MAR3231 exam 2
Four approaches for coordinating Supply Chain activities
FOUR approaches for coordinating SC activities to reduce level of inventory in the SC and reduce the number of stock-outs (in order of the level of collaboration): 1. Use EDI (as discussed above Electronic Data Interchange) 2. Share information (e.g., historic sales data) to reduce need for backup inventory, improve sales forecasts and production efficiency 3. Vendor-managed inventory (VMI) 4. Collaborative planning, forecasting and replacement (CPFR)
Customer Loyalty
-Loyalty is more then mere satisfaction -Committed to purchasing merchandise and services from a retailer. -Resist efforts of competitors to attract the loyal customer -Emotional attachment to retailer (e.g., friendship): -Personal attention -Memorable positive experiences -Brand building communications programs **Typically, offering price discounts can not achieve customer loyalty because that would mean they are loyal to the discounts and will just go wherever has the best discounts.**
How do retailers manage diversity among their employees?
-Managing Diversity: HRM activity designed to realize the benefits of a diverse workforce, which includes but is not limited to skin color, nationality, gender, sexual orientation, and people with disabilities. -Diversity Training: Consists of developing cultural awareness and building competencies. -Support Groups and Mentoring: Groups of minority employees that exchange information and provide emotional and career support
Supply Chain Management (SCM)
-Managing of entire supply chain to make it as seamless as possible from where they come from to the place they need to go -SCM = Efficient and effectively manage the flow of merchandise from the vendors to the retailer's customers. -Integration of suppliers, manufacturers, warehouses, stores, and transportation intermediaries into a seamless value chain. -Merchandise is produced and distributed in the right quantities; to the right locations; and at the right time. -Minimization of system wide costs, while satisfying the service levels their customers require.
Push Supply Chain
-Merchandise is allocated to stores on the basis of forecasted demand (= pushed from distribution center to stores) -Less costly than a pull supply chain -Less sophisticated information system needed to support it -Efficient for merchandise that has steady, predictable demand
Advantages of using a distribution center
-More accurate sales forecast are possible when retailers combine forecasts for many stores serviced by one distributor -Enables retailers to carry less merchandise in the store -Helps/Easier to avoid running out of stock -Retail store space is more scarce/expensive than space at the distribution center
What branding options are available to retailers?
-National Brands -Store Brands (premium store brands, exclusive brands, and copycat brands) -Generic Brands
Supply Chain for Fulfilling Catalog & Internet orders
-Non-store shipments: Focus is on shipping to consumers (rather than stores) -When fulfilling orders from individual consumers, retailers ship small packages with one or two items to a (very) large number of different places -Distribution centers for picking and packing orders for individual consumers -Ex: Amazon is different because there are no stores so you have to have a HUGE distribution center to ship directly to customers
Dealing with Unprofitable Customers
-Offer less costly approaches for dealing with these customers -Charge customers for extra services demanded -We try to renogoiate the deal and write them something saying sorry if were not good enough for you but we would like to... And companys can terminate customers who complain every month, sprint did this to their top 100 complainers
Pull Supply Chain
-Orders for merchandise are generated at the store level on the basis of POS sales data ( = pulled from distribution center to stores) -Less likely to be overstocked or out of stock -Increases inventory turnover -More responsive to changes in customer demand -Efficient when demand is uncertain, and hard to forecast
What activities do retail employees undertake, and how are they typically organized?
-Organizational structure: -Identifies the activities to be performed by specific employees, and determines the lines of authority and responsibility in the firm -The design of the organization structure needs to match the firm's retail strategy (e.g., category specialists and warehouse clubs target price-sensitive customers aim to build a competitive advantage based on low cost). -Divided into four catagories: 1. Strategic management 2. Administrative management (operations) 3. Merchandise management 4. Store Management
What issues do retailers consider when buying and sourcing private label merchandise internationally?
-Possible Higher Costs -Tariffs -Duties -Currency Conversion
What can retailers do to alleviate the privacy concerns of their customers?
-Privacy by design: Shift responsibility for privacy from consumers to retailers (privacy is default). -Simplified consumer choice: Allow customers to track their online activities. -Greater transparency: Improve customer understanding
Reverse Logistics
-Process of moving returned goods from customer destination for the purpose of capturing value or proper disposal (give to charity; throw away, auctions). -Reverse-logistics systems are challenging: -Reverse logistics is (by definition) an ad-hoc system -Items may be damaged or require special handling -Transportation costs are high (e.g., costs of return can be up to 3x costs of outbound shipment) -When people return items, you have to use reverse-logistics ****The percentage of returns for online purchases is _4 times__ as many as % for in-store purchases depending on what your store is selling.****
What is RFID, and how does it affect retailing?
-Radio Frequency Identification (RFID) allows an object or a person to be identified at a distance using radio waves. -Reduces warehouse and distribution labor costs (e.g., accurate data) -Reduces point of sale labor costs -Inventory savings by reducing inventory errors -Reduces theft - products can be tracked -Reduces out of stock conditions -Disadvantages: -RFID is expensive - the return on investment is (currently still) low -Still only makes sense to put tags on pallets, cartons, expensive merchandise or high theft items -RFID generates more data than what can be currently processed -Consumers worry about privacy invasion
Advantages of Centralization
-Reduce costs (overhead falls with fewer managers) -Coordinated buying achieves lower prices from suppliers -Provides an opportunity to have the best people make decisions for the entire corportation -Increases efficiency
Outsourcing Logistics
-Retailers consider outsourcing logistical functions if those functions can be performed better or less expensively by 3rd-party logistics companies. 1. Transportation 2. Warehousing 3.Freight Forwarders (organizes shipments to get goods from producer to a market, customer or final point of distribution) 4. Integrated Third-Party Logistics Services You can't build competitive risk when outsourcing or you are basically selling out then everyone will adopt your strategy.
Developing Talent: Selection & Training
-Selective Hiring: Recruit "the right people" Simply seeking the best / brightest may not always be most effective approach -Training: Increasing investments in management training programs and developing leaders Increasing attention to college graduates (Generation Y)
Collaborative Planning, Forecasting, and Replenishment (CPFR)
-Sharing of forecasts and related business information and collaborative planning between retailers and vendors to improve SC efficiency and product replenishment. -Most advanced form of retailer-vendor collaboration that involves sharing proprietary information, such as business strategies, promotion plans, new product developments and introductions, production schedules, and lead time information. -Common goals -Single demand forecast developed collaboratively -Collaborative promotional planning & execution -Single, shared data source -Improved inventory management across Supply Chain -Optimized replenishment strategies with joint ownership -Process simplicity creates optimal framework for success
Objectives of Human Resource Management
-Short Term: -Increasing employee productivity -Productivity -Long-Term: -Employee attitude customer satisfaction and loyalty long-term performance -Increasing employee satisfaction reducing turnover -Employee turnover
What is customer lifetime value? (CLV)
-The expected contribution from the customer to the retailer's profits over his/her entire relationship with the retailer -Use past behaviors to forecast future purchases, the gross margin from these purchases, and the costs associated with serving the customers -Classifying customers by recency, frequency, and monetary value of purchases!!!! -Ex: Marcia will be greatest lifetime value because she has coming into your store every month of the year, where as Shirley came once and spent more money than Marcia over time but Shirley has not been back to your store in a year.
How does merchandise and information flow from the vendor to the retailer to consumers?
-Through supply chain management which is a set of activities and techniques firms employ to efficiently and effectively manage the flow of merchandise from the vendor's to the retailer's customers.
Customer Database: Collecting Customer Data
-Transactions: collect complete history of purchases (e.g., purchase date, price paid, SKUs bought, whether or not the purchase was stimulated by a promotion). -Customer contacts by retailer (touch points) (e.g., visits to web site, inquires to call center, direct mail sent to customer). -Customer preferences -Descriptive information about customers (e.g., demographic and psychographic data) -Customer's responses to marketing activities **Usually transactions have time stamps to see exactly when you bought them this helps them make customer preferences to get to know what you like. **
Developing a Sales Forecast
-Understanding the nature of the product life cycle -Collecting data on sales of product and comparable products -Using statistical techniques to project sales -Work with vendors to coordinate manufacturing and merchandise delivery with forecasted demand (Collaborative Planning, Forecasting and Replenishment, CPFR)
Three Steps that lead to Strategic Advantage
-Wal-Mart's success results (partly) from its information and SC management systems Why are competitor's lagging behind? 1. Made a substantial investment in developing its systems and has scale economies. 2. Through experience and (internal) learning, changes are always made to improve the system. 3. Coordinated effort of employees, functional areas, & top management throughout the company
Bullwhip effect
-When retailers and vendors do not collaborate, a Bullwhip Effect occurs! -It is the built up inventory in an uncoordinated channel where retailers and vendors do not coordinate their supply chain activities -What Causes a Bullwhip Effect in an uncoordinated supply chain? -Over-reacting to shortages -Delays in transmitting orders and receiving merchandise -Ordering in batches rather than generating a number of small orders -You build in a little buffer, which leads to extra inventory so now it backfires because you need extra space in your warehouse.
Challenges in Retail that Human Resource Management deals with
-Work Environment is usually: Open Long Hours Peak Sales Periods Emphasis on Cost Control -Employees are usually: Unskilled Part-Time Diverse Backgrounds -Which in return leads to high turnover of employees
Drop Shipping
-a system in which retailers receive orders from customers and relay these orders to vendors and then the vendors ship the merchandise ordered directly to the customer. -Drop-shipping has been used for years by companies that sell bulky products such as lumber, iron, and petroleum, and catalog and mail-order companies. -Advantages for retailers: -Vendor assumes costs and risk of supplying merchandise to customers -Vendor builds/manages the DC -Dis-Advantages for retailers: -Less control -Longer delivery times -Can increase delivery costs for customers (e.g., when items shipped from multiple vendors)
Electronic Data Interchange (EDI)
-computer-to-computer exchange of business documents between retailers and vendors (includes merchandise sales, inventory on hand, orders, advanced shipping notices, receipt of merchandise, invoices for payment) -EDI Security: There are implications of security failures (loss of data, loss of public confidence), but retailers have security policy objectives: Authentication: system assures person on other end of session is who it claims to be Authorization: that person has permission to carry out request Integrity: info arriving is the same that was sent
Data Warehousing
-coordinated and periodic copying of data from various sources, both inside and outside the enterprise, into an environment ready for analytical and informational processing -Walmart makes good use of its data warehouse. Experts estimate that it is 2nd in size to the U.S government Ex: Sales of strawberry pop tart increase 700% in areas facing hurricane
Decentralization
-occurs when the authority for decisions is assigned to lower levels in the organization
Centralization
-occurs when the authority for retailing decisions is delegated to corporate managers rather than to geographically dispersed managers
Issues related to Sourcing Merchandise
1. Costs associated with global sourcing decisions (e.g., tariffs) 2. Managerial issues associated with global sourcing decisions (e.g. quality control, time to market, social/political risks) 3. Resident buying offices: Organizations (independent 3rd parties) located in major market centers that provide services to help retailers buy merchandise 4. Reverse auctions = tell a group of companies that you are looking for these certain products and they come to you and tell you their shipping time, price, ingrediants but NO strategic relationship with vendors
Elements in Effective Customer Loyalty Programs
1. Tiered rewards based on customer value 2. Treat High CLV's as VIP's (e.g., private shopping, private tours) 3. Offer choices of rewards -No all customers value the same rewards -Non-monetary incentives, altruistic rewards 4. Reward all transactions to ensure the collection of all customer transaction data and encourage repeat purchases 5. Transparent and simple so customers easily understand when they receive rewards 6. Incorporate charitable contributions *Platinum is your most loyal and least price sensitive*
If a product is out of stock....
17% switch brand 39% go to another store 44% stop shopping After multiple "stock-outs" (not having a certain product), consumer will start not going to that store
Merchandise Category: The Planning Unit
A merchandise category is an assortment of items that customers see as substitutes for each other. Marketing decisions on one SKU might influence consumer decisions related to other SKUs within the category Typically, a buyer manages several categories Vendors might assign products to different categories based on differences in product attributes Retailers might assign two products to the same category based upon common consumers and buying behavior
How do retailers evaluate the performance of their merchandise management process?
A sell-through analysis compares actual and planned sales to determine whether more merchandise is needed to satisfy demand or whether price reductions are required.
What are the benefits to vendors and retailers of collaboration on SCM?
Retailers are increasingly taking a leadership role in managing their supply chains and it helps them get to know their customers more and what they want to plan production, promotion, deliveries, assortments, and inventory levels so it makes it an easier process for everyone.
Forecasting Fashion Merchandise Categories
Retailers develop fashion forecasts by relying on: Previous sales data Market research (e.g., qualitative methods such as focus groups, analysis of blogs/chat rooms) Fashion and trend services Vendors -Very strong relationship between economy and makeup purchases so when economy goes down, makeup sales go up (bc people are getting their ego back up)
Category Management
The process of managing a retail business with the objective of maximizing the sales and profits of a category Objective is to maximize the sales and profits of the entire category, not just a particular brand (i.e., need to consider interdependencies among SKUs in the category).
What IT developments are facilitating vendor-retailer communications?
They are involved in coordinating the physical flow of merchandise to the stores and when buyers need to arrive with what units of goods and the particular way that the merchandise should be placed pallets for easy unloading.
How do retailers buy national brands?
They can buy from Wholesale Market Centers and Trade Shows
How are merchandise management processes different for staple and fashion merchandise?
They invest in "hot" merchandise, they are open to buy, monitor portfolio of merchandise (stocks), sell losers (markdowns) Also, merchandise budget plan
How do retailers prepare for / conduct negotiations with vendors?
Tips for Negotiating 1. Choose a good place to negotiate 2. Be aware of real deadlines 3. Separate people from problem 4. Insist on objective information 5. Invent options for mutual gain 6. Let the other party do the talking 7. Know how far to go 8. Don't burn bridges 9. Don't assume
What is customer relationship management?
-A business philosophy and set of strategies, programs, and systems that focus on identifying and building loyalty with a retailer's most valuable customers. Goal: Retailers now concentrate on providing more value to their best customers using targeted promotions and services to increase their share of wallet ... Means: Retailers are concentrating on developing customer loyalty and increasing share of wallet by providing more value to their best customers by using targeted, personalized merchandise, services, and promotions. ****Share of wallet = percentage of amount of money that was spent on your company compared to how much they spend at your competitor's***
Sales-to-Stock Ratio
-A way to track a retails buyer's sales Sales-to-stock ratio = Net Sales/Avg. Inventory at Cost Retailers normally report their sales-to-stock ratios (and their inventory turnover) on an annual basis (rather than for parts of the year) If the sales-to-stock ratio for a three-month season is 2.3, the annual sales-to-stock ratio will be 9.2 Estimation of average inventory via two approaches: Use information system to average the inventory in stores and distribution centers at the end of each day Divide the sum of the end-of-month (EOM) inventories for several months by the number of months
Employee Engagement
-An emotional commitment by an employee to the organization and its goals. -Engaged employees care about their work and their company.
Analyzing Customer Data and Identifying Target Customers
-Analyze the customer database and convert the data into information that will help retailers develop programs for building customer loyalty. Data Mining = technique used to identify patterns in data Retail Analytics = applications of statistical techniques and models that seek to improve retail decisions through analysis of customer data.
The Customer Relationship Management Process
-CRM is an iterative process that turns customer data into customer loyalty through 4 activities: 1. Collecting customer data 2. Analyzing the customer data and identifying target customers 3. Developing CRM programs 4. Implementing CRM programs
Staple (Basic) Merchandise Categories: (A merchandise management planning system)
-Continuous demand over an extended time period -Limited number of new product introductions (i.e. 'new to world') -Hosiery, copy paper, canned soup, basic casual apparel -Relatively easy to forecast demand -Continuous replenishment
Privacy Concerns with Information Collecting
-Control over Collection: Do customers know what information is being collected? Do customers feel they can decide upon the amount and type of information collected by retailers? -Control over Use: Do customers know how the information will be used by the retailer? Will the retailer share the information with third parties?
Market Basket Analysis
-Data analysis focusing upon the composition of the customer's market basket - what items are bought during a single shopping occasion? Uses: -Adjacencies for displaying merchandise -Joint (targeted) promotions (Bananas in the cereal aisle as well as in the produce section) -Beer with baby diapers (Friday evening between 6 - 7 pm) Tissues with cold medicine Assortment planning (secure availability) -Ex: Whenever you go to store and swipe your store card, they see what was in your cart and what you bought, so they can then send you coupons for those items. Or if you buy bananas and cereal, they would put a few bananas in the cereal aisle while still having it in the fruit department too. MAKE SURE the most popular items your customers buy are ALWAYS in stock.
Employment Marketing (Attracting Talent)
-Develop programs to attract, develop, motivate, and keep talent -Ex: Marketing programs that attract "best and brightest" potential employees Starbucks - "Love What You Do" Southwest - "Free to Actually Enjoy What You Are Doing"
In what way does the management of human resources play a vital role in a retailer's performance?
-Effective management of human resource management can build a competitive advantage by lowering costs and/or increasing differentiation for the retailer. The differentiating advantages gained through HRM are difficult for competitor's to duplicate.
What are the human resource management programs for building a committed workforce?
-Empowering Employees = the process of managers sharing power and decision-making authority with employees: Gives employees confidence Provides greater opportunity to provide service to customers Employees are more committed to firm's success -Engaging Employees/Creating Partnering: 1. Relationships with Employees 2. Reducing status differences 3. Promotion from within 4. Balancing careers and families (e.g., Flextime, job sharing) 5. Provide Benefits 6. Use Social Media
Legal Issues in Human Resource Management
-Equal Employment Opportunity: Protect employees from unfair discrimination in the workplace. -Compensation: 40-hour workweek, overtime pay, minimum wage, and employee pensions. -Labor Relations: The process by which unions can be formed and the ways in which companies must deal with the unions. -Employee Safety And Health: The employer is obligated to provide each employee with an environment that is free of hazards that are likely to cause death or serious injury. -Sexual Harassment: Unwelcome sexual advances, requests for sexual favors, and other inappropriate verbal and physical conduct. -Employee Privacy: Employees' privacy protection is very limited. -Developing Policies: HR department is responsible for developing programs and policies to increase awareness of legal restrictions and know how to deal with potential violations.
Issues in Retail for HR
-Expense Control: Control expenses to be profitable Retailers often hire people with little or no experience A modest investment in hiring more staff may result in a significant increase in sales -Part-Time Employees: HR needs vary depending on time of day, day of week, time of year, and promotion schedule To minimize costs, retailers should complement their full-time employees with part-time workers Part-time employees are less expensive than comparable full-time employees -Utilizing Diverse Employee Groups: Increased efforts to recruit, train, manage, & retain mature, minority, and handicapped workers Different approaches need to be used to manage younger and older employees -International HR Issues: Differences in work values, economic systems, and labor laws HR practices must differ The legal/political system in countries often dictates the HRM practices
Advantages of Direct-to-Store Delivery
-Gets merchandise faster, and is thus used for food/egg/milk -Helps retailer's image of being the first to sell the latest product (video games or fads) -Some vendors provide direct store delivery for retailers to ensure that their products are on the store's shelves, properly displayed, and fresh -Risky shipping products like glass bottles should be shipped directly from vendor to store
Coordinating Merchandise and Store Management
-Improving buyer's appreciation for store environment -Buyers making store visits Assigning employees to coordinating roles
How do retailers plan their assortments and determine the appropriate inventory levels?
- Assortment plan: list of the SKUs that a retailer will offer in a merchandise category and reflects the variety and assortment that the retailer plans to offer in a merchandise category. - AP= BREADTH AND DEPTH - Product availability defines the percentage of demand for a particular SKU that is satisfied.
Logistics: The Physical Flow of Merchandise
-In charge of the flow of products from where its produced to the customer -The aspect of supply chain that refers to the planning, implementation, and control of the efficient flow and storage of goods, services, and related information from the point of origin to the point of consumption to meet customers' requirements. -Retailers can have merchandise shipped directly to their stores (path 3) or to their distribution centers (paths 1 and 2)
How do retailers forecast sales for merchandise categories?
- By relying on previous sales data, market research, fashion and trend services, vendors. What trade-offs do buyers consider in developing merchandise assortments? - Buyers consider: Retail strategy, assortments GMROI of the merchandise mix, complementary merchandise, effects of assortment size on buying behavior, physical characteristics of the store.
Fashion Merchandise Categories: (A merchandise management planning system)
-In demand for a relatively short period of time -Continuous introductions of (truly) new products, making existing products obsolete -Athletic shoes, laptop computers, women's apparel -Much more difficult to forecast demand -Note: Retailers buy seasonal SKUs (e.g., snow shovels) in much the same way as they buy fashion merchandise
Developing and Sourcing Private Label Merchandise
-In-House: Large retailers (e.g., JCPenney, Macy's, The Gap, American Eagle Outfitters) have divisions specialized in: Identifying trends, designing, specifying products Selecting manufacturers Monitoring and managing manufacturing conditions and product quality -Acquisition: Limited Brands (Victoria's Secret, Bath & Body Works) acquired MAST Industries MAST one of the world's biggest contract manufacturers, importers, distributors of apparel Have manufacturing operations and joint ventures in 12 countries Also provides private label merchandise for A&F, Lane Bryant, New York & Co., Chico's Outsource: e.g., Hollander Pillows -The three major routes for creating your own private label brand Hollander Pillows puts labels on like nautica and ralph lauren on their pillows but really they make them
How does a retailer coordinate employees' activities, and motivate them to work toward the retailer's goals?
- Written Policies and Supervision: Indicate what employees should do Behavior enforced by managers -Compensation-Based Incentives: Commission, Bonus, Stock Options -Organization Culture: The set of values, traditions, and customs of a firm that guides employee behavior Behavior enforced by social pressure *Excessive use of incentives can also reduce employee commitment*
Motivating Talent: Aligning Goals
- Written Policies and Supervision: Indicate what employees should do Behavior enforced by managers -Compensation-Based Incentives: Commission, Bonus, Stock Options -Organization Culture: The set of values, traditions, and customs of a firm that guides employee behavior Behavior enforced by social pressure *Excessive use of incentives can also reduce employee commitment*
Assortment Plan
- list of the SKUs that a retailer will offer in a merchandise category and reflects the variety and assortment that the retailer plans to offer in a merchandise category AP = Breadth and Depth Variety (breadth): number of different merchandising categories within a store or department. Assortment (depth): the number of SKUs within a category. Product availability defines the percentage of demand for a particular SKU that is satisfied.
Benefits of Efficient Supply Chain to CUSTOMERS...
-1 & 2: Improved Product Availability: Reduced stock-outs (merchandise available when the customer wants them) Tailoring assortments: right merchandise is available at the right store (e.g., related to climate: more wool sweaters in North / more cotton sweaters in South in winter) ***(These benefits translate into greater sales, lower costs, higher inventory turnover, and lower markdowns for retailers)**** 3: Improved Return on Assets: Increased Sales from more attractive assortments in stock / available for purchase Improved Net Profit Margins from increased gross margin and lowered expenses SCM allows retailers to take advantage of special buying opportunities buy merchandise at lower costs reduces costs of goods sold (COGS) SCM means coordinated deliveries reduces transportation costs SCM often includes Distribution Centers (DC) reduces 'handling/repackaging' costs Lowered inventory from less backup inventory in stock & higher asset (inventory) turnover same sales revenue while using LESS inventory
Disadvantages of Centralization
-It is difficult for a retailer to adapt to local market conditions -It may have problems responding to local competition and labor markets -It may make it hard for local managers to pay competitive wages in their area or hire appropriate types of salespeople.
Efficient Supply Chain Management is so important because....
1. Improved product availability 2. Reduced costs 3. Higher return on assets
Why does Human Resource Management give a sustainable competitive advantage?
1. Labor costs account for a significant percentage of a retailer's total expenses 2. The customer experiences are determined by the activities of employees (selecting merchandise, providing information and assistance, etc.) 3. These potential advantages are difficult for competitors to duplicate
What activities are undertaken in a distribution center?
1. Managing inbound transportation (Dispatcher) 2. Receiving and checking merchandise 3. Storing or cross-docking merchandise 4. Getting merchandise floor ready (e.g., ticketing and marking; putting on hangers) 5. Preparing to ship merchandise to a store 6. Managing outbound transportation -Cross-docking = truck arrives, you take a box and instead of putting it into the distribution center, you put it in another truck that's going directly to the stores
FTC Guidelines for Fair Information Practices
1. Notice and awareness: Comprehensive statement about information storage, manipulation, and dissemination 2. Choice/consent: Opt-in and opt-out options 3. Access/participation: Customer able to confirm accuracy 4. Integrity/security: Controls for theft and tampering 5. Enforcement/redress: Mechanism to insure compliance **Usually you don't even read what their privacy policies are so you just press "I agree" The U.S has to ask for permission to not be tracked but in Europe you have to ask to opt in to the tracking/privacy policies Often when you say no to giving them permission to your info, your customer service goes down.**
How to maintain target customers
1. Personalization (1-to-1 marketing based on data) 2. Community
What legal / ethical issues are involved in buying merchandise?
1. Purchase Terms and Conditions 2. Resale Price Maintenance 3. Commercial Bribery 4. Chargebacks 5. Buybacks 6. Counterfeit Merchandise 7. Gray Markets and Diverted Merchandise 8. Exclusive Dealing Agreements 9. Tying Contract
Investment Portfolio Management
Activities / Responsibilities: -Dollars to invest in inventory -Invest in "hot" merchandise -Save a little for opportunities (open to buy) -Monitor portfolio of merchandise (stocks) -Sell losers (markdowns) Traders at stock exchange manage portfolio of stocks, and retail buyers manage a portfolio of merchandise inventory. Both continuously assess the risks associated with purchase decisions
National (Manufacturer) Brands
Advantages: -Help retailers build their image and traffic flow -Customers patronize retailers selling the branded merchandise -More desired by customers -Reduces selling and promotional expenses -Push some of the financial risk onto the vendor Disadvantages: -Lower margins -Vulnerable to competitive pressures -Limit retailer's flexibility
Private Brands Advantages/Disadvantages
Advantages: -Unique merchandise not available at competitive outlets -Difficult for customers to compare price w/ competitors -Exclusivity boosts store loyalty -Higher profit margins Disadvantages: -Require significant investments in design, global manufacturing sourcing -Need to develop expertise in developing and promoting brand -Unable to sell excess merchandise -Typically less desirable for customers
Identifying Information: Collecting Customer Data
Approaches that store-based retailers use: -Asking for identifying information (e.g., phone number, name and address) -Offering frequent shopper programs (often cards) -Loyalty programs that identify and reward customers who patronize a retailer -Private label credit card (that has the store's name on it) -Connecting Internet purchasing data with the stores -Use Biometrics -Measuring human characteristics (e.g., hand geometry, fingerprints, iris, or voice). -Place RFID chips on merchandise **If you can't provide what they want, you will lose your loyal customers to competitors who do give them what they want. **
Why are retailers building strategic relationships with vendors?
Because both parties benefit by working together to develop and exploit joint opportunities which in return increases their sales and profit through the supply chain
Why do retailers want to treat customers differently?
Because of CRM. -All customers are not equally profitable, and more or less profitable customers need to be treated differently -Retailers now concentrate on providing more value to their best customers using targeted promotions and services to increase their share of wallet - the percentage of the customers' purchases made from the retailer
Determining Variety and Assortment
Buyers consider: -Retail strategy: Number of SKUs to offer in a merchandise category is a strategic decision Aldi offers few SKUs at low prices (brands less relevant) -Assortments GMROI of the merchandise mix: Trade-off between too much vs. too little assortment: Increasing sales by offering more breadth and depth can potentially reduce inventory turnover and GMROI by stocking more SKUs -Complementary merchandise (combine low GMROI and high GMROI SKUs) -Effects of assortment size on buying behavior (e.g., variety-seekers) -Physical characteristics of the store (e.g., space needed)
Buying National Brands/Meeting Vendors
Buying decision for fashion apparel/accessories: -5-6 times a year -Many months before delivery -Withhold open-to-buy (OTB) for new items with fashion change Buying decision for staple merchandise: -Less frequent -Continuous replenishment -Wholesale Market Centers: National Markets (NY: Garment District), Regional Markets (Atlanta, Miami), London, Milan, Paris, Tokyo Market weeks: Buyers make appointments to visit the various vendor showrooms -Trade Shows: Frankfurt Book Fair, Las Vegas Consumer Electronics Show, Atlanta Super Show (Sporting Goods) -Internet Exchanges: Worldwide Retail Exchange Meeting Vendors at Your Company (HQ) -National Brand Buying Process: 1. Meet with vendors 2. Discuss performance of vendor's merchandise during the previous season 3. Review the vendor's offering for the coming season 4. May place orders for the coming season 5. Sometimes they do not buy at market, but review merchandise, return to their offices to discuss with the buying team before negotiating with vendors
How do retailers build a sustainable competitive advantage by developing and managing their human resources? What is the link between HR and the retailer's competitive advantage?
By lowering costs and/or increasing differentiation
How do retailers and vendors collaborate to make sure right merchandise is available when customers are ready to buy?
By using strategic advantage, improved product availability and higher return on assets... to accurately forecast sales and needed inventory levels however it is a continuous learning process
What can retailers do to increase their share of wallet?
CRM is an iterative process that turns customer data into customer loyalty through four activities: 1. Collecting customer data 2. Analyzing the customer data and identifying target customers 3. Developing CRM programs 4. Implementing CRM programs
How can retailers build customer loyalty?
Can be enhanced by: Creating an appealing brand image Offering exclusive merchandise Providing convenient locations Providing an engaging shopping experience
Category Captain
Category captain helps manage categories of any specific category like cereals Look at pic on phone Advice: closely working with vendors and carefully evaluating their suggestions is much more prudent than CC Category Captain (CC): Selected vendor (e.g., General Mills, Kellogg's) responsible for (help) managing a category Vendors frequently have more information and analytical skills about the category in which they compete than retailers Vendor category captain may have different goals than retailer ('fox in the henhouse') Blocks other brands access to shelf space Anti-trust legislation
Controllable/Uncontrollable Factors of Projecting Sales:
Controllable: Promotions Store locations Merchandise placement Cannibalization Uncontrollable: Seasonality Weather Competitive activity Product availability Economic conditions
Converting Good Customers into Best Customers
Customer Alchemy: converting iron and gold customers into platinum customers Add-on selling as a way to achieve customer alchemy = offering and selling more products and services to existing customers and increasing the retailer's share of wallet with these customers
National (Manufacturer) Brands
Designed, produced, and marketed by a vendor and sold by many retailers
Private-Label (Store, House or Own) Brands
Developed by retailer and only sold in retailer's outlets -Similar to national brands, retailers use their name (i.e., brand equity) to create a private label for merchandise -Buying / developing store brands can be more complex than buying national brands, because the retailer plays a more active role in developing the products -BUT: Private-label sales in the U.S. have been growing at more than 7% annually now at app. $86 billion in sales per year (sales of national brands have been declining at app. 3% each year). -The "house" brand or generic brand (like how publix has their own brand) -Profit margin might be higher since prices are lower
Forecasting for Service Retailers
Due to the perishable nature of services, service retailers face more challenges than fashion retailers. Offerings perish at the end of the day, not at the end of the season. Must devise approaches for managing demand so that it meets, but does not exceed capacity.
Evaluating Merchandise Management Performance -> (Gross-Margin Return on Investment GMROI)
Merchandise managers have control over -The merchandise they buy -The cost of the merchandise -The price at which the merchandise is sold Merchandise managers do not have control over -Operating expenses -Human resources -Real estate -Supply chain management -Information systems Can be evaluated in many ways, like team sales, individual sales Retail buyers set the price but are also responsible if the items do not sell Buyers can influence the gross margin but not the operating expesenses
How do multistore retailers allocate merchandise to stores?
Multiattribute method for evaluating vendors uses a weighted average score for each vendor. The score is based on the importance of various issues and the vendor's performance on those issues.
Categories of Private Brands
Premium = sometimes even more expensive Exclusive Brands = brands you can only get at Dillards, Estee Lauder Copycat= When walgreens has a copy of exact brand next to it with their brand Generic Brands = not a brand, just the ingredients name on the bottle like "asprin"
What is the merchandise management process?
Process by which a retailer attempts to offer the appropriate quantity of the right merchandise, in the right place and at the right time, so that it can meet the company's financial goals. Driven by: Sensing market trends Analyzing sales data Making appropriate adjustments in prices and inventory levels
Vendor-Managed Inventory
Vendor is responsible for maintaining retailer's inventory levels Manufacturer has access to POS information Vendor determines reorder point -> Replenishment automatically triggered Enables demand-based view of replenishment & production planning -> reduces bull whip effect
How do retailers determine who their best customers are?
You use customer lifetime value to identify and cater to your most valuable customer
