roduct category is a group of many items that are for consumer acceptable substitutes for one another.
• 1. Customer needs-A retailer must know what customers needs a product meets. In one category can be grouped more products that satisfy similar needs. For example coffee satisfies customer needs for caffeine or hot drink.
• 2. Interrelation and substitutability-Same category should include products that are interrelated and that fulfil similar needs. For example instant, ground or whole beans coffee, along with coffee whiteners.
• 3. Manageability-effective logistical managing of a product category in store.
• 4. Division –Consumer decision making process will impact the category structure. This category structure is segmented into special versions of a product aimed to people with similar needs.
• -Sale-to-stock ratio-very important ratio that tells us if retailer is overstocked or not. Every retailer needs to aim to reduce this ratio without loosing sales.
• -GMROI- it's the ratio that shows inventory profitability, and as such, gives management idea about merchandise performance and helps them see how much inventory returns above its costs. It will reveal categories that are not profitable.
• -Beside GMROI, inventory turnover is also important for measuring retail performance. On Inventory turnover ratio will impact the nature of products. For example, different values will have a shoe store than retailers that sell food.
1. The firm's retail strategy-Retail strategy will determine how many SKU is going to be offered in each product category. For example, if retailer`s strategy is offering low prices and few brands, then he will offer few SKU in merchandise categories, while if the retailer targets customers who like comparing different brands, so the retailer will offer many SKU in each category.
2. The effect of assortments on GMROI-it should be considered trade off between offering too much vs. too little. Increased breadth and depth of assortment can lead to lower gross margin, .
3. The complementarities between categories- how much categories complement each other.
4. The effects of assortments on buying behavior-customers buying behavior influence the assortment because in their buying process larger assortment means higher chance that they will find what they look for, they will have better shopping experience, and are willing to try new things.
5. Physical characteristics of the store-retailers must consider how many space each category needs. For example, if there are many styles and colors in assortment it will require larger space.
3.2: Merchandise Planning Systems
A.Why it is important to plan and manage inventory at a financial level
• Retailer's success depends on inventory efficiency, since inventory represents the biggest part of assets and the main source of operating income. Banks, creditors, stakeholders are all interested in inventory level.
• Careful inventory planning will result in better manage of cash flow. Retailers must be aware of Pareto`s rule, and must know what is that 20%, the category that drives sales, and stay focused in order for cash not to be trapped in inventory. Company must invest money carefully into most effective inventory.
B. Why it is important to plan and manage inventory at a non-financial level.
• Space management-layout of the retail space, arrangement of shelves and aisles are necessary for good merchandising. Space should be used efficiently in order to accommodate more customers but to keep pleasant shopping experience.
• Identify what needs to be corrected-it is important for retailers to know their assortment and which categories need improvement. Also they always have to aim towards attractive product display, signage and the right depth and width of range of products.
3.3: Buying Merchandise
A. five conditions in the external environment that encouraged growth of private label store brands
• 1.Economic factors-At the end of 80s, due to recession, customers started to replace expensive branded products with cheaper versions in order to save money, and many retailers saw that as an opportunity to come up with store brands in order to boost their sale.
• 2. Competition-increased competition between store and national brands, has positive impact on prices and choices of products and all leading to store brands becoming more and more attractive for customers. In recent years, many retailers added premium goods to their store brands, because they realized that customers don't just pay attention to price but they also want satisfying quality.
• 3. Better quality of store brands-Until few years ago there was a significant difference between quality of branded products and store brand products. But today, things changed and many store brands improved their quality, they are becoming more sophisticated, consistent and better designed.
• 4.Technology-Inovations in technology, transport and packaging, created opportunity for retailers to make low cost products, better quality and products that are copies of national brands.
• 5.More categories-store brands are growing into new and bigger variety of categories. This contributes to customers perception of store brands and make customers experiment with new brands, accept and buy them.
• 1.Premium private label brand-focus on targeting customers to purchase premium store brands, and improving their knowledge about premium brands and their higher quality that can be measured to national brands, but cheaper in price. This way they will create brand loyalty and retailer will gain advantage over national brands.
• 2.customer feedback - either through store`s website or social media, retailer must know how customers feel about their store brands in order to improve their products.
• The Gap-uses different retail strategy for each brand:
-family oriented Old Navy with lower prices,
-the GAP for individuals looking for casual outfits and willing to pay moderate prices,
-Banana Republic for high income professionals looking for high quality products
Their customers are females and males, that feel emotional connection to GAP brands, customers who enjoy great service these brands offer and they would refer them to their friends and family. Customers are located in urban areas, enjoy browsing in GAP stores, and have certain expectations about quality, style and design of the GAP products.
• Wal-Mart- their target audience is both male and females, families and elderly people. While shopping at Wal-Mart they enjoy comparing and trying different brands of products in any category. They are usually price-sensitive and search for good deals in flyers regardless the brand and very often collect coupons. Wal-Mart`s private label offers similar products in each category as national brands. When they see this great variety of store branded products, it has psychological effect on them; they become familiar with the brand, build trust and are willing to buy the products. Improved packaging, healthier ingredients, and cheaper prices than other national brands, makes store brand attractive to customers.
• Marshalls- their target market is mainly females, who shop for whole family, and individuals who are fashion and value conscious, who usually shop at regular price retail chains. They belong to middle to upper middle-income level, enjoy shopping and exploring. They like surprises, they never know what they will find; there is new merchandise every time they visit the store. Marshall's customers see wearing branded clothes as status symbol and they like comparing and having many different national brands.
2. Retail marketing observation based on each retailer's brand strategy
• GAP-offers different brands for different target market. Their goal is creating long-term relationship with customers through good quality products and customer service.
• Wal-Mart-offering similar quality and variety as national brands, but cheaper than national brands, because their customers are price sensitive who like choices and variety.
• Marshalls-offering many different national brands, each time new merchandise, to create surprise effect for the customers. Prices are much cheaper than at regular retail chains, which give customers feeling of getting good deals for national branded products.
• 3.Marketing-Even though retailers achieve lower prices and higher profit margins due to less expenses in advertising than competitors, they should also come up with ways of introducing products to customers, via Internet, social media or some reward programs for purchasing store brand products so customers realize that they can get the same product as national brand, but even more cheaper.
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