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by: Ms. Alexandrea Zulauf

RetailMerchandising MKT174

Ms. Alexandrea Zulauf
Solano Community College
GPA 3.65


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This 37 page Study Guide was uploaded by Ms. Alexandrea Zulauf on Tuesday October 20, 2015. The Study Guide belongs to MKT174 at Solano Community College taught by PeterCain in Fall. Since its upload, it has received 59 views. For similar materials see /class/225395/mkt174-solano-community-college in Marketing at Solano Community College.


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Date Created: 10/20/15
MKT 174 STUDY GUIDE CHAPTER 14 Developing Merchandise Plans Merchandising p 408 7 consists of the activities in acquiring particular goods andor services and making them available at the places times and process and in the quantity that enable a retailer to reach its goals Merchandising philosophy p 408 7 sets the guiding principles for all the merchandise decisions that a retailer makes 0 It must re ect target market desires the retailer s institutional type the marketplace positioning the de ned value chain supplier capabilities costs competitors product trends and other factors Micro merchandising p 410 7 retailer adjusts shelf space allocations to respond to customer and other differences among local markets Cross merchandising p 410 7 retailer carries complementary goods and services to encourage shoppers to buy more The Attributes and Functions of a Buying Organization 7 see Figure 14 1 p 410 Resident buying of ce p 414 7 an inside or outside organization used when a retailer wants to keep in close touch with key market trends and cannot do so through just headquarters buying staff eg Ross Doneger and AMC Cooperative buying p 414 7 a group of retailers gets together to make quantity purchases from suppliers and obtain volume discount most popular among food hardware and drugstore retailers Buyer p 415 7 responsible for selecting the merchandise to be carried by a retailer and setting a strategy to market the merchandise Sales manager p 415 7 typically supervises the on oor selling and operational activities for a specific retail department Merchandising Versus Store Management Career Tracks at Federated Department Stores 7 see Figure 14 4 p 415 Forecasts p 416 7 projections of expected retail sales for given periods the foundation of merchandise plans and includes these components overall company projections product category projections itembyitem projections and storeby store projections if a chain Staple merchandise p 416 7 consists of regular products carried by a retailer 0 Basic stock list p 417 7 specif1es the inventory level color brand style category size package etc for every staple item carried by the retailer Assortment merchandise p 417 7 consists of apparel furniture autos and other products for which the retailer must carry a variety of products in order to give customers a proper selection 0 Model stock plan p 417 7 used to project speci c items such as the number of green red and blue pullover sweaters of a certain design by size Fashion merchandise p 417 7 consists of products that may have cyclical sales due to changing tastes and lifestyles Seasonal merchandise p 417 7 consists of products that sell well over non consecutive time periods Fad merchandise p 417 7 high sales are generated for a short time Never out list p 417 7 purchase enough of bestsellers so they are always in stock The Traditional Product Life Cycle introduction growth maturity decline7 see Figure 14 7 p 420 Assortment p 421 7 the selection of merchandise a retailer carries 0 Width of assortment p 422 7 refers to the number of distinct goods service categories product lines a retailer carries 0 Depth of assortment p 422 7 refers to the variety in any one goods service category product line a retailer carries 0 Retail Assortment Strategies 7 see Figure 14 9 p 423 Manufacturer national brands p 425 7 produced and controlled by manufacturers accounting for gt 80 of all retail sales worldwide Private dealer brands store brands p 425 7 contain names designated by wholesalers or retailers are more pro table to retailers are better controlled by retailers are not sold by competing retailers are less expensive for consumers and lead to customer loyalty to retailers Generic brands p 427 7 feature products generic names as brands such as canned peas they are nofrills goods stocked by some retailers Category management p 429 7 a merchandising technique used to improve productivity Rev 101007pfc MKT 174 STUDY GUIDE CHAPTER 11 Retail Organization amp Human Resource Management Retail organization p 326 7 a rm structures amp assigns tasks functions policies resources authority responsibilities and rewards to efficiently and effectively satisfy the needs of the target market employees and managemen Selected factors that must be considered in planning amp assessing a retail organization 7 see Figure 11 1 p 326 0 Target market needs 0 Employee needs 0 Management needs Steps in setting up a retail organization see pp 326 7 331 l Specifying tasks to be performed p 327 2 Dividing tasks among channel members amp customers 3 Grouping tasks into jobs 4 Classifying jobs and 5 Developing an organization chart Hierarchy of authority p 30 7 outlines the job interactions within a company by describing the reporting relationships among employees from the lowest level to the highest level Organization chart p 331 7 graphically displays the retailer s hierarchical relationships Different forms of retail organizations see Figure 11 5 p 332 functional product geographic combination The Mazur plan p 333 7 divides all retail activities into four functional areas merchandising publicity store management and accounting amp credit typically used by department stores 0 See Figure 11 7 p 334 7 the basic Mazur plan for department stores Equal store organization p 334 7 the most popular Mazur plan derivative by which buying is centralized and branches become sales units with equal operational status managed locally 0 Various chain retailers use a version of the equal store organization Diversi ed retailer p 336 7 a multiline rm operating under central ownership e g Kroger operates multiple stores involved with different types of retail operations Kroger operates supermarkets convenience stores and jewelry stores and it also has a major manufacturing operations group Human resource management p 336 7 involves recruiting selecting training compensating and supervising personnel in a manner consistent with a retailer s organization the goal is to obtain develop and retain employees p 342 p 342 7 the activity whereby a retailer generates a list of job applicants Job analysis p 343 7 information is amassed on each job s functions and requirements duties responsibilities aptitude interest education experience and practical tasks used to select personnel set performance standards and assign salaries Traditional job description p 343 7 contains a position s title relationships superior and subordinate and speci c roles and tasks Goal oriented job description p 344 7 can enumerate basic functions the relationship of each job to overall goals the independence of positions and information ows Application blank p 344 7 usually the first tool used to screen applicants providing data on education experience health reasons for leaving prior jobs outside activities hobbies and references Weighted application blank p 344 7 factors having a high relationship with job success are given more weight than others Pre training p 345 7 an indoctrination on the firm s history and policies as well as a job orientation on hours compensation the chain of command and job duties Training programs p 346 7 teach new and existing personnel how best to perform their jobs or how to improve themselves Compensation p 348 7 direct monetary payments salaries commissions and bonuses and indirect payments paid vacations health and life insurance and retirement plans should be fair to both the retailer and its employees Supervision p 349 7 the manner of providing a job environment that encourages employee accomplishment goal is to oversee personnel attain good performance maintain morale motivate people control costs communicate and resolve problems Job motivation p 349 7 the drive within people to attain workrelated goals Rev lOO307pfc MKT 174 STUDY GUIDE CHAPTER 16 Financial Merchandise Management Chapter Overview p468 With the right integrated accounting software and techniques you can optimize inventory levels eliminate stockouts lift sales and squeeze the most out of your supply chain Financial merchandise management p 468 7 through it a retailer speci es which products goods and serVicesare purchased when products are purchased and how many products are purchased 0 Dollar control p 468 7 involves panning and monitoring a retailer s investment in merchandise over a period of time 0 Unit control de nition p 468 7 relates to the quantities of merchandise a retailer handles during a stated period Inventory valuation pp 468 7 475 0 Merchandise available for sale p 469 all recorded at cost beginning inventory purchases transportation 0 Cost of goods sold p 469 cost of merchandise available for sale the cost value of ending inventory 0 Gross pro t p 469 sales 7 cost of goods sold 0 Net pro t p 469 gross pro t 7 retail operating expenses Cost method of accounting p 470 7 the cost to the retailer of each item is recorded on an accounting sheet andor is coded on a price tag or merchandise container 0 Physical inventory system p 470 7 ending inventory 7 recorded at cost 7 is measured by counting the merchandise in stock at the closing of a selling period 0 Book perpetual inventory system p 470 7 keeping a running total of the value of all inventory on hand at a given time o FIFO rst in rst out inventory accounting method p 470 7 logically assumes old merchandise is sold rst while newer items remain in inventory 0 LIFO last in rst out inventory accounting method p 470 7 assumes new merchandise is sold rst while older stock remains in inventory I When inventory values rise LIFO offers retailers a tax advantage because lower pro ts are shown Disadvantages of Cost Based Inventory Systems p 472 o A cost must be assigned to each item in stock and to each item sold 0 Neither costbased method adjusts inventory values to re ect style changes end of season markdowns or sudden changes in demand which may raise pIices gt However retailers that make the products they sell 7 such as bakeries restaurants and furniture showrooms 7 often keep records on a cost basis Retail method of accounting p 472 7 closing inventory value is determined by calculating the average relationship between the cost and retail values of merchandise available for sale during a period 0 Calculating the cost complement p 472 7 can be computed by dividing the total cost valuation including transportation by the total retail valuation including markups I Cost complement Total cost valuation Total retail valuation Calculating deductions from retail value p 472 7 includes all deductions from the total merchandise available for sale at retail markdowns for special sales amp endofseason goods employee discounts and stock shortages due to pilferage amp unrecorded breakage 0 Converting retail inventory value to cost p 474 7 ending inventory at cost adjusted ending retail book value x cost complement see second bullet point above 0 Advantagesdisadvantages of retail method of accounting pp 474 7 475 0 Advantages l Allows a rm to set up a profitandloss statement based on book inventory not a physical inventory 2 Lets retailers plan insurance coverage for peak periods and shows the values of goods on hand 7 is accepted in insurance claims 0 Limitations 1 The bookkeeping burden of recording data 2 The cost complement is an average based on the total cost of merchandise available for sale and total retail value The ending cost value only approximates the true inventory value The Merchandise Forecasting and Budgeting Process Dollar Control 7 see Figure 16 2 p 476 7the sixsteps 1 Designing control units p 476 7 merchandise forecasting and budgeting requires the selection of the merchandising categories for which data are gathered 0 Classi cation merchandising p 477 7 each department is subdivided into further categories for related types of merchandise eg hardware department of a store and categories within such as lawn mowers snow blowers power tools hand tools and ladders Sales forecasting pp 477 7 478 7 large retailers often forecast total and department sales by techniques such as trend analysis time series analysis and multiple regression analysis small retailers rely more on guesstimates based on experience 0 Monthly sales index p 478 7 divides each month s actual sales by average monthly sales 12 calendar months and multiplies the result by 100 7 see Table 16 8 p 479 for example 3 Inventory level planning p 479 7 four 4 financial techniques a Basic stock method at retail valuation definition p 479 7 a retailer stocks more items than it expects to sell over a period N b Percentage variation method p 480 7 begimingofmonth planned inventory during any month differs from planned average monthly stock by only onehalf that month s variation from estimated average monthly sales gt Recommended if stock turnover is gt six times a year or relatively stable since it results in planned inventories closer to the monthly average c Weeks supply method p 481 7 forecasts sales weekly so beginning inventory equals several weeks expected sales d Stock to sales method p 481 7 a retailer wants to maintain a speci ed ratio of goods on hand to sales 4 Retail reductions planning p 481 7 the expected difference between beginning inventory plus purchases during the period and sales plus ending inventory 5 Planned purchases p 482 at retail formula Flamed sales for the month Planned reductions for the month Planned endofmonth stock 7 Begiming ofmonth stock at cost formula 7 Planned purchases at retail price x merchandise costs as a percentage of selling price Open to buy recorded at cost p 482 7 the difference between planned purchases and the purchase commitments already made by a buyer for a given period often a month 6 Planning pro t margins p 484 7 see Required retail markup percentage formula Flamed retail expenses Planned pro t Planned reductions Flamed net sales Flamed reductions O O 0 Stock turnover p 488 7 represents the number of times during a specific period usually one year that the average inventory on hand is sold e g see Table 16 10 Gross margin return on investment GMROI p 489 7 shows the relationship between the gross margin in dollars total operating profits and the average inventory investment at cost by combining profitability and stocktosales measures Reorder point p 490 7 systematically sets stock levels at which new orders must be placed 7 based on three 3 factors 1 Order lead time p 490 7 period from the date an order is placed by a retailer to the date merchandise is ready for sale received pricemarked and put on the selling oor Usage rate p 490 7 average sales per day in units of merchandise Safety stock p 490 7 the extra inventory that protects against outofstock conditions due to unexpected demand and delays in delivery 9 Economic order quantity EOQ p 491 7 the quantity in units that minimizes the total costs of processing orders computer time order forms labor and handling of new goods and holding warehousing inventory investment insurance taxes depreciation deterioration and pilferage inventory Rev 102507pfc 1 02606pr MKT 174 STUDY GUIDE CHAPTER 19 Promotional Strategy 0 Retail promotion p 568 7 includes any communication by a retailer that informs persuades and or reminds the target market about any aspect of that firm 0 0 Elements of the retail promotional mix p 568 advertising public relations PR personal selling and sales promotion Advertising p 568 7 paid nonpersonal communication transmitted through out ofstore mass media newspapers radio TV the Web outdoor billboards and other mass channels by an identi ed sponsor O O O O OO 0 Objectives of advertising p 571 Lift shortterm sales Increase customer traffrc Develop and or reinforce a retail image Inform customers about goods and services and or company attributes Ease the job for sales personnel and Develop demand for private brands Cooperative advertising p 571 7 the costs of retail advertising shared by manufacturers or wholesalers and their retailers vertical agreement two or more retailers may also share costs of retail advertising stores in the same mall 7 horizontal agreement I Advantages pp 571 7 572 large audience reach low costs per viewer reader variety of media allows matching to target market control over content Disadvantages p 572 cannot individualize messages relatively large costs for mass media waste reaching nontarget market members long leadtime high throwaway rate of some media forms direct mail yers newspapers Advertising Media Comparison Chart 7 see Figure 19 2 p 573 medium market coverage particular suitability T EST MAT ERIAL I Most retailers advertise in the Yellow Pages 7 p 572 I The use of radio by retailers has gone up in recent years 7 p 573 Because cable TV is more focused than conventional broadcast stations it appeals to local retailers auto dealers restaurants etc p 573 I Many retailers advertise on their delivery truckstransit advertising 7 p 574 I Magazine usages are growing for chains and non stores 7 p 574 Pioneer ads p 574 7 have awareness as a goal and offer information usually on new firms or locations Competitive ads p 574 7 have persuasion as a goal Reminder ads p 574 7 geared to local customers and stress the attributes that have made the retailer successful Institutional ads p 574 7 strive to keep retailer names before the public without emphasizing the sale of goods and services 9959 Pubic relations PR p 575 7 entails any communication that fosters a favorable image for the retailer among its publics consumers investors government channel members employees and the general public 0 O 0 Objectives of PR p 576 Increase awareness of the retailer amp its strategy mix Maintain and or improve the company image Show the retailer as a contributor to the public s quality of life Demonstrate innovativeness Present a favorable image in a highly believable manner and 6 Minimize total promotional costs Advantages p 576 more credible source than advertising no costs for message time or space mass audience addressed Disadvantages p 576 little retailer control over publicity message and or timing placement and coverage by a particular medium costs for staffing or agency work to create place and measure effect of messages 959 Personal selling p 577 7 involves oral communication with one or more prospective customers for the purpose of making a sale 0 O O 0 Objectives ofpersonal selling pp 577 7 578 Persuade customers to buy Stimulate sales of impulse items or crossrelated products Complete customer transactions Feed back information to company decision makers Provide proper levels of customer service Improve and maintain customer satisfaction and Create awareness of items also marketed through the Web mail amp telemarketing Advantages p 578 salesperson can adapt a message to the needs of an individual customer attention span of customers is higher than with advertising less waste immediate feedback is provided Disadvantages p 578 only a limited number of customers can be handled at a time costs of interacting with customers is high customers are not initially lured into stores through personal selling unless via personal referrals Typical Personal Selling Functions see Figure 19 7 p 579 QMer N Sales promotion p 580 7 encompasses the paid communications activities other than advertising public relations and personal selling that stimulate consumer purchases and dealer effectiveness 0 0 Objectives of sales promotion p 580 1 Increase shortterm sales volume 2 Maintain customer loyalty 3 Emphasize novelty and 4 Compliment other promotional tools Includes displays contests sweepstakes coupons frequent shopper programs prizes samples demonstrations referral gifts and other limitedtime selling efforts outside of the ordinary promotional routine 0 Advantages p 581 eyecatching appeal helps draw customer traffic amp maintains customer loyalty to the retailer impulse purchases are increased customers can have fun and earn rewards o Disadvantages p 581 may be hard to terminate certain promotions without adverse customer reactions many sales promotions have only shortterm effects image may be hurt if trite promotions are used 0 Types of Sales Promotions see Figure 19 9 p 582 Virtually all retailers have some type of POP point of purchase display p 581 Restaurants apparel stores music video stores toy stores and sporting goods stores are among the retailers with above average use of in store displays 7 p 582 Retailers spend one sixth of their sales promotion budgets on displays 7 p582 A contest requires customers to show some skill a sweepstakes only requires participation with the winner chosen at random 7 p 582 Each year 250 billion worth of coupons are distributed in the US with grocery products accounting for 75 percent of them consumers redeem about 4 billion in coupons annually less than 2 percent of coupons are redeemed by consumers 7 p 583 About 2 billion I spent annually in US on sampling and in store demonstrations 7 p 584 Establishing the overall promotional budget methods to use 0 All you can afford method p 587 7 allocate funds for all elements of the retail strategy mix except promotion and give it what s left the weakest technique 0 Incremental method p 587 7 relies on prior promotion budget to allocate funds 7 adding or subtracting a percentage to from last year s budget 0 Competitive parity method p 587 7 raise or lower promotional budget based on competitive moves 0 Percentage of sales method p 587 7 a promotiontosale budget is developed and remains constant in percentage ratio in following years 0 Objective and task method p 587 7 retailer clearly defines its promotion goals and prepares a budget to satisfy accomplish them 7 the best budgeting technique especially for small retailers Reach p 591 7 refers to the number of distinct people exposed to a retailer s promotion in a specific period Frequency p 591 7 the average number of times each person reached is exposed to a retailer s promotion efforts in a specific period Rev 111507pfc MKT 174 STUDY GUIDE CHAPTER 13 Operations Management Operational Dimensions Profile Starbucks 1wwwstarbuckscom p 377 0 Currently 7 over 12500 stores in 35 countries 0 Target goal 7 25000 to 30000 global stores 15000 ofthem in Us 0 Added 1344 stores in scal 2004 1500 stores in 2005 I Vast majority with drivethrough operations 0 Serve 30 million customers on a global basis each week Operations blueprint p 378 7 systematically lists all of the operating functions to be performed their characteristics and their timing Includes 0 Includes store format size and space allocation personnel utilization store maintenance energy management and renovations inventory management store security insurance credit management computerization outsourcing and crisis management Prototype stores p 379 7 multiple outlets conform to relatively uniform construction layout and operations standards e g Pep Boys Of ce Depot Starbucks and McDonald s Rationalized stores p 379 7 used by some chains 7 together with prototype stores combine a high degree of centralized management control with strict operating procedures for every phrase of business e g Radio Shack Toys R Us and Starbucks An Operations Blueprint for a Quick Oil Change Firm s Employees see Figure 13 1 p 380 Top down space management p 381 7 retailer starts its total available store space by outlet and for the overall rm if it s a chain divides the space into categories and then works on product layouts Bottom up space management p 381 7 begins planning at the individual product level and then proceeds to the category total store and overall company levels Job standardization p 383 the tasks of personnel with similar positions in different departments are rather uniform Cross training p 383 7 personnel learn tasks associated with more than one job a rm increases personnel exibility amp reduces the number of employees needed at any time by job standardization and crosstraining Store maintenance p 384 7 encompasses all of the activities in managing physical facilities Inventory management p 385 7 used to maintain a proper merchandise assortment while ensuring that operations are ef cient and effective Debit card system p 388 7 the purchase price ofa good or service is immediately deducted from a customer s bank account amp entered into a retailer s account through a computer terminal Computerized checkout p 390 7 efficiently processes transactions and monitors inventory 0 RFID technology 7 radio frequency identi cation tags that emit a radio frequency code when placed near a receiver faster than UPC codes and better for harsh climates Electronic point of sale system p 391 7 performs all of the tasks of a computerized checkout and verifies check and charge transactions provides instantaneous sales reports monitors and changes prices sends intra and innerstore messages evaluates personnel and profitability and stores data often used along with a retail information system RIS Self scanning p 391 7 the consumer himself or herself scans the items being purchased at a checkout counter pays by cash check or debit or credit card and bags the items e g WalMart Home Depot Kroger Albertson s Outsourcing p 392 7 retailer pays an outside party to undertake one or more of its operational functions eg Limited Brands oversees energy use amp facilities management Crate amp Barrel management of its email program Kmart logistics firms to consolidate small shipments JC Penney credit operations Rev lOlOO7pfc MKT 174 STUDY GUIDE CHAPTER 18 Establishing amp Maintaining a Retail Image Profile Target Stores wwwtarget com 7 a fashionforward fullline discount store chain demographics of its customers cheap chic typically a suburban professional welleducated female with a family and an average household income of 45000 per year signi cantly higher than those of WalMart or Kmart Image p 541 7 refers to how a retailer is perceived by customers and others Positioning p 541 7 refers to how a rm devises its strategy so as to project an image relative to its retail category and its competitors 7 and to elicit a positive consumer response The Elements of a Retail Image see Figure 18 2 p 542 A shopper should be able to determine the following about a store in three seconds its name its line of trade its claim to fame its price position and its personality 7 an industry expert p 542 Atmosphere atmospherics for a store based retailer p 544 7 refers to the store s physical characteristics that project an image and draw customers For a non store based retailer p 544 7 refers to the physical characteristics of catalogs vending machines Web sites and so fort o The Four Elements of Atmosphere 7 see Figure 18 5 p 545 exterior general interior store layout and interior displays Store Based Retailing Perspective A Exterior pp 545 548 o Storefront p 545 7 the total physical exterior of the store itself includes the marquee entrances windows lighting and construction materials I Modular structure p 545 7 a onepiece rectangle or square that may attach several stores Prefabricated structure p 545 7 a frame built in a factory and assembled at the site Prototype store p 545 7 used by franchisors amp chains to foster a consistent atmosphere Recessed structure p 546 7 lure people by being recessed from the level of other stores customers must walk in a number of feet to examine the storefront o Marquee p 546 7 a sign that displays the store s name eg the world s best known marquee is McDonald s golden arch authors p 546 B General interior pp 548 7 551 0 O O 0 Flooring Virtually all traditional department stores have carpeted oors 75 percent of all fullline discount stores have vinyl oors and 90 percent of home centers have concrete oors Colors bright vibrant light pastels or plain white walls Scents and sounds 7 restaurant food aromas cosmetic stores with an array of perfumes slow tempo music in supermarkets encourages people to move more slowly Store xtures Wall textures and light xtures Aisleways wide uncrowded narrow crowded ones Dressing facilities 7 elaborate plain or Vertical transportation in multi level stores gt Dead areas nonselling spaces for retailers p 550 7 can be caused by light xtures wood or metal beams rest rooms must be kept clean dressing rooms and vertical transportation Store layout pp 551 7 555 7 specifics are sequentially planned amp enacted Allocation of oor space 7 allot to selling merchandise personnel and customers I Selling space 7 used for displays of merchandise interaction between sales people and customers demonstrations selfservice retailers aooprtion more space to selling Merchandise space 7use to stock nondisplayed items Personnel space 7 set aside for employees to change clothes and to take lunch and coffee breaks and for rest rooms Customer space 7 contributes to the shopping mood can include a lounge benches and or chairs dressing rooms rest rooms a restaurant a nursery parking and wide aisles discounters are more apt to skimp on these areas I Planogram p 551 7 a visual graphical representation of the space for selling merchandise personnel and customers 7 as well as for product categories Classi cation of store offerings product groupings I Functional product groupings p 552 displays merchandise by common end use I Purchase motivation product groupings p 552 7 appeal to the consumer s urge to buy products and the amount of time he or she is willing to spend on shopping I Market segment product groupings p 552 7 place together various items that appeal to a given target market I Stability product groupings p 552 7 may be used for products needing special handling ie refrigerated frozen etc Determination of a traf c ow pattern I Straight gridiron traf c pattern p 552 7 places displays and aisles in a rectangular or gridiron pattern see Figure 18 9 p 553 often used byfood retailers discount stores drugstores hardware stores and stationary stores O O A B I Curving free owing traf c pattern p 552 7 places displays and aisles in a free owing pattern see Figure 18 10 p 553 used by department stores apparel stores and other shopping oriented stores Determination 0fspace needs I Model stock approach p 554 7 determines the oor space necessary to carry and display a proper merchandise assortment apparel and department stores use this method I Sales productivity ratio p 554 7 assigns oor space on tha basis of sales or pro t per square foot de nition p 556 food stores and bookstores use this technique Arrangement of individual items I The most pro table items and brands could be placed in the best locations I Products could be arranged by package size price color brand level of personal service required and0r customer interest I Endaisle display positions eyelevel positions and checkout counter positions are the most likely to increase sales for individual items I Continuity of locations is also important to shoppers Interior maintofpurchase displays pp 555 7 557 7 provides shoppers with information adds to store atmosphere and serves a substantial promotional role I Assortment display p 556 7 eXhibits a wide range of merchandise an open assortment 7 the customer is encouraged to feel look at and or try on products a closed assortment 7 the customer is encouraged to look at merchandise but not touch it or try it on I Theme setting display p 556 7 depicts a product offering in a thematic manner and sets a speci c mood I Ensemble display p 556 7 a complete product bundle ensemble is presented 7 rather than showing merchandise in separate categories ie shoe department sock department shirt department I Rack display p 556 7 has a primarily functional use to neatly hang or present products often used by apparel retailers housewares retailers and others I Case display p 556 7 eXhibits heavier bulkier items than racks hold ie records books sweaters etc I Cut case display p 556 7 ineXpensive display that leaves merchandise in the original carton lid cut open sides may be anglecut toward front panel for easier handselection of items I Dump bin p 557 7 a case that holds piles of sale clothing markeddown books or other products Non Store Based Retailing Perspective Storefront for a Web retailer p 557 the Web site s home page General interior pp 557 558 7 fixtures 7 relate to how simple or elaborate the Web site looks involves instructions on how to use the site HEP 0 information about the company product icons news items the shopping cart a product search engine locations of physical stores and a shopper login for rms that use loyalty programs and track their customers Store layout p 558 made up of two components 7 the layout of each individual Web page and the links to move from page to page within the site Displays p 558 7 special themes etc Checkout counter pp 558 7 559 shopping carts Special considerations p 559 7 how to set up a proper Web site and the advantages amp disadvantages of the Web atmospherics versus those of traditional stores Bigstepcom Entrabase and Y ahoo Small Business 7 designing and hosting costs are as low as 2995month Encouraging customers to spend more time shopping Experiential merchandising p 560 7 convert shopping from a passive activity into a more interactive one by better engaging customers Solutions selling p 561 7 takes a customercentered approach and presents solutions rather than products 0 Community relations see bulleted list of communityoriented actions on page 563 that can be taken to enhance retailer s stature Rev 110807pfc MKT 174 STUDY GUIDE CHAPTER 12 OPERATIONS MANAGEMENT FINANCIAL DIMENSIONS A pro t amp loss statement consists of these major components 0 Net sales p 356 7 revenues received by a retailer during a given period after deducting customer returns markdowns amp employee discounts 0 Cost of goods sold p 356 7 amount a retailer pays to acquire the merchandise sold during a given period 7 based on purchase prices and freight charges less all discounts such as quantity cash and promotion 0 Gross pro t margin p 356 7 difference between net sales and the cost of goods sold 0 Operating expenses p 356 7 cost ofrunning a retail business 0 Taxes p 356 7 portion of revenues turned over to the federal state andor local government 0 Net pro t after taxes p 356 7 pro t earned after all costs and taxes have been deducted Balance sheet p 357 7 itemizes a retailer s assets liabilities and net worth at a particular time 7 based on the accounting principle assets liabilities net worth owner s equity Assets p 357 7 any items a retailer owns with a monetary value 0 Current assets 7 cash on hand or in the bank and items readily converted to cash such as inventory on hand and accounts receivable amounts owed to the rm Fixed assets 7 property buildings a store warehouse xtures and equipment such as cash registers and trucks used for a long period 0 Hidden assets p 358 7 used to describe depreciated assets such as buildings and warehouses that are noted on a retail balance sheet at low values relative to their actual worth Liabilities p 358 7 nancial obligations a retailer incurs in operating a business Current liabilities 7 payroll expenses payable taxes payable accounts payable amounts owed to suppliers and shortterm loans 0 o Fixed liabilities 7 mortgages and shortterm loans generally repaid over several years Net worth owner s equity p 358 7 computed as assets minus liabilities represent the value of a business after deducting all nancial obligations Net pro t margin p 358 7 a performance measure based on a retailer s net pro t and net sales see formula on p 358 Asset turnover p 359 7 a performance measure based on a retailer s net sales and total assets see formula on p 359 Return on assets ROA p 359 7 a relationship between net pro t margin and asset turnover see formulas on p 359 Financial leverage p 359 7 a performance measure based on the relationship between a retailer s total assets and net worth see formula on p 359 Strategic pro t model p 360 7 relationship among net profit margin asset turnover and financial leverage Return on net worth RONW p 360 7 a performance measure of the strategic profit model see formula on p 360 Application of Strategic Pro t Model to Selected Retailers 2004 data see Table 12 3 p 361 Other key business ratios pp 361 362 0 Quick ratio 7 cash plus accounts receivable divided by total current liabilities those due within one year a ratio above 1 to 1 means the firm is liquid and can cover shortterm debt Current ratio 7 total current assets cash accounts receivable inventories and market securities divided by total current liabilities a ratio of 2 to l or more is good Collection period 7 accounts receivable divided by net sales and then multiplied by 365 a collection period onethird or more over normal terms eg 400 for a store with 30day credit terms means slowtuming receivables Overall gross pro t 7 net sales minus the cost of goods sold and then divided by net sales this companywide average includes markdowns discounts and shortages O O 0 Median Key Business Ratios for Selected Retailer Categories 7 see Table 12 4 p 362 Real Estate Investment Trust REIT p 363 7 often used by shopping center developers to fund construction projects must distribute 90 of taxable income to shareholders annually Budgeting p 366 7 outlines a retailer s planned expenditures for a given time based on expected performance Zero based budgeting p 369 7 expenditures are planned in terms of performance goals a firm starts each new budget from scratch and outlines the expenditures needed to reach that period s goals Incremental budgeting p 369 7 a rm uses current and past budgets as guides and adds or subtracts from them to arrive at the coming period s expenditures 0 Most retailers use incremental budgeting because it is easier less time consuming and not as risky as zero based budgeting Cash flow p 370 7 relates the amount and timing of revenues received to the amount and timing of expenditures for a speci c time the usual intention is to make sure revenues are received before expenditures are made Capital expenditures p 371 7 longterm investments in xed assets 0 See average capital expenditures for erecting a single store for a range of retailers in 2005 range 12 million 118 million 7 p 371 Operating expenditures p 371 7 short term selling and administrative costs in running a business 0 Operating expenses usually expressed as a percentage of sales range from 20 percent or so for supermarkets to over 40 percent in some specialty stores to succeed these costs must be in line with competitors Opportunity costs p 372 7 the possible bene ts a retailer forgoes if it invests in one opportunity rather than another Productivity p 372 7 the ef ciency with which a retail strategy is carried ou Two ways to enhance productivity Rev 10307pfc MKT 174 STUDY GUIDE CHAPTER 15 Implementing Merchandise Plans The Process for Implementing Merchandise Plans 8 steps 7 see Figure 15 1 p 440 1 Gathering information about the marketplace most valuable source is the target consumer 7 value of loyalty programs secondary is suppliers third is webbased shopping bots mySimoncom fourth is trade publications Selecting amp interacting with merchandise sources Evaluation of suppliers Negotiation with suppliers Concluding purchases Receiving amp stocking merchandise Reordering Reevaluation wseweww Want book want list p 441 7 a formal way to record consumer requests for unstocked or outofstock merchandise Outside Sources of Supply 7 see Figure 15 3 p 443 Chargebacks p 444 7 retailers at their sole discretion make deductions in their bills for infractions ranging from late shipments to damaged and expired goods Evaluating merchandise 3 steps p 445 know the dz39 erence between inspection sampling and description buying Opportunistic buying p 445 7 offprice retailers and other deep discounters may require negotiated contracts for most purchases by which especially low prices are negotiated for merchandise whose sales have not lived up to expectations endof season goods items consumers have returned to the manufacturer or another retailer and closeouts Slotting allowances p 446 7 payments that some large ie category killers etc retailers require of vendors for providing shelf space EDI p 446 7 electronic data interchange using computers to complete and process orders with suppliers QR inventory planning p 446 7 quick response inventory planning lowers inventory amp ordering costs via close retailersupplier relationships Consignment purchase p 447 7 a retailer has no risk because title is not taken the supplier owns the goods until sold Memorandum purchase p 447 7 risk is low but retailer takes title on delivery and is responsible for damages does not pay for the goods until sold and can return items RFID p 448 7 radio frequency identi cation systems a method of remotely storing and retrieving data using devicestransponders contain tiny antennas to enable them to receive and respond to radio frequency queries from an RFID transceiver Re ordering merchandise p 451 7 Retailers hold enough stock to satisfy customers while not having a high surplus Logistics p 451 7 the total process of planning implementing and coordinating the physical movement of merchandise from manufacturerwholesaler to retailer to customer in the most timely effective amp costefficient manner possible 0 Order processing amp fulfillment transportation warehousing customer service and inventory management as independent functions in the value delivery chain Supply chain p 453 7 the logistics aspect ofa value delivery chain comprises all of the parties in the retail logistics process manufacturers wholesalers thirdparty specialists shippers orderfulfillment houses and so forth and the retailer Collaborative planning forecasting and replenishment CPFR p 453 7 a technique for larger retailers seeking closer logistical relationships a holistic approach to supply chain management among a network of trading partners improve the partnership between retailers and vendor merchants through shared information Floor ready merchandise p 454 7 refers to items that are received at the store in condition to be put directly on display without any preparation by retail workers Ef cient consumer response planning ECR definition p 455 7 permits supermarkets to incorporate aspects of quick response inventory planning electronic data interchange and logistics planning 0 Requires a smooth continual product ow matched to consumer consumption Direct store distribution DSD p 457 7 some goods at least are shipped right from suppliers to individual stores generally perishable products Inventory shrinkage p 460 7 caused by employee theft estimated at 47 of total loss customer shoplifting 32 vendor fraud 5 and administrative errors faulty paperwork amp computer entries 16 Reverse logistics p 462 7 encompasses all merchandise ows from the retailer back through the supply chain typically involves items returned because of damages defects or lessthananticipated sales Rev 101407pfc 101906pfc MKT 174 STUDY GUIDE CHAPTER 17 Pricing in Retailing 1 External factors affecting a retail price strategy A The consumer and retail pricing 55 Price elasticity of demand p 500 7 the sensitivity of consumers to price changes in terms of the quantities they will buy 0 If small percentage changes in price lead to substantial percentage changes in the number of units bought demand is price elastic o If large percentage changes in price lead small percentage changes in the number of units bought demand is price inelastic The government and retail pricing Horizontal price xing p 502 7 an agreement among manufacturers among wholesalers or among retailers to set prices 0 Illegal under the Sherman Antitrust Act and the Federal Trade Commission FTC Vertical price xing p 502 7 when manufacturers or wholesalers seek to control the retail prices of their goods and services 0 According to the Consumer Fair PricingAct retailers in the US cannot be forced to comply 0 However as a result of a Supreme Court ruling manufacturers and wholesalers as long as they aren t sti ing consumers are allowed to set maximum retail prices Robinson Patman Act p 502 7 bars manufacturers and wholesalers from discriminating in price or purchase terms in selling to individual retailers if these retailers are purchasing products of like quality and the effect of such discrimination is to injure competition 0 Discounts are not illegal as long as suppliers make discounts available to competing retailers on an equitable basis and offer discounts sufficiently graduated so small retailers can also qualify Minimum price laws p 504 7 applicable in about half of the states not including CA prevent retailers from selling certain items for less than their cost plus a fixed percentage to cover overhead 0 Loss leaders p 504 7 retailers price selected items below cost to lure more customer traf c Unit pricing p 504 7 in some states including CA unit pricing laws require some retailers to express both the total price of an item and its price per unit of measure ounce pound etc H lquot 0 Item price removal p 504 7 many rms especially supermarkets due to the proliferation of computerized checkouts only mark prices on shelves or signs and not on individual items Bait and switch advertising p 505 7 an illegal practice in which a retailer lures a customer by advertising goods and services at exceptionally low prices and once a consumer contacts the retailer by entering the store calling a tollfree number or going to a Web site he or she is told the good service of interest is out of stock or of inferior quality The retailer does not intend to sell the item Manufacturers wholesalers and other suppliers and retail pricing A supplier can control retail prices by using exclusive distribution not selling to pricecutting retailers or being its own retailer A retailer can gain control by being a vital customer threatening to stop carrying suppliers lines stocking private brands or selling gray market goods brand name products bought in foreign markets or goods transshipped from other retailers Developing a retail price strategy 5 steps 55 O A Retail objectives and pricing Market penetration pricing p 507 7 an aggressive strategy used when a retailer seeks large revenues by setting low prices and selling many units Market skimming pricing definition p 507 7 a rm sets premium prices and attracts customers less concerned with prices than service assortment and prestige Broad price policy Broad price policy p 509 7 retai1er interrelates its price policy with the target market the retail image and the other elements of its retail mix Price strategy Demand oriented pricing p 510 7 retai1er sets prices based on consumer desires determines the range of prices acceptable to the target market Cost oriented pricing p 510 7 retai1er sets a price oor the minimum price acceptable to the firm so it can reach a speci ed profit goal popular among retailers It is simple because a retailer can apply a standard markup for a product category more easily than it can estimate demand at various prices p 515 o Markup pricing p 511 7 the most widely usedpricing technique retailer sets prices by adding perunit merchandise costs retail operating expenses and desired profit is e icient if it takes into account competition seasonal factors and the intricacies in selling some products p 515 C O Markup p 511 7 the difference between merchandise costs and selling price o Markup percentage p 511 7 the difference is in the denominator I At retail Retail selling price 7 39 quot cost Retail selling price 0 At cost Retail selling price 7 39 quot cost Merchandise cost 0 Initial markup p 513 7 based on the original retail value assigned to merchandise less the costs of the merchandise 0 Maintained markup p 513 7 based on the actual price received for merchandise sold during a time period less merchandise cost re ects adjustments due to markdowns added markups shortages and discounts Gross margin p 5137 the difference between net sales and the total cost of goods sold which adjusts for cash discounts and additional expenses Variable markup policy p 514 7 retailer purposely adjusts markups by merchandise category I Direct product pro tability DPP p 514 7 retailer finds the profitability of each category of merchandise by computing adjusted per unit gross margin and assigning direct product costs for such expense categories as warehousing transportation handling and selling 0 O Implementation of price strategy Customary pricing p 517 7 retailer sets prices for goods and services and seeks to maintain them for an extended period eg newspapers candy arcade games vending machine items and foods on restaurant menus Everyday 10w pricing EDLP p 518 7 retailer strives to sell its goods and services at consistently low prices throughout the selling season Variable pricing p 518 7 retailer alters its pricing with fluctuations in costs or consumer demand may add excitement due to special sales opportunities for customers One price policy p 519 7 retailer charges the same price to all customers buying an item under similar conditions the role for most US retailers Flexible pricing p 519 7 lets customers bargain over prices those who are good at it get lower prices e g many jewelry stores amp auto dealers use this strategy requires high initial prices and good salespeople Contingency pricing p 519 7 a service retailer does not get paid until after the service is performed and payment is contingent on the services being satisfactory F Odd pricing definition p 519 7 retail prices are set at levels below even dollar values such as amp049 498 and 199 aform ofpsychological pricing Leader pricing p 519 7 retailer advertises and sells selected items in its goods services assortment at less than the usual pro t margins to draw shoppers supermarkets home centers discount stores drugstores and fast food restaurants utilize this strategy Multiple unit pricing p 520 7 retailer offers discounts to customers who buy in quantity or who buy a product bundle Bundled pricing p 520 7 retailer combines several elements in one basic price e g a digital camera bundle could include a camera batteries a telephoto lens a case and a tripod for 289 Price lining p 520 7 retailer sells merchandise at a limited range of price points with each price point representing a distinct level of quality Price adjustments Markdown p 521 7 a reduction from the original retail price to meet the lower price of another retailer adapt to inventory overstocking clear out shopwom merchandise reduce assortments of odds and ends and increase customer traf c 0 Offretail markdown percentage Original price 7 New price Original price Additional markup p 522 7 retailer increases an item s original price because demand is unexpectedly high or costs are rising 0 Addition to retail r New price 7 Original Drice Original price Rev 103107pfc


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