Basics of retail merchandising:

The biggest challenge in the competitive world of retail is to stay relevant to the customer. In
order to stay relevant to the customer, a retailer would primarily require an understanding the
changes occurring in the environment and the consumer and his lifestyle and develop an ability
to adapt to them. While it is necessary to have the right location and communication for the
store, the products to be sold occupy a position of primary importance. Imagine a situation where
you visit a retail store to buy a product, maybe a T-shirt. The size that you need is Medium. In
the store you see various colors and designs and select one design. If this design is not available
in the size that you need it in, you may decide to buy another design or may decide to go to
another store to buy. If you decide on the second course of action, the retail store loses a sale and
a customer.
The success of any retail operation is to a great extent, based on the retailer’s ability tom provide
the right goods to the consumer, at the right place, at the right time and at the right price. The
entire process of creating or procuring a product or service needed by the consumer and ensuring
that it reaches the place where a consumer can buy, it is integral to the existence of any retail
organization. Simply stated, this is function of merchandising. Very often, merchandising is
considered as a synonym, for the buying. It is an integrated end to end business process that runs
from planning the merchandise assortment to sourcing, to distribution, to allocation of the goods,
to stores, to promoting and selling the assortment to customers and finally, to replenishing
inventory as necessary.
Till a decade ago, buyers could rely on their product knowledge and experience to make
selections they felt would best satisfy their consumer’s needs. The advent of the global
consumer, the spread of information technology and the availability of advanced merchandising
techniques such as innovative product flow modeling, clustering and micro-merchandising, radio
frequency inventory tracking and assortment rationalization have helped merchandising evolve
to a science. Consumer tastes are now more fickle than ever before, and profitable product
lifecycles are shorter. This has led retailers to change the focus of the merchandising function
from being a purely product centric focus to being consumer centric. While the subject of
merchandising has been discussed for years, the tenor of the subject has changed. The strategic
importance of the function of merchandising cannot be undermined as it today serves as a critical
factor which enables the creation of a competitive advantage.
process of retail merchandising:
Understanding consumer needs:
The merchandiser should understand the different ways in which the consumer presently
satisfies the need. Let us assume that the consumer has need for hair care. Based on the study the
merchandiser may find that there are various ways in which the need is being satisfied. These
may be hair soap, oil, lotion, shampoo, cream and dye. With the help of consumer survey the
method/ product which is most in demand for satisfying the need is ‘shampoo’.
Identifying and sourcing of right merchandise:
Further, the merchandiser may need to identify the right merchandise for shampoo. For example,
in shampoo the merchandiser may find that there are three variants – herbal, medicinal, and
regular. The merchandiser based on the study of consumer feedback would like to know, which
one is most in demand, or will help the retailer to serve the consumer needs. Suppose the
merchandiser decides for ‘medicinal shampoo’. For medicinal shampoo, the merchandiser needs
to identify the right suppliers/sources of this type of shampoo. He /she may like to analyse the
brands like Vatika, Sunsilk, Pantene, Head & Shoulder, and Palmolive which can supply the
medicinal shampoo.
Planning the right assortment:
Next the merchandiser has to decide on the different sub-categorization. The sub-categorization
can be made, based on the consumer need for medicinal shampoo. The shampoo may be used to
treat different kinds of hair condition i.e. dull, oily, dry, normal, straight, and curly. Thus, the
merchandiser must know based on past trend, experience or survey, the right quantities to be
maintained under each sub-categorization. In other words, the assortment should cover needs of
different hair conditions.
Planning distribution to different locations:
Once the assortment is cleared then the merchandiser needs to work out the quantities to be
dispatched to different distribution centres. The quantity dispatched should be based on the
number of outlets in each location, the minimum stocks to be maintained, turnover ratio, the
replenishment time, etc. The logistics for delivery of goods should also be taken into account.
Providing right quantities:
Once the goods reach the different distribution points, the goods further needs to be sent to each
of the outlets in the region. For this the retailer will take into account the consumer requirement
in each of the stores based on previous sales trends or its own study of consumer needs. Thus, for
each store its requirement in terms of different assortment is worked out and the goods are
dispatched.
Deciding the price:
Once the goods reach the store, the merchandiser needs to decide on the pricing of each of the
products/items. Normally, the pricing is decided at the time of assortment stage itself. In case of
certain retail chains the pricing may be left to the respective store managers also, The manager
will work upon prices as per the guidelines from the chief merchandiser for the product category
Communicating offerings to target consumers:
Once, the goods are on the floor of the shop, the merchandiser will work out the visual
merchandising. He/she will communicate such strategy for the given store or group of stores.
The merchandiser may provide certain props and signages to each of the store to communication
right messages and offerings to consumers. There could be advertisements in print media or TV
or radio or hoardings etc., for giving mass publicity to the offerings.
Taking/understanding feedback of consumers:
The merchandising team may decide to take feedback on different brands/items to know
consumers reaction to pricing, quality, availability, display, after use effect etc. The feedback
acts as a guideline for improving sourcing and assortment, so as to provide maximum
satisfaction to consumers.
method of merchandise:
Vertical Merchandising
As a technique, vertical merchandising is fairly easy to explain. It’s the grouping together
of merchandise in a vertical column or display in such a way as to get your customers to
buy more products.

How does this get your customers to buy more? Your customers tend to focus on those
products that are at eye-level. Thus, in displaying your merchandise in a vertical manner,
you’re allowing your customers to stay in one position while they use their eyes to follow
your display of items, from top to bottom.

The result is an easier shopping experience for them since they’ll see more of your
inventory. They’ll also be able to compare your product offerings and prices.

Horizontal Merchandising

In going the route of horizontal merchandising - placing your products in a blocked

horizontal manner - you’re essentially ensuring that all your products are at eye level.

That's the good part.

The downside is that your customers will need to move from side to side to see all your
products. Since your customers prefer to stand still and scan your shelf with their eyes, this
particular technique can make it difficult to shop your store. That doesn’t mean you
shouldn’t make use of this technique.

Cross Merchandising
Defined as the practice of displaying complementary products from different categories
together, your cross merchandising technique is great in generating additional revenue for
your store.

How? Since most of your customers are looking for convenience when shopping, you’re
helping them by pairing up products that are indirectly related to each other.

For example, if you sell battery-operated toys, you should consider a display of batteries
next to them. Not only are you saving your customers time, but you’re also given them a
better shopping experience. Another example is if you’re a food retailer, you can place
your spreads near to your in-store bakery.

Colour Block Merchandising

When it comes to figuring out how best to draw your customers into your shop and keep
them in store, you need to consider making use of colour block merchandising.

At it’s core, this merchandising technique involves the use of colour to display your
products and is usually done in a vertical manner known as colour ribboning. This can be
done both in store and in your window displays.

For example, if you’re looking to attract attention to your store, a window display filled
with bright colours is a good bet. Once in your store, you can follow that up by including a
similar display.

Mind you, just be careful that in picking a certain colour, you aren’t choosing the same as
everyone else, which can result in customer’s not even seeing your store. In that case, a
darker colour could work just as well.

Procurement:
Purchasing is a subset of procurement. Purchasing generally refers simply to buying goods or
services. Purchasing often includes receiving and payment as well.
Within the overarching Procure-To-Pay Cycle, the steps specifically related to purchasing are:

 Purchase Order Acknowledgement

 Advance Shipment Notice
 Goods Receipt
 Invoice Recording
 3 Way Match
 Payment to Supplier

Unlike the entire Procure-To-Pay Cycle, the steps explicitly related to purchasing should not be
tailored to suit the size and scope of each individual business. These are fundamental steps of
good purchasing and should be employed routinely as a best practice in all businesses.

retail pricing:
Cost Plus Pricing

 Cost plus pricing strategy takes into account the profit of the retailer.
 Cost plus pricing is an easy way to calculate the price of the merchandise.
 The increase in the retailer price of the merchandise is directly proportional to the
increase in the cost price.
 The customers however do not have a say in cost plus pricing.

Manufacturer Suggested Retail Price (Also called List Price or Recommended retail price)
According to manufacturer suggested retail pricing strategy the retailer sets the final price of the
merchandise as suggested by the manufacturer.
MSRP

 The retailer sells his merchandise at a price suggested by the manufacturer.

Condition 1

 The retailer sells the product at the same price as suggested by the manufacturer.

Condition 2

 The retailer sells the merchandise at a price less than what was suggested by the
manufacturer - Such a condition arises when the retailer offers “Sale” on his
merchandise.

Condition 3

 Retailers initially quote an unreasonably high price and then reduce the price on the
customer’s request to make him realize that a favour has been done to him. A condition
of Bargain - where the customer negotiates with the retailer to reduce the price of the
merchandise.

Competitive Pricing
The cut throat competition in the current retail scenario has prompted the retailers to guarantee
excellent customer service to the buyers for them to prefer them over their competitors.

 The price of the merchandise is more or less similar to the competitor’s but the retailers
add on certain attractive benefits for the customers. (Longer payment term, gifts etc.)
 The retailers ensure that the customers leave their store with a smile to have an edge over
the competitors.
 He tries his level best to offer better services to the customers for a better business in
future.

Pricing Below Competition

According to pricing below competition policy

 The price of the merchandise is kept lesser than what is being offered by the competitors.

Prestige Pricing (Pricing above competition)

According to prestige pricing mechanism, the price of the merchandise is set slightly above the
competitors.
The retailer can charge higher price than the competitors only under the following
circumstances:
Exclusive Brands at the store.
Brand image of the store
Prime location of the retail store
Excellent customer service
Merchandise not available at any other store
Latest Trends
Psychological Pricing

 Certain price of a product at which the consumer willingly purchases it is called

psychological price.
 The consumer perceives such prices to be correct.
 A retailer sets a psychological price which he feels would meet the expectations of the
buyers and they would easily buy the merchandise.

Multiple Pricing

 According to multiple pricing, the retailer sells multiple products (more than one) for a
single price.
 The retailers combine few products to be sold for a single fixed price.
 3 Shirts for $100/- or 3 Perfumes for $20/- and so on.

Discount Pricing
According to discount pricing, the retailer sells his merchandise at a discounted price during off
seasons or to clear out his stock.
evaluating merchandise performance:

There are three methods of analyzing merchandising performance:

1) ABC analysis
2) Sell through analysis
3) Multiple Attribute method.

ABC Analysis: Pareto (ABC) Analysis (a.k.a 80/20 Rule)

ABC analysis rank orders merchandise by some performance measure to determine which items
should never be out of stock, which items should occasionally be allowed to be out of stock and
which items should be deleted from the stock selection. An ABC analysis can be done at any
level of merchandise classification form SKU to department.

ABC analysis utilizes the 80:20 principles which imply that 80% of the sales come from 20% of
the products. The first step in the ABC analysis is to rank order SKU’s using one or more
criteria. The most important performance measure for this type of analysis is
Contribution margin:

Contribution margin: Net sales – Cost of goods sold – Other variable expenses

The next step is to determine how items with different levels of profit or volume should be
treated differently. The buyer may define as A items those that account for 5% of items and
represent 70% of sales. B items represent 10% and 20% of sales. C items account for 65% of the
SKUs but contribute only 10% of sales and D as those items for which there were no sales in the
past season.

Sell through Analysis:

A sell through analysis is a comparison between actual and planned sales to determine whether
early markdowns are required or whether more merchandise is needed to satisfy demand. There
is no rule which can determine when a mark down is necessary. It depends on experience with
the merchandise in the past, whether the merchandise is schedule to be featured in advertising or
whether the vendor can be reduce the buyers risk by providing markdown ,money etc.

If actual sales stay significantly ahead of planned sales, a reorder should be made.

Multiple attribute Method:

This method uses a weighted average score for each vendor. The following steps are followed:

1) Develop a list of issues to consider for decision making, like vendor reputation, service
merchandise quality, selling history etc.
2) Give importance weights to each attribute
3) Make judgments about each individuals brand’s performance on each issue.
4) Combine the importance and performance scores
5) Add all to arrive at the brand scores.

retail communication mix:

The Advertising Element:
Advertising is often the most prominent element of the communication mix. In fact, marketing
and advertising are often misconstrued as the same thing. Advertising includes all messages a
business pays to deliver through a medium to reach a targeted audience. Since it involves the
majority of paid messages, companies often allocate significant amounts of the marketing budget
to the advertising function. While it can be costly, the advertiser has ultimate control over the
message delivered, since it pays the television or radio station, print publication or website for
placement.
Personal Selling and Direct Marketing:
Personal selling is sometimes integrated with the direct marketing element. However, many
companies make such extensive use of a sales force that it is important to consider this
component distinctly. Distribution channel suppliers use salespeople to promote products for
resale to trade buyers. Retail salespeople promote the value of goods and services to consumers
in retail businesses. Selling is more emphasized by companies that sell higher-end products and
services that require more assertive efforts to persuade customers to buy.
Discounts and Promotions
Sales promotions or discounts are similar to advertising in that they are often promoted through
paid communication. However, sales promotions actually involve offering a discounted price to a
buyer. This may include coupons, percent-off deals and rebates. Along with ads to promote deals
and coupon mailers, companies use exterior signs and in-store signage to call customer attention
to the discounts.
Goals of this communication tool include increasing revenue and cash flow, attracting new
customers and clearing out extra inventory.
Public Relations and Messaging
Public relations is sometimes somewhat similar to advertising in that much of it involves
messages communicated through mass media. The major difference is you don't pay for the time
or space for the message. A television or newspaper feature story mentioning a business, for
instance, isn't paid for and can provide brand exposure.
The downside of PR is that you don't always control the messages. You can try to influence them
through press releases and invites for media coverage, but the media could put a negative spin on
the story.
Direct Marketing to Targeted Customers:
Direct marketing includes some aspects of both sales promotions and personal selling. It is
interactive communication with customers where the company's message seeks or implores a
response from targeted customers. E-mail and direct mail are common formats. These messages
are sent to customers with special offers or calls to action, often promoting limited-time deals or
new product launches.
Mail-order clubs, online or print surveys and infomercials are other examples of direct marketing
communication.
Event Sponsorship and Having a Presence:
Event sponsorship is the element sometimes left out of the five-element communication mix.
Many models include it within advertising. Event sponsorship occurs with a company pays to
have a presence at a sports, entertainment, nonprofit or community events. The sponsorship may
include a mix of benefits including booth representation during the event to hand out samples,
gifts and literature, name mention during the event and ad spots connected to the event.