Retail buying and merchandising

Exam One

The Desk

among buyers/ merchants they refer to a category as a desk basically referring to the physical representation of where decisions are made

Three levels of strategy

1. corporate

2. Business

3. Managerial

Corporate strategy defined

Dictates which businesses a company will be in. The idea is that each business unit will achieve a competitiive advantage and that synergies across business units/divisions/brands/subsidiaries will strengthen those competitive advantages.

Corporate strategy

Who- C-level executives

When- Cyclical- annual- or quarterly

How- Top-down from mission and values

What- strategic plan

Business strategy defined

How a business will compete and win. Determines the basis of competition (cost leadership and differentiation) In retail each banner typically has its own unique positioning on Ports 2x2 generic strategies.

Business strategy

Who- Division presidents, EVPs, GMMs

When- Cyclical- annual or quarterly

How-Top down

What- Annual operating plan

Managerial strategy

Who- Managers and other employees

When- continuous

How- Bottom up

What- Value proposition

GAP Inc.

Corporate level strategy (aquired banana republic and started old navy) (exiting Piperlime and Athleta)

GAP Baby and kids 

Business level strategy (extension of GAP inc.)

YZY GAP

Mangers at store noticed teens didnt relate, bubbled up to business level strategic decision makers. Partner with Kayne 

Competitive advantage

comes from the value that firms create for their customers that exceeds the cost of producing that value

Generic business level strategies

2×2 created by Michael Porter

Cost Leadership

Be the lowest cost producer across a wide market

Ex. Walmart and Dollar General

Differentiation

Offer unique features valued widely by customers.

Ex. Sephora, Bass Pro Shop, Jared, Nordstrom 

Focused Cost Leadership 

Be the cheapest provider in a niche market

Ex. Costco and Sams club

Focused differentiation

Offer unique products to a niche segment.

Ex. Wholefoods, Harrods, build-a-bear 

Generic Strategies 

• Applicable across industries, geographic regions, and consumer segments 

• Tension between cost and value IN THE EYES OF CONSUMER

Red Ocean

Competing in existing markets where the boundaries are known and rivals fight for market share.

Ex. Burger King v.s. Wendys 

Blue Ocean

Creating a new, uncontested market space where competition is irrelevant.

Ex. Nintendo Wii (expanded gaming to families and non-gamers).

Why do Companies continue to compete in the red ocean?

Tools like the 2×2 help reduce uncertainty and make people feel more confident to enter. 

The 4 actions framework (comes from blue ocean)

COST

1. Eliminate factors

2. Reduce over designed products

CREATE VALUE

3. Raise dont compromise 

4. Create new demand

Being a buyer at a cost leader

• Low prices matter most to the buyer

• Less Variety and luxury

• High buyer power- because you care about price you can easily switch to another cost leader (loyalty is weak)

• Trade-offs in quality or service

Being a buyer at a differentiated retailer

• You value more than price

• Unique benefits and experience

• Stronger brand loyalty

• Lower buyer power

Sources of data 

1. Financial perspective 

2. competitor research 

3. Industry trends

4. Customer insights

Financial perspective 

Look inward at money and efficiency 

Competitor research

Look sideways at rivals

Industry trends

Look outward at the whole market

Customer insights

Look directly at what buyers want and need

STEEP

• Sociocultural (ex. Americans getting married at older ages)

• Technological (ex. AI, energy production and storage, supersonic travel)

• Economic (ex. Unemployment, inflation, savings-debt rates)

• Ecological (overall health of the ecosystem)

• Political/legal (overall health of economic system, recession may allow for shake-out opportunity)

PESTAL

• Political

• Economic

• Technological

• Ecological

• Legal

Key aspects of PESTAL/STEEP

• Factors are independant

• Drivers of change have different impact on industries, markets, and firms

• Focus on future (5-10 years) 

• Managers exploit opportunities 

• Managers mitigate threats 

NAICS

North American Industry Classification system

Attractive Industry

•a competitive advantage is possible

•High profit potential

•Forces are weaker (meaning a lower threat)

•Growth is present

Unattractive industry

•a competitive advantage is more difficult to attain

•Low profit potential

•Forces are stronger (meaning a higher threat)

•Stagnant or declining sales

Porters 5 forces

1. Threat of new entrants 

2. Bargaining power of suppliers 

3. Bargaining power of buyers 

4. Threat of substitutes 

5. Rivalry among existing competitors 

Porters competitor analysis

•To give view of current and future competitive landscape

•Customer value is ALWAYS defined relative to rival offerings

•Proactive Competitor Profiling

Potential sources of customer insights (secondary data)

Data already collected by others for another purpose

Sources: government reports, Mintel, Statista, WARC

Potential sources of Customer insights (Primary data)

Data you collect yourself directly from customers.

Methods: surveys, questionnares, Interviews, focus groups 

The Scrintilla approach

• Art and science 

• Ethical duties (consumer trust, dark side of data, privacy regulations)

• Organizational inertia is a reality, which creates an opportunity for retail buyer/decision maker

• Supply chain-satellite data-sustainability-luminate 

Scintilla: Basic v.s. Charter

Basic: Basic data is limited to a subset of channel performance insights necessary for running a business. (1 year)

Charter: Charter offers an unprecedented wealth of data across sectors including omnichannel sales, replenishment, OTIF, category reporting for advisors and non-advisors, basket analyses, and more. (3 years)

External relationship of the buyer

• Suppliers / Vendors

• Brokers

• Manufacturers

• Wholesalers

• “Rack Jobber”

• (These are buyer initiated or vender initiated) 

Ex. P&G, Harvest, Samsung, Hallmark, Advantage

Factors to consider about relationships with the buyer 

1. Value 

2. How does it fit 

3. Profit

4. Their distribution 

5. Reliability/ reputation 

6. supporting other retailers 

7. their financial health 

MOQ

Minimum oder quantity (the smallest amount of product that a supplier will sell in a single order)

FOB Shipping point 

• When the goods leave the sellers shipping dock

• Buyer usually pays for shipping 

• Buyer bears the risk during transfer 

FOB destination

• When the goods arrive at the buyers location 

• Seller usually pays for shipping 

• Seller bears risk during transfer

Co-op cooperstive advertising 

A marketing support program where the manufacturer shares the cost of advertising with the retailer.

Distributive negotiation

Negotiation over a fixed amount of resources

Ex. Haggling over the price of a car. If the dealer lowers the price, that’s less profit for them.

Distribution Tactics

• Concealment

• Silence

• Aggressive positions

• Competitiveness

• Hardballing

• Bluffing

• Single issues

Integrative negotiations

Negotiation aimed at creating value so both parties can benefit

Integrative tactics

• Openness

• Discussion

• Problem solving

• Cooperation

• Logrolling

• Trust

• Packaging issues

Internal relationships of the buyer

• Private Brand

• Product Development

• Operations

• Transportation / Logistics

Illusion of control 

The tendency for people to overestimate their ability to control events that are actually determined by chance. 

ex. when gambling ppl yelling when they want a high number and whisphering when they want a low number 

The Planning Fallacy

People underestimate the time, costs, and risks of future tasks while overestimating the benefits.

ex. predicting a paper will take 3 hours and it actually takes 6 

Mental Accounting

People treat money differently depending on its source or intended use, rather than viewing it as fungible.

ex. Seeing cash as free money or treating $100 tax money as fun money 

Automaticity 

Many behaviors are automatic, unconscious, and triggered by environmental cues, rather than deliberate choices.

ex. picking up the phone when you hear a notification or automatically smiling at someone if they smile at you

Wonderlic

Time constrained problems testing your IQ

ex. The NFL uses this a lot 

Emotional Intelligence

a persons abilities to percieve, identify, understand, and successfully manage emotions in self and others

EQ Domains and Core Competencies 

1. Self Awareness 

2. Self Management 

3. Social Awareness

4. Relationship Management 

Self Awareness

Emotional self awareness

Self management

• Emotional self control 

• adaptability 

• achievement orientation 

• positive outlook 

Social awareness

• Empathy

• Organizational awareness 

Relationship management

• influence

• coach and mentor 

• conflict management 

• teamwork 

• Inspirational leadership 

EQ and Social Exchange Defined

Interpersonal relationships are a series of resource exchanges

Complementary

In that one’s rights are another’s obligations and vice versa

Reciprocal

In that each party has rights and duties

In the long run, it all balances out

Category 

Groups of products belonging to a similar, either as substitutes for each other or complementary to each other.

Items within a category

• Traffic builders

• Private brands

• exclusive brands

• Trend/color/season

• retail brand image

• choice

Assortment and category pyramid 

Start: 

• Item

• Brand

• Supplier

• Fineline 

• Subcategory 

• Category 

• Buyer 

• Department 

• SBU

• Box 

Fineline

Refers to a group of items within a department that show similar sales patterns. Each product is in a fineline – and only one fineline

Line Review 

the methodical process a buyer and their buying team go through to decide which items to carry within their allocated linear shelf space; in layman’s terms, potential suppliers are submitting their “application” to work together

Modular

the the visual representation of how items selected during the line review will be arranged within the linear section

Substitude of the core item of the category

Olive oils and vinegars have been located with salad dressings so that people can make there own salad dressings.

Combination of compleplements to one another

Shopping list for taco night

• tortillas 

• taco seasoning 

• salsa 

• shells

• beans 

Category of complements to one another

mom-focused self-care items and accessories have been added to the baby section.

Duplicate set

Some of the items in the baby section are also in Pharmacy/OTC

Category Management

The ongoing collaboration between retailer and supplier(s) to design offering and value chain to support consumer demand in most profitable way.

Key tenets of category management

• Suppliers are partners or allies

• Looks at the processes/activities of the value chin as well as touchpoints of customert journey 

• category is defined by how the consumer/customers shop

Category life cycle

1. Introduction

2. Growth 

3. Maturity

4. Decline 

Assortment strategy

The number and type of products that stores display for purchase by consumers.

(An assortment strategy is a strategic tool that retailers use to manage and increase sales AND profit, ideally)

Assortment components 

• Width 

• Depth 

Width (breadth)

The product variety, or how many different types of products a store carries

ex. Walmart offering groceries, clothes, electronics, furniture, etc.

Depth

products offered, or how many variations of a particular product a store carries

ex. Wine store has dozens or hundereds of wine brands, regions, and price range

Assortment types

• Shallow 

• Narrow 

Shallow 

The retailer carries one or two versions of a single product.

ex. walmart may only have a few brands and limited varieties of wine.

Narrow 

The retailer carries a limited number of different kinds of products.

ex. focuses only on wine (maybe a few related products like glasses or cheese)

Assortment depth

refers to the number of SKUs within a category, including various sizes, flavors, colors,etc.

ex. Smallmart on campus went from 17 Skus of toothpaste to 34 

Variety width

refers to the number of categories within the store or the number of different subcategories within a category.

Retailer assortment strategies

Choosing both a wide variety and a deep assortment of products requires a large amount of space and is usually reserved for big-box retailers.

7/11 Japan walk though

This retailer chose to specialize in a wider assortment of breads to appeal to their customer base.

Sams club walk through

This retailer offers a less deep and less wide assortment than most big-box mass merchants. For example, Sam’s Club pallet drives pita chips, but does not offer a variety of flavors.

Assortment Sales drivers

Which items are outpacing the others in sales growth, both in store and Rest of Market (ROM)?

Assortment profit drivers

Are there Private Brand items that can be introduced or expanded to improve assortment profit? (Private Brand items are traditionally higher in profit % than big brands)

Assortment Space

• Not all stores are designed the same, so the category space within a store can vary greatly.

• Space could be shared with other categories, the assortments should “flow” homogenously into the other category.

Assortment operations

• How is the item arriving to the store? Does the associate need to hand-stack the item? or can it be pallet-driven?

• How heavy are the boxes for an associate to lift versus where they are placed on the shelf?

Determining the number of items in the assortment

• What is the retailer assortment strategy? (i.e., narrow assortment/narrow variety)

• How many items do the competitors offer in the category?

Assortment Brand v.s. private brand

• Do the customers in this category have a high affinity to certain brands?

• Are customers willing to try non-CPG (Consumer Packaged Good) brands and purchase from small brands or the Private Brand?

• Is the Private Brand recognized and credible enough to replace a branded product? Do the customers trust the Private Brand?

How has AutoZone successfully defended their position from Amazon

• Imagine your windsheilf whipers need to be relaced and it is pouring rain, you have plaes to be and you arent going to wait for it to be delivered from Amazon. So you go to AutoZone and the employees will even install them for you.

ECR (efficient consumer response)

is a retail philosophy that means that assortment selection is determined by customer trends and preferences, but it goes further in that the entire organizational structure is organized and designed so that the business can efficiently and as profitably as possible meet those needs

AutoZone Strengths

• Innovative and unique supply chain

• Vast (deep) product assortment

• High level of customer service

• Financial position

AutoZone Weaknesses 

•Combustion-engine focused expertise

•Lack of traditionally trained sales staff