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MKTG 488 Retail Marketing Exam 2 Study Guide

by: Collin Nordstrom

MKTG 488 Retail Marketing Exam 2 Study Guide MKTG 488

Marketplace > University of Mississippi > Marketing > MKTG 488 > MKTG 488 Retail Marketing Exam 2 Study Guide
Collin Nordstrom

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About this Document

This is a study guide for Dr. Newman's 2nd Exam at the University of Mississippi. The Chapters covered are 12, 13 and 14. The material covers: Managing the Merchandise Planning Process Buying M...
Retail Strategy
Dr. Christopher Newman
Study Guide
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This 9 page Study Guide was uploaded by Collin Nordstrom on Sunday October 9, 2016. The Study Guide belongs to MKTG 488 at University of Mississippi taught by Dr. Christopher Newman in Fall 2016. Since its upload, it has received 9 views. For similar materials see Retail Strategy in Marketing at University of Mississippi.


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Date Created: 10/09/16
MKTG Exam 2 Study Guide Chapters 12,13,14 For anyone who doesn’t know, Dr. Newman uses power-points with missing words in order for students to stay focused during class, and help them retain vocab better. The missing words are shown. Chapter 12: Managing the Merchandise Planning Missing words Process on CH. 12 power-point The main idea looking ahead to merchandise planning is that: 1.Financial 2.Markdowns A retailer attempts to offer the right quantity of 3.Category the right merchandise, in the right place and at 4.Category the right time, to meet the company’s financial Captain goals. 5. Do NOT 6. Do Broken down into three categories of management 7. Sales that are used as analysis for making merchandising 8. Sales management decisions: 9. Weather 10. Assortment Merchandise Category 11.Complementar  - An assortment of items that customers y see as substitutes for each other. 12. SKU Category Management 13. Buffer 14. Demand  -Objective is to maximize the sales and profits of a category 15. Buyer Category Captains 16. Three  -Selected vendor that is responsible for 17. Physical 18. Three managing a certain category  Responsibilities would include that the supplier helps give information and advise to a company in order to help better their product. Merchandise Managers Do NOT Have Control on things like:  Operating Expenses  Human Resources  Real Estate  Supply Chain Management  Information Systems The 6 Steps a Merchandise Manager must process are to: 1. Forecast sales 2. Develop an assortment plan 3. Determine the appropriate inventory level 4. Establish control systems for managing inventory 5. Allocate merchandise to stores 6. Analyze merchandise management performance To go a bit more in depth: When developing a sales forecast, it’s key to really research and learn a lot about your product. You must understand things such as:  The product’s life cycle  Data on sales of your own product as well as comparable products.  Projects sales  Coordination between manufacturing and merchandise delivery given a forecasted demand Factors that might affect sales forecasts are generally controlled, but could get out of hand. Examples of controlled factors are: promotions, store locations, merchandise placement, cannibalization (sales for one of your products eating up sales from your others)* And the ones we don’t have any control over are: Seasonality, weather, competitive activity, product availability, and economic conditions. Assortment Plan- A list of SKUs that a retailer will offer in a specific merchandise category.  Variety- Number of different categories within a store or department. *Think: a large quantity of different products, but not a lot of options for a specific item  Assortment- Number of SKUs within a given category. *Think: a lot of options for one thing, not very many things to choose from One way small stores, which can’t fit much inventory, are able to sell more than they hold is online where the inventory comes straight from the manufacturer Determining Proper Inventory Levels When you own a store, you need to make sure you never run out of your given product. You must make sure that each product is readily available at all times, which can be tricky. To understand how much inventory to keep, managers must keep track of a Model Stock Plan, which allows them to keep track of each SKU in assortment plan that are available.  This Product Availability is the % of demand for a particular SKY that is satisfied.  The backup (Buffer) stock in the plan determines product availability  The higher the backup stock, the high the product availability The three classification of merchandise (known as ABC classification) are: Higher (A) Medium (B) Lower (C) (each describing product availability) These fluctuate in demand, lead time for delivery from vendor, and frequency of store deliveries. Managing Inventory Buyers determine:  The basic stock and assortment plan  Level of backup While the System put in place:  Monitors inventory levels  Automatically reorders when inventory get below a specified level. If the inventory goes too far below the level, the retailer will likely run out of stock before the next order arrives. This is known as The Order Point (equation later on) Allocating Merchandise to Stores Three decisions that are involved when allocating merchandise to stores are: What Type of merchandise to allocate How much merchandise to allocate to each store When to allocate the merchandise to different stores Retailers consider: - Annual Sales of their stores o ABC System - Consumer Characteristics in stores’ trading (primary, secondary, tertiary) areas. - Physical characteristics of merchandise. Analyzing Merchandise Management Performance Three types of analyses retailers use when evaluating performance are:  ABC analysis of assortments  Sell through analysis  Multiattribute analysis of vendors (more on this later) Chapter 12 Equations to know: Gross Margin Return on Investment: GMROI We use this when evaluating merchandise management performance. It measures how many gross margin dollars are earned on every dollar of inventory investment made by a buyer in a certain category. There are two ways to calculate GMROI: gross margin GMROI= avg. inventory at cost gross margin % × sales-to-stock ratio If you aren’t given gross margin, gross margin %, and/or sales-to-stock ratios: Gross Margin = Net sales – COGS (cost of goods sold) Gross Margin % = Gross Margin Net Sales Sales-to-Stock Ratio = Net Sales Average Inv. at Cost Missing Words Ch. Chapter 13: Buying 14 Power-Point Merchandise (slide #’s) 2. National “What kind of merchandise should 3. Lower we get, how are we gonna get it?” 4. Trade Shows In this chapter we 5. Appointment focused on types of 6. Retailer brands and what their 7. Unique pros and cons are. 9. Premium Brand Alternatives 10. Copycats National 11. Exclusive (Manufacturer) Brands 12. Generic 13. In- House 14. Acquisition 15. Costs 16. Exclusivity 17. Chargebacks -Designed, produced, and marketed by a vendor. -Sold by many different retailers Examples are household names such as Dawn, Vicks, Lays, Bud Light… etc Pros Cons -Helps retailers build -Lower Margins image and traffic flow -Reduces selling & - Vulnerable to competitive promotional expenses pressures -More desirable than - Limit retailers flexibility private labels - Share financial risk Who’s buying National Brand Merchandise? Wholesale Market Centers  Regional Centers (Dallas, Atlanta, Miami)  National Centers (New York)  International Centers (London, Milan, Paris, Tokyo) Trade-Shows  Las Vegas Consumer Electronics Show  Atlanta Super Show for Sporting Goods Internet Exchange  Worldwide Retail Exchange Process of Buying National Brand Merchandise 1. Meet with vendors via appointment at market/trade-show 2. Discuss performance of vendor’s merchandise during previous season 3. Review vendor’s merchandise for upcoming season 4. May (not guaranteed) place orders for upcoming season Private-Label Brands (Store, House, Own) Developed by a Retailer Only sold in that retailer’s stores Examples of this are: Great Value (Walmart), 365 (Whole Foods) Pros Cons - Unique Merchandise -High design, sourcing, & - Exclusivity boosts loyalty manufacturing costs - Difficult for customers to - Need expertise in developing & compare competition prices promoting brand - Higher Margins -Difficult to sell any excess merch. - Reinforces store image - Typically less desirable than National Brands Categories of Private Brands Premium  Comparable to (sometimes even superior to) national brand quality, with modest price savings Copycat  Imitate national brand in appearance and packaging, perceived as relatively lower quality, offered at a lower price Exclusive  Developed by a national brand vendor and sold exclusively by the retailer Missing Words in Power-Point Ch. Generic 14  Target a price- (slide #) sensitive segment by offering a no-frills 2. Profits product at a discount price 3. Adverse 4. Between 5. Expenses Developing and 6. Profits Sourcing Private Label 7. Odd Merchandise 8. Cherry Pickers Developing 9. Flexibility In House 10. Odd Large retailers have 11. Hedonic divisions specialized in: 12. Utilitarian  Identifying trends 17. Exclusive  Designing products 18. Markups 27. Clearance  Selecting 28. Sell-Through manufacturers  Monitoring and 29. Consolidation managing manufacturing conditions & product quality 30. Three 31. Variable 32. Self- Selected 33. Coupons 34. Zone 36. Predatory 37. Bait and Switch Acquisition Retailers can also have manufacturers:  Develop private brands for them “from scratch”  Modify their existing national brands to be sold as the retailer’s private label Sourcing Merchandise  Costs o Cheaper labor, tariffs  Managerial Issues o Quality control, time to market, social risk  Resident Buying Offices o Help retailers buy merch  Reverse Auctions Chapter 14: Retail Pricing Pricing options: High/low Pricing - Discount initial prices through frequent sales promotion o Creates consumer excitement o Moves Merchandise o Increases Profits - Drawbacks include: o Trains people to wait for deals o Has an adverse effect on profits. Everyday Low Pricing (EDLP) - Prices stay somewhere between the regular (non-sale) prices & deep-discount sale prices of high/low retailers - Low doesn’t necessarily mean “lowest” o Walmart includes everyday low prices but not better than a sale somewhere else. Advantages: -Assures customers of low prices -Reduces Expenses - Reduces stock-outs & improves inventory management Pricing Techniques for Increasing Sales Leader Pricing - Certain items are priced lower than normal to increase traffic flow and/or boost sales of complementary products - Best items are: o Purchased frequently o Primarily by price- sensitive shoppers - Might attract Cherry Pickers Price Lining - Offer a limited number of predetermined price points - Eliminates confusion of many prices - Merchandising task is simplified - Offers shoppers flexibility - Can get customers to “trade up” Odd Pricing - Price ends in an odd number (Ex: $5.99) - The assumption being consumers perceive as $5 instead of $6 Rounded Pricing - Price rounded to nearest whole dollar - Best of hedonic products o (Champagne, spa services, chocolate, …ETC) o Irregular Pricing - Price is not whole and doesn’t end in .9 - Best for Utilitarian products o toothpaste, cleaning supplies, calculator - Utilitarian purchases are driven by cognition and irregular prices make us think! - Equations to know Price Elasticity- Used to measure price sensitivity new price­old price)÷(old price) ¿ = (new quantity sold­old quantity sold)÷(old quantity sold) ¿ Profit Maximizing Price- if we know the price elasticity, we can then calculate the price that we should sell a product at that maximizes profits the most Price Elasticity +1) ¿ (Price Elasticity) X (Cost of product to retailer) ¿ ¿ Retail Price = Cost + Markup Markup as a % of Retail Price ¿Retail Price­ Cost Retail Price Two types of Markups Initial Markup =Initial Selling Price-Cost of Merchandise Maintained Markup =Final Selling Price – Cost of Merchandise Break-Even Analysis  Determines how much merchandise needs to be sold to achieve a break-even (zero) profit Total Fixed Costs ¿Sale Price of Unit – Variable cost of unit Sell-Through %  Identifies markdown items when its weekly sell-through percentages fall below a certain level # of an item that has sold ¿ # of that item ordered Order Point  If inventory goes too far below this point, retailer will likely run out of stock before the next order arrives. ¿Sales per week (review  time+lead time)+Buffer Stock


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