National Institute of Business Management

Chennai - 020

EMBA/ MBA

Elective: Retail Management (Part - II)

Attend any 4 questions. Each question carries 25 marks

(Each answer should be of minimum 2 pages / of 300 words)

1. Explain the numbers of possible ways in which sales of existing

Customers can be increased.

There are three ways:

1. Increasing penetration

Salespeople who are willing to put in the hours preparing and

learning about their customers, their problems and their needs record
the highest penetration.

Here are strategies for increasing penetration:

◾Identify products or services the customer could buy but doesn’t.

Calculate the total potential of the account by estimating what’s
being bought from the competition.

◾Develop a plan for expanding your pool of contacts within the

account. Many managers have exclusive buying authority for their
departments. Try to identify them all. Get plugged into your
customer’s network and associations.

◾Keep trying to add value in all of your customer contacts. The most
important contribution you can give to existing customers is your
knowledge and expertise. What information do you possess that can
be of benefit to customers? Define value in customer terms. The
possibilities of creating value are limitless: faster service, better
delivery, easier ordering, unique features and benefits, etc.

◾Give customers ideas on how to improve their business operations.

Try to find solutions that customers may not find on their own.
Everyone is struggling in this economy. You may be able to pick up
ideas and techniques that can be helpful to other customers. Think in
terms of solving problems for customers. Deliver customized or
unique solutions that meet the customer’s special needs. Try to
become the greatest information resource the customer has.

◾Make customers feel they have a special relationship with you.

Look behind the numbers to understand the customer’s business
strategy and financial situation. What are the customer’s business
growth goals? What are the biggest profit drivers and drains? How
can you help customers expand their business?

◾Identify your customer’s customers. How can you help your

customers increase penetration with their customers? Get all the
information you can on customers. Keep moving closer to them.
Once they know you and are comfortable with your approach,
increased sales will follow.
2. Developing a plan of action

It’s a good idea to consider customers as prospects and develop a

plan of action for getting additional business from them.

Here are strategies to help:

◾Flush out customer needs and try to determine how they’re being
met now. If the business increase you want is going to competitors,
it’s a good idea to come up with a meaningful differentiation. Most
customers are being undeserved in some way. Many of them are in
business relationships that they lack the incentive to change. They
have a provider in place that has always been able to persuade them
not to switch. Try to get these customers to realize that they would be
better off increasing their business with you. Since you know the
customer, you should be able to come up with an appealing selling
approach.

◾Recognize that the key to selling more to existing customers is in

your after-sale support. Customers’ expectations and concerns
regarding after-sale support influence their future purchasing
decisions. When customers purchase a product or service, they
believe they are buying more than the specific item. They usually
have expectations regarding the degree of after-sales support the
product or service carries with it. After-sale support determines
whether they will increase future orders or switch their loyalties to
another salesperson. Salespeople who increase sales to existing
customers usually view after-sales support as an opportunity to
strengthen their relationship.

◾Let your customers know why they’re smart to increase their

business with you. Customers want to feel they have made a good
decision when they choose you and your products or services. The
best way to keep and expand their business is to reinforce that
decision over a period of time. Making an investment in building a
bond with customers is critical to expanding your sales to them. If
your only contact with the customer is to sell them something, you’re
heading for trouble.

◾Find out how customers feel about competitors who have the
business you’re trying to get. What do they like or dislike about your
competition? Analyzing the competition requires that you ask
questions, gather information and analyze information. The purpose
is to find out what you’re competing against and what you need to
change to get more of the business.

◾Look for ways to advance the level of trust. Today’s customers are
bombarded with so much conflicting and contradictory product
information, the element of trust has become the indispensable
ingredient in building relationships to increase your level of sales to
existing customers.

◾Implement a program for growing customers as aggressively as if it

were a prospecting effort. It’s a good idea to set dates by which
results should be produced. Evaluate the results and decide on
whatever fine-tuning and follow-through is needed. Even if you don’t
produce immediate results, your efforts could serve as a deterrent to
customers doing business with competitors.

3. Building credibility and trust

Here are seven strategies to build credibility and trust that will
increase repeat sales:

◾Be a true consultant for your customer. Increase your success in

retaining and growing current customers by focusing your efforts on
calling on the right people in the right accounts with innovative and
unique ideas. Offer innovative ideas and insights. Customers are so
busy dealing with their own competitive pressures that they don’t
have time to discuss tired ideas. What have you learned from others
customers with similar issues that can relieve your present
customer’s pain immediately. Packaging these insights creatively is
key to increasing your business with this customer. Talk business
strategy with your customers.

◾Talk results with customers. Show how your product or service can
positively affect the customer’s performance. Identify the appropriate
needs and create a compelling case for your solution.
 ◾Be innovative. Increase credibility as a trusted advisor by bringing
to the table innovative, highly differentiated solutions that respond to
customers’ unique business challenges.

◾Do your homework. Focus on both results and the relationship.

New conditions demand new strategies. Know more and turn that
knowledge into value. Customers want insight. Go beyond asking
good questions about the customers’ situation. Before getting in front
of the customer, know the answers to questions about the customer’s
own customers, competitors, strengths and weaknesses.

◾Focus on results and relationships. Show commitment to your

customer by adding value. Conduct periodic account reviews to
summarize the value you’re providing and pinpoint areas for
improvement.

◾Go to school on your competitors. They have never been more

aggressive or more vulnerable than right now. Develop defensive
strategies and points of view. Help your customers develop strategies
for dealing with their competitors. Be proactive in providing advice
and insight.

◾View each customer’s company as a market. Focus efforts on

segmenting and capturing share of this market. Leverage successes
and relationships.

2. Explain how to manage gross margins.

There are 6 ways:
So how do you get a better grasp on your gross margin and improve your
overall profits? Here are 6 tried-and-true ways you can start improving
your profit margin today:

1. Increase Prices

Most small business owners feel that if they raise prices, they will quickly
lose customers, thus offsetting any additional profit they might earn.
Though this is not always a favorite of small business owners, raising
prices can actually work to your advantage.

Do a thorough study of your competition. Don’t just price your products

to match competition. Instead, find out what the competition offers, and
then offer something better. That may simply be focusing your products
to serve a niche clientele, or structuring your product line to attract
“boutique” type of customer base. Whatever the case, if you are going to
raise your prices, you must improve your product.

2. Reduce Direct Costs of Goods

To increase gross margin, you can increase your prices, but you may also
try reducing the amount you pay for the goods you sell as well. This may
require negotiating with your suppliers for better deals.

Consider asking your distributors for lower prices. Can you purchase more
product in bulk? That is leverage you can use to lower prices. Have you
been a long-term trustworthy customer? Another mark in your corner to
help you get better results.

It may ultimately take a bit of research to find alternative suppliers who

will give you better deals. However, finding ways to reduce the amount
you pay for goods or materials will help you increase your profit.
3. Reduce Inventory Waste
Get ready to forecast and plan your inventory much more efficiently.
Many small businesses suffer because they lose a lot of money due to
wasted inventory, spoilage, or even pilfering. Manage your inventory
better, and you’ll have more product to sell.

4. Readjust Your Sales Mix

Do you sell a number of different products or services? Find the ones that
offer the highest gross profit margins. You may find that your business
focus may change as you readjust your mix to find the right combination
of profitable products.

5. Integrate New Products or Services

Of course, if your business sells only one or two types of products,
consider adding additional product lines or services. But if you choose to
integrate, be careful how you select new products. Will it complement
your current business? Will it require more focus to sell? And ultimately,
will it bring in new customers and consequently more revenue?

6. Alter Your Business Focus

Sometimes a business must simply change its focus to become more
profitable. For instance, say a photographer starts a business to take
portraits and landscapes. The demand for these types of products is low
and competition is high. But changing a focus to wedding documentary
photography can add tremendous amounts of business.

Your small business should not have a sufferable cash flow needlessly.
Use these options to help improve gross margin and you may find that
your small business starts making more money right away.
 3. What issues of concern should be included for financial
considerations for the success of a profit plan?Explain.
4. Explain the attitudes towards shopping influence trading format and
store environment strategy with the help of figure.
5. Describe the factors which influence customer store selection and
purchase decision behaviour.
6. Describe the factors which influence customer store selection
and purchase decision behaviour.

Consumer behavior can be broadly classified as the decisions and actions

that influence the purchasing behavior of a consumer. What drives
consumers to choose a particular product with respect to others is a
question which is often analyzed and studied by marketers. Most of the
selection process involved in purchasing is based on emotions and
reasoning.

The study of consumer behavior not only helps to understand the past but
even predict the future. The below underlined factors pertaining to the
tendencies, attitude and priorities of people must be given due
importance to have a fairly good understanding of the purchasing
patterns of consumers
1- Marketing Campaigns

Advertisement plays a greater role in influencing the purchasing decisions

made by consumers. They are even known to bring about a great shift in
market shares of competitive industries by influencing the purchasing
decisions of consumers. The Marketing campaigns done on regular basis
can influence the consumer purchasing decision to such an extent that
they may opt for one brand over another or indulge in indulgent or

2. Personal Preferences

At the personal level, consumer behavior is influenced by various

shades of likes, dislikes, priorities, morals and values. In certain
dynamic industries such as fashion, food and personal care, the
personal view and opinion of the consumer pertaining to style and
fun can become the dominant influencing factor. Though
advertisement can help in influencing these factors to some
extent, the personal consumer likes and dislikes exert greater
influence on the end purchase made by a consumer.

2. Group Influence

Group influence is also seen to affect the decisions made by a

consumer. The primary influential group consisting of family
members, classmates, immediate relatives and the secondary
influential group consisting of neighbors and acquaintances are
seen have greater influence on the purchasing decisions of a
consumer. Say for instance, the mass liking for fast food over
home cooked food or the craze for the SUV’s against small utility
vehicle are glaring examples of the same.

3 - 1. Purchasing Power
 Purchasing power of a consumer plays an important role in
influencing the consumer behavior. The consumers generally
analyze their purchasing capacity before making a decision to buy
and products or services. The product may be excellent, but if it
fails to meet the buyers purchasing ability, it will have high impact
on it its sales. Segmenting consumers based on their buying
capacity would help in determining eligible consumers to achieve
better results.

4. Understanding, analyzing and keeping track of consumer

behavior is very critical for a marketing department to retain
their position successfully in the market place. There are
various other factors too that influence consumer behavior
apart from the four listed above.

7. Explain economic theory on consumer decision making

approaches.
Early economists, led by Nicholas Bernoulli, John von Neumann,
and Oskar Morgenstern, puzzled over this question. Beginning about
300 years ago, Bernoulli developed the first formal explanation of
consumer decision-making. It was later extended by von Neumann
and Morgenstern and called the Utility Theory. This theory proposed
that consumers make decisions based on the expected outcomes of
their decisions. In this model consumers were viewed as rational
actors who were able to estimate the probabilistic outcomes of
uncertain decisions and select the outcome which maximized their
well-being.

However, as one might expect, consumers are typically not

completely rational, or consistent, or even aware of the various
elements that enter into their decision-making. In addition, though
consumers are good at estimating relative frequencies of events, they
typically have difficulty translating these frequencies into
probabilities. This Utility model, even though it had been viewed as
the dominant decision-making paradigm, had serious shortcomings
that could not be explained by the model.

Nobel Laureate Herbert Simon proposed an alternative, simpler

model in the mid-1950s. This model was called Satisficing, in which
consumers got approximately where they wanted to go and then
stopped the decision-making process. An example of this would be in
the search for a new apartment. Under the Utility Theory, consumers
would evaluate every apartment in a market, form a linear equation
based on all the pertinent variables, and then select the apartment that
had the highest overall utility score. With Satisficing, however,
consumers might just evaluate apartments within a certain distance to
their desired location, stopping when they found one that was "good
enough." This theory, though robust enough to encompass many of
the shortcomings of Utility Theory, still left significant room for
improvement in the area of prediction. After all, if a marketing
executive can't predict consumer behavior, then what use is a
decision-making paradigm. Simon and others have extended this area
in the investigation of the field of bounded rationality.

Following Simon, additional efforts were made to develop better

understandings of consumer decision-making, extending beyond the
mathematical optimization of Utility Theory and the somewhat
unsatisfying Satisficing Theory. In the late 1970s, two leading
psychologists, Daniel Kahneman and Amos Tversky, developed
Prospect Theory, which expanded upon both Utility Theory and
Satisficing Theory to develop a new theory that encompassed the
best aspects of each, while solving many of the problems that each
presented.

Two major elements that were added by Kahneman and Tversky

were the concepts of value (replacing the utility found in Utility
Theory) and endowment, in which an item is more precious if one
owns it than if someone else owns it. Value provided a reference
point and evaluated both gains and losses from that reference point.
Additionally, gains and losses have a marginally decreasing increase
from the reference point. For example, there is a much greater value
for the first incremental gain from the reference point than for
subsequent gains.

Seven Decision-Making Strategies

What this all led to was the development and exploration of a series
of useful consumer decision-making strategies that can be exploited
by marketers. For each product, marketers need to understand the
specific decision-making strategy utilized by each consumer segment
acquiring that product. If this is done, marketers can position their
product in such a manner that the decision-making strategy leads
consumers to select their product.

The first two strategies are called compensatory strategies. In these

strategies, consumers allow a higher value of one attribute to
compensate for a lesser value of another attribute. For example, if a
consumer is looking at automobiles, a high value in gas mileage
might compensate for a lower value in seating space. The attributes
might have equal weight (Equal Weight Strategy) or have different
weights for the attributes (Weighted Additive Strategy). An example
of the latter might be to place twice as much importance on gas
mileage than seating space.

The next three strategies are called noncompensatory strategies. In

these strategies, each attribute of a specific product is evaluated
without respect to the other attributes, and even though a product
may have a very high value on one attribute, if it fails another
attribute, it is eliminated from consideration. From Simon, the first of
these is Satisficing, in which the first product evaluated to meet
cutoff values for all attributes is chosen, even if it is not the best. The
second of these strategies, Elimination by Aspects, sets a cutoff value
for the most important attribute, and allows all competing products
that meet that cutoff value to go to the next attribute and its cutoff
value. The third strategy, Lexicographic, evaluates the most
important attribute, and if a product is clearly superior to others,
stops the decision process and selects that product; otherwise, it
continues to the next most important attribute.

The next two strategies are called partially compensatory strategies,

in that strategies are evaluated against each other in serial fashion
and higher values for attributes are considered. The first of these
strategies is called Majority of Conforming Dimensions, in which the
first two competing products are evaluated across all attributes, and
the one that has higher values across more dimensions, or attributes,
is retained. This winner is then evaluated against the next competitor,
and the one that has higher values across more dimensions is again
retained. The second partially compensatory strategy is called
Frequency of Good and Bad Features, in which all products are
simultaneously compared to the cutoff values for each of their
relevant attributes, and the product that has the most "good" features
that exceed the cutoff values is the winner.

There are other expansions upon these seven basic consumer

decision-making strategies, but they are generally captured as shown
above. However, two major areas of marketing theory also help to
provide additional explanatory power to these strategies.

Two Marketing Theories

The first marketing theory is called Consideration. In this theory,

consumers form a subset of brands from which the decision-making
strategies are applied. For example, if asked to enumerate all the
restaurants that one could recall, the list might be quite extensive for
most consumers. However, when a consumer first addresses the
question of where to dine that evening, a short list of restaurants that
are actively considered is utilized for the decision-making process.
Multistage decision-making models were summarized by Allan
Shocker, in which the increasing complexity of a decision produces
more steps in the decision process. In essence, more cognitive effort
would be expended in evaluating members of the consideration set
and reducing that number to an eventual choice.

The second marketing theory is called Involvement, in which the

amount of cognitive effort applied to the decision-making process is
directly related to the level of importance that the consumer places
on acquisition of the specific product. For example, there is rarely a
significant amount of decision-making applied to the selection of a
pack of chewing gum at the grocery store checkout counter, but there
is a much greater amount of decision-making effort applied to the
purchase of a new cell phone. This degree of involvement is not
necessarily a function of the price, but is more related to the
perceived impact on the quality of life of the consumer. The quality
of life can come directly from the benefits supplied by the product, or
can come indirectly from the social accolades or sanctions provided
by members of the peer group.

Summary

Application of the three decision-making models, the seven decision-

making strategies, and the two marketing theories can be seen in
current efforts by marketing practitioners and academicians to tease
apart the complex decisions made by consumers. For example,
choice models and conjoint models are multivariate analysis
techniques based on these understandings. Consumers are presented
with choices in controlled environments that, hopefully, control for
other confounding variables, and then the choices are decomposed to
understand both the conscious and unconscious elements driving the
consumers' choices.

One caveat for practitioners is important to address at this point.

When one is attempting to manipulate marketing variables such as
price or promotion, or even conduct research into consumer decision-
making, it is critical that a solid theoretical base be used. Without this
base, the surveys have the potential of producing contradictory or
misleading answers, and the attempts to manipulate the variables at
hand may produce less than satisfying results.

In summary, this area of investigation is complex and uncertain,

though extremely promising. The fields of economics, psychology,
sociology, and marketing are all deeply involved in trying to move
this research forward, with often-conflicting research streams and
terminology. However, the end result—gaining a better
understanding of how consumers make decisions—is of great
theoretical and practical value to all involved. As such, it will
continue to be a major research area in all the above fields.

25 x 4=100 marks