Chapter 13-14 Retailing

How do retailers develop and sources private-label merchandise?

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How will selling a national brand lower a retailer's promotional expenses for that product?

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If there are so many advantages to carrying private brands, why do retailers even bother to sell national brands?

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Understand the relationship between price and the company's overall strategy and market position.

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What is the advantage to carrying private label merchandise? The problems with selling private label merchandise are most severe with what type of merchandise?

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Why are inventory carrying cost higher for retailers who source internationally?

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scanned versus posted prices and deceptive reference prices

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identify what is counterfeit merchandise? How can it negatively impact the market and the ethical aspects?

1)Goods made and sold without the permission of the owner of a trademark, a copyright, or a patented invention that is legally protected in the country where it is marketed 2)Major problem is counterfeiting intellectual property

What is a slotting allowance? When are they used?

A charge imposed by a retailer to stock a new item (in supermarkets) For Retailers ~To ensure efficient uses of their valuable space ~To determine which new products merit inclusion in their assortment Manufacturers view them as extortion

What is price elasticity? How is the number interpreted?

A commonly used measure of price sensitivity Elasticity = percent change in quantity sold percent change in price

What is price lining? What are the benefits to price lining?

A limited number of predetermined price points. Ex: $59.99 (good), $89.99 (better), and 129.99 (best) Benefits: ~Eliminates confusion of many prices ~Merchandising task is simplified ~Gives buyers flexibility ~Can get customers to "trade up"

Predatory pricing

A method for establishing merchandise prices for the purpose of driving competition from the marketplace

What is a charge back?

A practice used by retailers in which they deduct money from the amount they owe a vendor without getting vendor approval. Two Reasons: merchandise isn't selling vendor mistakes Difficult for vendors - Disrupt relationships

What is a high/low pricing strategy? What are the strengths of operating with a high/low pricing strategy? .

A strategy in which retailers offer prices that are sometimes above their competition's everyday low price, but they use advertising to promote frequent sales. However, some customers learn to expect frequent sales and simply wait until the merchandise they want goes on sale and then stock up at the low prices.

when is a gift or favor considered to be commercial bribery?

A vendor or its agent offers to give or pay a retail buyer "something of value" to influence purchasing decisions. Ex. A fine line between the social courtesy of a free lunch and an elaborate free vacation.

Horizontal price fixing

An agreement between retailers in direct competition with each other to charge the same prices.

Price Discrimination

An illegal practice in which a vendor sells the same product to two or more customers at different prices.

bait and switch tactics

An unlawful deceptive practice that lures customers into a store by advertising a product at lower than usual prices (the bait), then inducing the customers to switch to a higher-price model (the switch).

What is EDLP? What are the advantages/disadvantages to using

Assures customers low prices Reduces advertising and operating expenses Better supply chain management ~Fewer stockouts ~Higher inventory turns

What is the retail buying process for national brand merchandise?

Buying fashion apparel/accessories: 5-6 times a year many months before delivery Buying decision for staple merchandise: Less frequent continuous re

What is the difference between first degree price discrimination and second degree price discrimination?

Charging each individual customer a different price based on their willingness to pay is called first-degree price discrimination. An alternative approach for variable pricing is to offer the same multiple-price schedule to all customers but require that customers do something to get the lower price—something that discourages customers with a high willingness to pay from taking advantage of the lower price.

Premium Branding

Compare to or superior to national brand with modest pricing

Private Brand

Developed by a retailer and only sold in the retailer's outlets (store, house, or own)

What are the ways marked down .merchandise can be consolidated?

First, the consolidation can be made into one or a few of the retailer's regular locations. Second, markdown merchandise can be consolidated into another retail chain or an outlet store under the same ownership. Saks Fifth Avenue OFF Fifth use this approach. Third, unsold merchandise can be shipped to a distribution center or a rented space such as a convention center (Barney's New York and J.Crew) for final sale. However, consolidation sales can be complex and expensive due to the extra transportation and record keeping involved.

What is markdown money?

Funds from a vendor to a retailer to cover decreased gross margin from markdowns

copy cat brand

Imitation of the manufacture brand in the appearance and packages but lower price and quality

Know and be able to describe the difference between initial markup and maintained markup.

Initial markup - retail selling price initially set for the merchandise minus the cost of the merchandise. Initial Markup percentage = (Retail selling price - Merchandise cost) / Retail selling price Maintained markup - the actual sales realized for the merchandise minus its costs

Resale Price Maintenance

Laws enacted in the early 1900s to curb vertical price fixing. These laws were designed to help protect small retailers by prohibiting retailers from selling below manufacturer's suggested retail price. Also called fair trade laws. In 1975, these laws were repealed by the Consumer Goods Pricing Act.

exclusive co-brand

National brand vendor and sold in exclusively by the retailer

What is a trade show and what goes on there?

Opportunity for buyers to see the latest products and styles and interact with vendors. Vendors display their merchandise in designated areas and have sales representatives, company executives, and sometime even celebrities available to talk with buyers as they walk through the exhibit area.

What are four factors retailers consider in setting retail prices?

Price Sensitivity Competition Cost Legal Constraint

generic

Price- sensitive segments with no frills at a discount price

What is fair trade?

Socially responsible movement that ensures that producers receive fair prices for their products.

What is the name of act that restricts the prices and terms that vendors can offer to retailers?

The Robinson-Patman Act (Anti-Chain-Store Act) Forbid vendors from offering different terms and conditions to different retailers for the same merchandise and quantity

What is keystoning?

Traditionally, apparel retailers used a 50% markup that sets the retail price by simply doubling the cost

What is value?

Value = perceived benefits price

National Brand

designed, produced, and marketed by a vendor and sold y many retailers (manufacturer)

Why do vendors encourage retailers to sell at MSRP?

reduce retail price competition among retailers, eliminate free riding, and stimulate retailers to provide complementary services.

What are reductions? What is included in reductions?

~Markdowns (Sales) ~Discounts to employees ~Inventory shrinkage due to shoplifting and employee theft

What is a buy back?

~Stocklifts, Lift-outs ~Used to get products into retail stores. Two scenarios: Retailer allows a vendor to create space for its goods by "buying back" a competitors inventory and removing it from a retailer's system. Retailer forces a vendor to buyback slow-moving merchandise.