Tutotial week 9

1. National Labels

Advantages
• Help retailers build their image and traffic flow
• Reduces selling/promotional expenses
• Customers patronize retailers selling the branded merchandise

Disadvantages
• Lower margins
• Competition can be intense
• Limit a retailer’s flexibility

Private Labels

Advantages
• Boosts store loyalty
• Enhance the retailer’s image and draw customers to the store.
• Higher margins

Disadvantages
• Require significant investments to design merchandise, manage global
manufacturers, create customer awareness and develop a favorable image.
• Need to develop expertise in developing and promoting brand.
• Unable to return merchandise.

Favourite private brand is Marks & Spencer. It should, because they have the advantages
of boosts store loyalty, enhance image and have higher margins.
Tutorial Week 9 – Buying Merchandise

Question 2
What are national brands? (PYQ 28.4.2009) (5m)

National brand, also known as manufacturer's brands, are products designed, produced
and marketed by a vendor and sold to many retailers. For instance, Spritzer (vendor)
are sold in 7Eleven, Cold Storage, Tesco and many other major retailers.

The vendor is responsible for developing the merchandise, producing the merchandise
with consistent quality, and undertaking the marketing program to establish an
appealing brand image.

Once a brand image is established, the vendor can expand their product line by creating
a subbrand associating it with a family brand or the umbrella concept. For example,
Nestle (family brand) produces Nestle KitKat (subbrand) and Sony (family brand)
Walkman (subbrand).
In other cases, vendors may use individual brand names for different categories and
don't associate the brand with the company. For example, Procter & Gamble makes
Pringles potato chips, SKII facial products, Dynamo detergent and so on.

Some retailers organise their buying activities around national brand vendors that cut
across merchandise categories. For instance, buyers from Tesco (retailer) are responsible
for all sundry products from Procter & Gamble rather than for a product category like
toothpaste or detergent.

Answer : Chp14 S14&15 ; Txt Book p.384,385

Q3:
Private-label brand also called store brands, house brands or own brand are
product developed by retailers.
Private-label brand can build store loyalty because it difficult for customers to
compare the price with other competitors. They can build value and recognition from the
customers. Private brand products allow retailers to differentiate their products from
competitors' products, and provide consumers with an alternative to other brands.
Besides that, private label brand are only available from the retailer - customers
will not go into a popular megastore and find the private brand product at a lower price.
Customers will not find the private brand product somewhere else.
In addition, it allows retailer allows for greater control over many factors -
including sales, marketing, and distribution. With private labeling, retailers can acquire
products that are already developed, or that can be changed and re-branded in an
individual fashion. Basically, retailers can control many business aspects, and create their
own unique product. They can personalize the products; add their own information,
additional materials, logos, titles, etc.
Therefore, private brands help retailer build store loyalty. For example, Tesco
Choice for pasta sauce, cooking oil, bread, mineral water, instant noodle and etc. They
offer lower price compare to other national brand. Therefore, it builds customers loyalty
toward Tesco.
Tutorial Week 9 (Question 4)
Private –label brands, also called store brands, house brands, or own brands, are products
developed by retailers.

The retailers develop the design and specifications for the private-label products and then
contract with manufacturers to produce those products. Sometimes, national brand
vendors also work with retailer to develop a special version of its standard merchandise
offering to be sold exclusively by the retailer.

Then, the national brand vendor is responsible for the design and specification as well we
the production of the merchandise. For example, Giant has comes out with their own
brand to differentiate their brand, which is First Choice and Giant.

There are 4 categories of private brands:

1. Premium brand – comparable to, even superior to, a manufacturer’s brand
quality, sometimes with modest price savings.
For example, Marks & Spencer comes out with their own brand name Saint
Michael to serve the high income customers.
2. Generic brand – target a price-sensitive segment by offering a no-frills product
at a discount price.
For example, dairy products which are milk, eggs, and so forth.
3. Copycat brand – imitate the manufacturer’s brand in appearance and packaging,
generally perceived as lower quality and are offered at a lower prices.
For example, Paraful imitate Panadol’s appearance and packaging and they often
place nearer.
4. Exclusive co-brand – developed by a national brand vendor and sold exclusively
by the retailer. The simplest form is when a national brand manufacturer assigns
different model numbers and has exterior features for the same basis product sold
by different retailers. This makes it difficult for consumers to compare prices for
virtually the same product. A more sophisticated form is when a manufacturer
develops an exclusive product or product category for a retailer.
For example, Amway comes out with skin care and health product, which is
Artistry and Nutrilite to serve the customers.
Advantages

• Boosts store loyalty.

• Enhance the retailer’s image and draw customer to the store.
• Unique merchandise not available at competitive outlets.
• Difficult for customers to compare price with competitors.
• Higher margins.

Disadvantages

• Require significant investments to design merchandise, manage global

manufacturers, create customer awareness and develop a favorable image.
• Need to develop expertise in developing and promoting brand.
• Unable to return merchandise.
Tutorial Week 9
Buying Merchandise
Question 5 :
Assume you have been hired to consult with Parkson on sourcing decision for
sporstwear. What issues would you consider when deciding whether you should buy
from Thailand or China, or find a source in the Malaysia?
Answer:

The issues I will consider which is Negotiation Issues and Legal and Ethical issues.

Negotiation issues are consist Two (2) important issues which are :

A)Terms of Purchase
I have to consider and negotiate whether the vendors from Thailand and China are
allows for a long time period in which to pay for merchandise. A long payment
period will help to improve the cash flow of sportswear department.

B) Exclusivity
I will negotiate with the vendors from Thailand, China and Malaysia. To ensure they
will offer us an exclusive brand and product that no other retailer can sell the same
brand and product. And compared their exclusive arrangement which is more
attractive and to meet the market needs.

Legal and Ethical Issues :

A) Commercial Bribery
I have to ensure that is not involve third party to interrupt the transaction process
with the vendors.
Example: the salesperson of the vendors ask for something value”

B) Gray markets and Diverted Merchandise

I have to ensure that the vendors I deal with would not distributed their product to
the another market at the lowers price.

C) Counterfeit Merchandise
I will ensure the vendors brand and product are not copy from somewhere else and
it is through the proper legal way to supply the others national brand product to us.

D) Exclusive Dealing Agreements

I have to ensure whether the Vendors from Thailand, China and Malaysia will
request us only sells their brand product and not allows others competitors product
sells in our sportswear department.

Others than that I also will consider which of the countries national brands are well
known by the Malaysian. Besides that, recently most of the large retailers are tend
to design and contract for the production of private -label brand and this is the best
way to select a manufacturer. Therefore, I will consider sources of production from
across the globe in order to establish Global Sourcing.

Since the China vendor national brand are become more popular and famous in the
international market. Therefore, I will decide to choose the China vendors as our
sportswear department supplier.

Refer Slide 14-17, 14-18,14-19,14-20

Test Book Page 398, 399, 404, 405

Tutorial 9 - Question 6
What are the issues that are normally raised by buyers when negotiating with their
suppliers? What are the tips for effective negotiation?

Negotiation issues
1. Price and Gross Margin
i) Margin guarantees
• Most buyers has a gross margin goal for each merchandise category that is
quantified in her merchandise budget plans
• Retailers may seek a commitment from vendors to “guarantee” that the former
will realize their gross margin goal on the merchandise

ii) Slotting allowance

• Slotting allowance or slotting fees are charges imposed by a retailer to stock a
new item
• When a vendor agree to pay that fee, the retailer will stock the product for a
period of time

2. Additional markup opportunities

• Vendors may offer retailers discounted prices to take excess merchandise
• This excessive merchandise arises from order cancellations, return merchandise
from other retailers, or simply an overly optimistic sales forecast
• Retailers have the opportunity to gain higher-than-normal gross margins on this
merchandise

3. Terms of purchase
• Retailers and vendors will negotiate on when the retailers should pay
• Retailers would like to negotiate for a long time period to pay for the
merchandise. Long term payment period improves retailer’s cash flow, lower it’s
liabilities, and reduce its interest expenses if it’s borrowing money from financial
institutions
• Vendors would like to be paid soon after it delivers the merchandise

4. Exclusivity

• Retailers often negotiate with vendors for an exclusive arrangement so that no

other retailer can sell the same Item
 • Eg: Swingler wants her shipment of the new spring line to arrive as early in the
season as possible and would like to have some jeans styles and washes that wont
be sold to competing retailers.

5. Advertising allowances
• Retailers often share the cost of advertising through a cooperative arrangement
with vendors known as co-op (cooperative) advertising
• This program are develop by vendor in which the vendor agrees to pay for all or
part of a pricing promotion.

6. Transportation
• Retailers and vendor will negotiate who pay for shipping merchandise from
vendor to the retailer.

Tips for effective negotiating

1. Have at least as many negotiators as the vendors
o Retailers have a psychological advantage at the negotiating table if the
vendor is outnumbered
o At the very least, retailers want the negotiating teams to be the same size
as the vendors

2. Choose a good place to negotiate

o Locations is an important decision so that both parties are comfortable and
confident in negotiating

3. Be aware of real deadlines

o Retailers must recognize all deadlines so it can help company to
closure quickly in the upcoming negotiation

4. Invent options for mutual gain

o Retailers must invent options that could satisfy both parties

5. Let the other party do the talking

o This phenomenon can work to the negotiator’s advantage if it is used
properly.

6. Invent options for mutual gain

o Retailers must invent options that could satisfy both parties

7. Know how far to go

 o If retailers negotiates too aggressively for the markdown money, better
terms of purchase, and strong advertising allowance, the vendors may
decide to the other more worthy and best style retailers
o Vendors may not be afraid to say no if retailers pushes him beyond a legal,
ethical, profitable relationship

8. Don’t burn bridges

o Even if retailers gets few additional concessions from the vendors,
retailers should not be abusive or resort to threat
o Both party should not end their relationship unpleasantly because they
may meet at the negotiating table again

9. Don’t assume
o Participants should orally review the outcomes at the end of the session to
ensure there are no misunderstandings

Notes Slides
14-20
14-21
14-22

Textbook page
398
399
400