Retail/E-Commerce Final

Supply Chain Management

efficient and effective integration of suppliers, manufacturers, warehouses, stores, and transportation intermediaries into a seamless value chain

Supply Chain

suppliers—>producer—>wholesaler—>retailer—>consumers

Marketing Channel

wholesaler—>retailer—>consumers

Goal of supply chain

minimize costs while meeting consumer needs

Customer benefits of supply chain management

Reduced stockouts, better pricing, saves time/effort—>cost efficiency, instant gratification, assortments—>products/brand

Retailer benefits of supply chain management

Customer loyalty, higher sales, competitive advantage, lower costs (COGS?, transportation, inventory holding), better forecasting, supplier loyalty, inventory turnover, fewer markdowns

Why is efficient supply chain marketing so important to retailers?

can create a strategic advantage, improved product availability, higher return on assets (ROA)

Efficient SCM leads to

same or higher sales using less inventory

Two components that have to flow in a supply chain are

information and merchandise (products)

What is a data warehouse?

the coordinated and periodic copying of data from various sources both inside and outside the enterprise, into an environment ready for analytical and informational processing

Electronic Data Interchange (EDI)

the computer-to-computer exchange of business documents between retailers and vendors

What are logistics?

the physical flow of merchandise

Logistics definition:

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 (physical flow)

What activities does a distribution center perform?

managing inbound transportation, receiving and checking merchandise, storing or cross docking merchandise, getting merchandise floor ready, preparing to ship merchandise to a store, managing outbound transportation

Push Supply Chain

merchandise is allocated to stores on the basis of forecasted demand (less costly than pull, less sophisticated information needed system to support it, and efficient for merchandise that has steady and predictable demand)

Pull Supply Chain

orders for merchandise are generated at the store level on the basis of POS sales data (less likely to be overstocked or stocked out, increases inventory turnover, responsive to changes in customer demand, efficient when demand is uncertain and hard to forecast)

Bullwhip Effect

the built-up inventory in an uncoordinated channel where retailers and vendors do not coordinate their supply chain activities

What causes the bullwhip effect?

price fluctuations, delays in transmitting orders and receiving merchandise, over-reacting to shortages, ordering in batches rather than generating a number of small orders

Power

the ability of one channel member to influence the decisions of other channel members

Reward Power

Based on the capacity of A to reward B if B conforms to A’s influence B believes that A can provide rewards to B (if you do what I want you to do, you will be rewarded by doing what you want to)

Coercive Power

Based on the expectation that A can punish B if B does not conform B believes that A can punish B if B doesn’t do what A wants (if you don’t do what I want you to do, there will be punishment)

Legitimate Power

Based on norms that A has a legitimate right to influence B (one party has power over the other because either a contract dictates it or there is a right to power)

Referent Power

Based on the premise of reference groups (one party has power over the other because party B wants to be grouped together with party A; popularity; want to be a part of it)

Expert Power

Based on the premise that A has some sort of expertise (know-how). I have power over you because I have some sort of knowledge or expertise.

Informational Power

I have power over you because I have information I could give you (I’m going to hand over the sales data)

Customer relationship management

a business philosophy and set of strategies, programs, and systems that focus on identifying a retailer’s most valuable customers and building loyalty to them

Can offering price discounts achieve customer loyalty?

Yes and no. A price discount is a factor but cannot be the sole factor in achieving true customer loyalty.

Share of wallet (must be a customer of the retailer)

a measure of customer loyalty; the percentage of customers’ purchases made from the retailer

Steps in the Customer Relationship Management Process

Collecting customer data, analyzing the customer data and identifying target customers, developing CRM programs, implementing CRM programs

What types of information do retailers collect for CRM programs?

name, buying history, age, location, what stores they use, family background, how long they spend in store/website, budget, spending habits, phone #/email addresses, transactional history, purchase date

How do retailers collect information for CRM programs?

ask for identifying information, offer frequent shopper cards, offer private label credit card, connect internet purchasing data with store data

Privacy Concerns

degree to which consumers feel their privacy has been violated depends on; control over their information and knowledge about collection/use of information

Heightened privacy concerns when using electronic channel

information collected without the awareness, collecting click stream data using cookies

Opt-in

consumers “own” their own personal information, retailers must get consumer to agree to share their information, European Union (EU) perspective

Opt-out

personal information is public domain, retailers do not have to get the consumer to agree to share their information, retailers can use the information in any way they choose, United States (US) perspective, consumers have to tell retailers not to use their personal information

Retail Analytics

applying statistical techniques and models to analyze customer data

Data Mining

information processing method that relies on search techniques to discover new insights into buying patterns using large databases (market basket analysis, RFM analysis, customer lifetime value)

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: displaying merchandise, joint promotions (bananas in cereal aisle as well as in produce section, beer with baby diapers, tissues with cold medicine)

RFM Analysis

(Recency, Frequency, Monetary Value)—used by catalog retailers and online retailers to segment customers; promotions/catalog mailings

What is customer lifetime value (CLV)?

how much the customer is expected to contribute in profits by the end of his/her relationship with the retailer; computes the profit that a customer brings to the retailer over their “lifetime” with the retailer

Customer Pyramid

Platinum, gold, iron, lead (PGIL)

80-20 Rule

80% of sales/profits come from 20% of the customers

Platinum

equals the most profitable customers (best, most loyal, least price sensitive)

Gold

next best, not as loyal

Iron

doesn’t deserve as much attention

Lead

the least profitable customers (have negative lifetime value, “get the lead out,” cost you money

Ways to Retain Customers

special customer services, personalization, build a community of customers, frequent shopper programs

Frequent Shopper Programs (Loyalty Programs)

objectives are to build a customer database and to encourage repeat purchase behavior/loyalty

What are the elements in effective frequent shopper programs?

offer tiered rewards based on customer value, incorporate charitable contributions, offer choices of rewards, reward all transactions, make the program transparent/simple

Merchandise Management

the process by which a retailer offers the correct quantity of the right merchandise in the right place at the right time while meeting the company’s financial goals; buyers and their superiors (merchandise managers—DMM and GMM, highest to lowest: general merchandise managers, division merchandise managers, and buyers)

Merchandise Category

an assortment of items that customers see as substitutes for each other; vendors and retailers may assign the same product to two different merchandise categories

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/profits of the entire category, not just a particular brand (ex: breakfast cereal category vs. Kellogg Corn Flakes, Men’s casual shirts vs. Polo shirts, Dairy product category vs. Yoplait yogurt)

Category Captain

a vendor selected by the retailer to help the retailer manage a particular category (outsourcing)

Vendors often have more information and analytical skills about the category

    Retailers are offering more categories of merchandise, Scarce resources to devote to individual categories, Retailer shares all relevant data with category captain

What do category captains do with data?

Create assortments, help with product placement on shelf, determine best way to display merchandise, determine how much space should be allocated to merchandise, pricing, help retailer understand consumer behavior, improves profitability of the category

Issues with category captains

retailer can accept or reject recommendations, could create a conflict of interest

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, interest/taxes/depreciation, human resources, supply chain management, information systems

Sales-to-stock ratio

sales (or revenue)/average inventory at cost

GMROI (gross margin return on inventory)

gross margin/avg. inventory at cost

How can a retailer improve GMROI?

Improve inventory turnover, increase gross margin

Staple (Basic) Merchandise Categories

continuous demand over an extended period of time, limited number of new product introductions, easy to forecast demand, continuous replenishment

Fashion Merchandise Categories

in demand for a relatively short period of time, continuous introductions of new products (making existing products obsolete)

Sales Forecast

understanding nature of product life cycle, collecting data on sales of product/comparable products, using statistical techniques to project sales, work with vendors to coordinate manufacturing/merchandise delivery with forecasted demand

Retailers develop fashion forecasts by relying on:

previous sales data, market research, AI/data analytics, fashion trend services, vendors

Product Availability

the percentage of demand for a particular SKU that is satisfied

Backup stock

inventory kept as a safety cushion so that the retailer won’t run out of stock if demand exceeds the sales forecast; ensures higher levels of product availability

Backup stock disadvantages

costs money, can lower GMROI/inventory turnover/ROA

When do retailers need to carry more backup stock?

higher product availability, greater fluctuation in demand, longer lead time from vendor, more fluctuation in lead time, lower vendor fill rate