customers were fashion conscious when they accepted fashion colors in the past o Material past sales help you determine the most popular material in which products should be stocked, such as leather handbags or pure cotton shirts Preparing an assortment plan ● Assortment planning will result in establishing a model stock, the desired assortment of stock broken down according to factors important to your target market, such as brand, price, material, color, and size ● Step one decide what classifications of products your store will carry ● Step 2 determine the brands and price lines that you will carry for each subclassification ● Step 3 identify all the general characteristics of an item that customers may consider when purchasing it o Make purchases according to the most important characteristics in relation to the majority of your customer ● Step 4 decide on the proportion of one classification to another o Determine the proportion in which each selection factor will be represented in your stock ● Step 5 calculate the specific number of units to purchase 1. Merchandise mix is the types or mix of products that are available for customers to purchase. It must be frequently monitored because an appropriate mix today might not contain the right products tomorrow 2. The image that your store is attempting to project will also have a direct impact on the types of products that you will purchase. Personnel is one of the factors that will determine the image that the store projects to its customers. Skilled, knowledgeable personnel are necessary when stores offer some products such as designer gowns, cameras, or computers. 3. Mass merchants and discounters are promoting brands to develop a fashion image. JCPenny has added many national brand names, while kmart has developed private brands such as Jaclyn smith, to create a more fashionable image. 4. Convenience products are those products that the customer is not willing to spend time, money, and effort in locating, evaluating, and purchasing. Examples include batteries, candy, toothpaste, fast food, and gas. 5. Impulse products are purchased by customers because of an irresistible urge. Stimuli, such as smell and touch, often trigger the purchase of these types of products. Seeing a product demonstrated in a department store stimulates impulse purchases pf many products, such as the latest kitchen gadget 6. Specialty products are those products for which customers buying behavior is geared to obtaining a particular product without regard to time, effort, or expense and they will not accept a substitute. Examples could be a particular brand of perfume customers always use or the newest Barbie doll for their collection 7. Durables are products such as cars furniture and appliances that are capable of surviving many uses and usually last for years. During difficult economic times, consumers tend to stretch the life of durables and hold onto them as long as possible 8. A fashion is the currently accepted or popular style. Style is the characteristics or distinctive way a product looks the combination of features that makes it different from other items. 9. Manufacturers and retailers cannot dictate what products will become fashion customers make that decision when they make purchases. Customers determine fashion, 10. Most buyers welcome the addition of fashion items into their inventory because new products tend to stimulate sales and enchance the stores image 11. Fashions also change because of technology. New fibers have altered most apparel. And technology itself spreads the word on new fashions and trends tv and the internet have greatly increased the speed of new fashion awareness and acceptance by customers 12. new fashions create ripple effects with new customer needs. When the length of skirts changes, women will probably purchase new slips, shoes and hosiery. So as you make new product purchase, you must determine the impact on other products that your store is selling 13. Products th
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