Retail Supply Chain, Pricing Strategies, CRM, and Service Gaps

Distribution Center

A facility that receives, stores, and redistributes merchandise to retail stores.

Fulfillment Center

Ships merchandise directly to customers for online orders.

Raincheck

A promise allowing a customer to purchase an out-of-stock advertised item later at the sale price.

EDI

Electronic Data Interchange; computer-to-computer transfer of business documents between retailer and vendor.

RFID Tags

Real-time inventory tracking tags that hold more data than barcodes and do not require line-of-sight.

UPC Code

A 12-digit barcode placed on retail products for scanning and identification.

Vendor Managed Inventory (VMI)

Vendor is responsible for monitoring and replenishing retailer inventory; common for bread, wine, Coca-Cola.

CPFR

Collaborative Planning, Forecasting, and Replenishment; retailer and vendor share data to improve inventory accuracy.

Direct Store Delivery (DSD)

Vendors deliver products directly to stores instead of through a distribution center.

Reverse Logistics

Moving goods from customers or stores back up the supply chain for returns, recalls, or disposal.

Point of Sale (POS)

System that captures purchase data at checkout and feeds information into the data warehouse.

High/Low Pricing

Pricing strategy with frequent temporary discounts off regular prices.

Advantages of High/Low Pricing

Creates excitement, moves slow inventory, increases profits.

Everyday Low Pricing (EDLP)

Pricing strategy offering consistent low prices without frequent sales.

Advantages of EDLP

Builds trust, reduces advertising cost, lowers stockouts.

Elasticity of Demand

Measure of how price changes affect demand; % change in demand ÷ % change in price.

Fixed Cost

A cost that does not change with the level of sales or production.

Variable Cost

A cost that changes directly with sales volume.

Personalized Service

Customized service tailored to individual customer needs; less consistent and more expensive.

Standardized Service

A uniform, consistent service for all customers based on procedures and rules.

Bait and Switch

Illegal practice where a low-priced item is advertised to attract customers, then they are pushed to buy a higher-priced item.

CRM Step 1

Collect customer data.

CRM Step 2

Analyze customer data and segment customers.

CRM Step 3

Develop CRM programs such as loyalty initiatives.

CRM Step 4

Implement CRM programs and monitor customer relationships.

Opt-In

Customer must give permission before receiving marketing communications.

Opt-Out

Customer receives marketing communications until they choose to unsubscribe.

Customer Lifetime Value (CLV)

Total profit a retailer expects to earn from a customer over the entire relationship.

Customer Pyramid

A segmentation system including Platinum, Gold, Iron, and Lead customers based on profitability.

Knowledge Gap

The gap between customer expectations and what the retailer believes customers expect.

Standards Gap

The gap between retailer expectations and the service standards set.

Delivery Gap

The gap between service standards and actual service delivered by employees.

Communication Gap

The gap between what a retailer promises in marketing and what is actually delivered.

Retail Math Topics

Includes markups, markdowns, inventory turnover, GMROI, shrinkage, and break-even analysis.