Retail Marketing

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 Suggested Textbooks
Retail Management- M. Levy, B. Weitz and Dhruv Grewal
9th Edn, TMH Publication

Organised Retailing and Agri-Business (India Studies in Business

and Economics)
by N . Chandrasekhara Rao , R. Radhakrisha , Ram kumar Mishra

Retail Management- Chetan Bajaj, R. Tuli, N.V. Srivastava

Oxford university press.

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 Source: Global power
retailing,2019. Deloitte
report

COMPANY COUNTRY OF ORIGIN

1.Walmart Inc US Hyper market/Super
market
2. Amazon .com US Online
3.Costco-Wholesale US Cash& carry
4.Schwarz Group Germany Hypermarket Store
5.The Kroger Co. US Super market
6. Wall greens Boots Alliance Inc US Pharmacy retailer
7.The Home Depot Inc US Cash & carry store
8. Aldi GmbH Germany Discount Super market
9.CVS Health Corporation US Hyper market
10.Tesco PLC UK Hypermarket

India ranks among the top 5 most attractive destination for retail investment among 30
emerging markets according to Global Retail Development Index by A.T Kearney’s report.
3
 Traditional Retailing Secondary
Sale Sub Small

Mom & Pop store,

Distributor Retailer

Kirana store
Stockiest / Wholesaler/
Manufacturer Small
Master Distributor
Retailer
Sub
Depot( Primary) Sale Distributor
Small
Retailer

Traditional retailing account for approximately 90% of the $ 820 bn retail market in India
dominated by FMCG sales.

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Emerging Modern Retail sector Super Market

DC

Manufacturer

Distribution management
Sourcing management
A Convenience
Store
Manufacturer DC
B Corporate
Retail
Manufacturer Organization Department
C store
DC
Manufacturer
D

Merchandize DC Hyper mart

planning ,sourcing DC operation &
Out bound
Store operation
logistics
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Management
Partial list of corporate players in organized retail space
 Dissection of the Retail sector Pie
Category breakdown of organized retail in India:

$820 bn
$549bn

67%

Source: Technopak, Indian Retail Market & Deloitte

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 SUMMARY
Organized retail BU’s of TATA, Reliance , Aditya
Birla, Future group, Mahindra Super Avenue, Godrej
Walmart-flip kart come under the organized retail

89.8%
Unorganized 10.2%
Traditional Retail sector
retailing

Online retail is significantly small percentage and is under penetrated throwing huge
opportunity for growth and innovation .

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 Popular theories of Retailing & India Market
Cyclical Theories a. Wheel of retailing
b. Accordion theory

Evolutionary Theories : a. Dialectic process

b. Natural Selection theory

Cyclical theory explains the organized retail business sector’s development

and growth is driven by shift in socio economic behavior of the market . Socio
economic behavior study explains the the effects of psychological, cognitive ,
emotional cultural, and social factors of a market on consumption/purchase
of branded products on account of changing lifestyle.
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 Wheel of Retailing Cross Cultural influence &
Low price , acceptance, high disposable
limited service income
and product choice Multiple options from global
brands
Shift in Socio Economic behavior
of the market gave birth to value retail business model

Need for improved merchandize

offering, quality of service and
competitive price points

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Retail Accordion Theory. This theory explains the growth and expansion of
organized retail business from general merchandizing units ( broad- category
based business units) to narrow- category/ deep assortment based institutions
carrying customized / specialized assortments to meet the refined needs and
wants on account of upgraded lifestyle and cross market influence .
The retail accordion theory and assortment strategies

Wide Wide category offered

category to customer but limited
options /choice of
brands ( assortment)
Largest Online Store for newborn, baby &
Specialized category of kids products. Deep range of Toys, Diapers,
products and services Clothes, Footwear, Strollers…….
offered to customer
with deep assortment
Narrow
category Shallow Deep 11
assortment assortment Slides are not for circulation
 ( Melting pot theory )
According to this theory,
Department Store two retail business models
with different advantages
modify their customer
Hyper Mart
offering till they develop a
third format that combines
the advantage of both
Super market formats. It involves
blending of two opposite
models into a superior
form.

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Natural Selection : Evolution of new retail business model to adapt to the
changes in the business environment to grow and sustain .

Growing Millennial base with techno savvy life style and demanding for
improved service and price point triggered the need for online store
formats .

Subscription based model for retailing of day to day commodity . Big basket
.com , Amazon prime , Gap and a few others.

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 The Organized retailing can be broadly divided into :

1. Value retailing : Typically a low margin-high volume business (primarily food and
grocery category ) which generally develops it competitive advantage on the basis
of the cost leadership .

2. Lifestyle retailing : A high margin-low volume business (apparel, footwear, jewelry

electronic goods furniture, gourmet food among others. ) which develops it
competitive advantage on the basis of key differentiation being offered.
Why F&G retail focus on cost leadership strategy ?
1. Direct competition from unorganized segment
2. Category is largely house hold line of products. Limited scope to create differentiation at
branded products retailed .
3. High operating cost , low gross margin, challenge to source and process ,
weak last mile linkage and high shrinkage percentage pose a challenge in managing the
value retail segment .
4. Underdeveloped suppliers of white label products in India
Strategic perspective of Organized retail business

Differentiation strategy
pursue strategic
differentiation within a
focused market.

Cost Focus strategy pursue

cost-minimization within
a focused market .
 Competitive advantage through differentiation strategy
Internal analysis as a reality check for selecting appropriate GTM
Go To Market strategy
VRIO is a internal business analysis framework.
 Developing cost leadership strategy for value Retailing firms

Retail value chain : A series of actions that enable businesses to sell their products to
customers.
The four steps in the retail value chain are creating the product, storing the inventory,
distributing the goods and making the product available for consumers.

Stocking and Retail

DC management Logistics

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 Drivers for growth of Organized Retail in India

• Supply chain infrastructure

• Accessibility to agri out put
• Innovation and technology in agri
sector
• Private label manufacturing

Favorable Farm
laws
India ranks among the top 5 most attractive destination for retail investment
among 30 emerging markets according to Global Retail Development Index by A.T
Kearney’s report.

FDI POLICY FAVOURING RETAIL SECTOR

• Under Ministry of commerce and industry , Department of Industrial Policy and
Promotion ( DIPP) made the following policy changes w.r.t to FDI in retail sector.

• 51% FDI ALLOWED IN MULTI BRAND RETAIL TRADE

• 100% FDI ALLOWED IN SINGLE BRAND RETAIL TRADE

• 100% FDI ALLOWED IN CASH AND CARRY TRADING

• 100% FDI ALLOWED IN ONLINE RETAIL TO OPERATE AS MARKET PLACE .

The new policy allows a maximum 51% ownership for the multi brand retail sector subject
to the following conditions:

✓ • Every state has the option to accept or reject the implementation of

this policy.

✓ They will have to source 30% of their goods from small and medium-
sized Indian suppliers.

✓ • Multi-brand retailers must have a minimum investment of US$100

million with at least half of the amount invested in back end
infrastructure.

✓ Retailers can only set up in cities with a population of more than 1

million (total of 53 cities in India) provided they have the approval from
the respective state governments.
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 Retail SC infrastructure and process
To manage customer order to delivery process in most efficient and cost
effective way, the process has to deal with 3 types of uninterrupted flows.

The supply chain processes are divided into a series of cycle, each performed at
the interface between two successive stages of a supply chain. These stages are
Customer order , procurement , warehousing , Replenishment and reverse
logistics stage .
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 VIRTUAL INTEGRATION
To manage the process end to end efficiently, it need to be integrated using
information technology so that all stakeholders can collaborate, key data can be
analyzed and shared for faster decisions and performance can be tracked using
important metrices, such that business intelligence can be developed.

Procurement DC operation Replenishment Demand Reverse logistics

cycle cycle cycle cycle Cycle (Return, repair, reuse, recycle )
CPFR
• Decrease the waste and save cost across the process in SC system of the business
•Improve business agility
•Improve inventory turns
•Support organizational learning goals
•Improve overall operational performance
Supply chain process of an organized retailer for farm category /F&G

Import Contract farms

Weight Loss : 15% Procurement
Custom Bonded
clearance warehouse

Frequent LTL shipments

Frequent LTL shipments Weight Loss : 10% Weight loss 15%

Cross dock operation

Central DC Merchandize driven flow through
Order driven flow through

Local DC Online order

Stores
Customer delivery
 Online retail
▪ Online retail segment is estimated to reach US$ 32 billion by 2021. It is
expected to grow at a CAGR of over 30 per cent from 2016 to 2021.

▪ Millennials preference shifting from brick and mortar retail formats to click
and mortar is one of the factor for the growth of e-tail model .

▪ Global e-tailers are allowed to operate only through market place e-

commerce model.

Source: PWC e commerce in India report, ASSOCHAM and Nasscom annual guidance 2018
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ONLINE RETAIL MODEL :MARKET PLACE MODEL

ONLINE RETAILER

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 INVENTORY (STOCK & SELL) MODEL
(FDI is not permitted in inventory based model of e-commerce.)

Reverse
Logistics
ONLINE
RETAILER
Online retail is
incomplete
without an
adequate
return policy. COD

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 O2O retail model

Online-to-offline (O2O) commerce, is a business model that helps online

consumers to make purchases/delivery from physical stores. One aspect
of the O2O initiative is the ability to pay online and then pick up a
product in a physical location.

In O2O model, the business treats both channels- online and offline as
complementary in terms of increasing sales rather than competitive .

Products searched online and picked up from the physical store.

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 Benefits of O2O commerce
•Purchasing a product online while being at store. Eg. Suppose you like a
pair of trousers at an physical store but you couldn’t find the suitable size
or colour, you can simply place an online order at the store and the
product of desired size and colour is delivered to your doorstep.

•Return the product purchased online at a physical location.

•This strategy incorporates techniques used in online marketing with

those used in brick-and-mortar marketing and helps us satisfy the above
quest. It is a combination of payment model and foot traffic generator for
merchants (as well as a “discovery” mechanism for consumers) that
creates offline purchases.

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 .
Organized retailers use Omni channel Distribution

Omni-channel distribution system enables the customers to enjoy the same

experience of buying irrespective of the point of purchase.

It demands tight integration of customer’s transaction data across all medium of

distribution to develop informed decision about the choice and preference of the
target buyers. Accordingly , operations and physical product flows across all channels
are managed to provide a seamless buying experience to create total customer
satisfaction.

Omni Channel Strategy : Leverage on a single view of the buyer database by

integrating and analyzing customer transaction data from online and offline
channel for building unified customer experience.
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 Social media
QR code Web Mobile
Platform
& email store App

Omnichannel removes the boundaries between online channel and physical channel
to create a unified shopping experience in terms of product availability , price etc. This
demands integration of inventory data at all levels , own and 3rd party field warehouse,
central warehouse , channel etc to ensure efficient fulfilment process and customer
experience .

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 Omni-Channel Retail – Functional Building Blocks

1.Single View of the shopper : common Content Management System across

channels. Retailers need to invest in technologies like Big data tool ( Hadoop ) ,
QR codes, store kiosks and mobile apps to provide a consistent digital
experience.

2.Enterprise Inventory integration and Visibility: Retailers should build a

common view of inventory across channels. This will enable internal fulfillment
operations and support the “endless aisle”.

3.Across the store Mobility: Updating data real time across all digital and non
digital platforms ( Mobile applications, online , physical store ) and integrating the
same with social media platform for frequent alert, reminder, engagement on
competitive pricing, discount , offers , on products reviewed by the shopper and
make recommendations . They can also provide features like ‘Click to Chat’ or
‘Click to Call’ which will allow customers to get additional support and expedite
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4. Seamless Channel of Commerce: Systems for Unified Order Entry, Common
Basket Management and easy Order Fulfillment. ( Wish list/add to card , Buy now )
This will provide the transaction fluidity between channels which customers expect
from today’s retailers. The integration of Order Management and Order Fulfillment
systems between channels will enable scenarios like 'buy online/mobile - pick up in
store‘ or place order in the store and get it delivered at home.

5.Personalized Engagement : A common CRM system which provides a common

view of the customers, irrespective of the channel of engagement. There should
also be a common loyalty program which should be applicable for transactions
made across channels

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 Omni channel system architecture

Interaction
channels

Integration
Layer

Enterprise
Layer

Common Business
Application layer
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 Turning Data into Dialogue
• Real-time integration capabilities between corporate and stores
to support store associate mobility

• Expose enterprise functionality through Application Programming

Interfaces (APIs) so that they can be accessed through mobile
applications on the customers’ smart devices

• Enterprise Service Bus to host various business services and Processes

• Complex Event Processing (CEP) platform to enable a personalized

experience for customers

• High volume processing environments like data grids to support real-time

interactions involving heavy data movement
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Performance management in Organized retail segment .
 Retail business strategies
• Stock control and optimization strategy

• Private label strategy

• Hyper local strategy

• Omni channel strategy

• Co creation and partnership strategy

• Sales return , store credit and e wallet strategy

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Hyper local strategy in retail to develop store brands, in store promotion and
personalized customer service
• AI tools analyze already-collected data at point of sale to target marketing campaigns or
product advertisements to specific customers to reactivate the less frequent or lost
customers and bring them back to web stores, thus maximizing their cart value.

• AI solutions in retail store helps to find when the customer had last visited the store and
track the multiple visits and the products bought in the past. Accordingly , AI tools use
this information to suggest good recommendations and offer personalized rewards like
discounts, loyalty points, etc., for the current shopping needs to the shopper through its
mobile retail App.

• Augmented reality /Virtual reality solutions like smart mirrors and 3 D walk-through
models for explaining product look and functions has enriched the customer experience
with the web store.

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AR layers images over the consumer’s immediate surroundings, such as projecting a new
outfit on an image of the shopper. Eg Smart Mirror in a store.

AR applications in Retail : Ikea store

providing a trial of furniture the AR
way in your bed room .

Virtual changing rooms in Gap stores.

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• AI- enabled kiosks and digital signage units can recognize shoppers and adapt the
in-store product displays. In addition, it can study customer behavior and help in
recommending products based on the shoppers’ needs, preferences, and fit.

• During PoS checkout or interaction with salespersons, AI-powered devices like voice-
enabled cameras can recognize and interpret facial, biometric and audible cues and
capturing shoppers’ in-the-moment emotions, reactions and deliver appropriate
products, recommendations or support. This ensures high retail engagement .

• Amazon Alexa, Apple’s Siri, and Google Assistant are using machine learning
algorithms and models. These voice assistants are used in retail stores to assist
customers at the shelves, trial rooms, and self-checkouts for additional
production/brand information , recommendation etc. Voice assistants can have one-
to-one communication with customers to improve their personal shopping
experience.
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 How AI is transforming the retail industry for better business outcomes.

1.AI introduces іn-ѕtоrе gеѕturе wаllѕ that make shopping less about ѕеаrсhing
and more about finding. With gеѕturе rесоgnіtіоn tool , AI algorithm an сарturе
and іntеrрrеt humаn gеѕturеѕ аѕ соmmаndѕ. Shорреrѕ саn fіnd thе реrfесt
products , Instead оf ѕhіftіng thrоugh rасkѕ оf сlоthеѕ іn thе ѕtоrе .

2. Dіgіtаl саtаlоg thаt еnаblеs ѕhорреrѕ tо mаkе mоrе іnfоrmеd, реrѕоnаlіzеd

decisions. It can make product recommendations.

3. Shopping with vіrtuаl mіrrоrѕ: Try on” different clothing items without getting
undressed and dressed numerous times.

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4. Chats with chatbots: With Messaging apps retailers can have оnе-
оn-оnе conversations with сuѕtоmеrѕ іn real-time, helping them to
solve problems, fіnd рrоduсtѕ.

5.Video anаlуtісѕ tool boosts customer behavior insights in physical

store. : Dаtа gеnеrаtеd bу the tool hеlрѕ dеtеrmіnе customers’
рrоduсt exposure level, engagement, аnd navigational rоutе
thrоughоut thе ѕtоrе. Thіѕ data is used to improve ѕtоrе layout to
drіvе maximum еxроѕurе and increase the length оf customers’ visits.

6. Rоbоtѕ to serve customers : Whіlе rоbоtѕ are uѕеd in retail

dіѕtrіbutіоn centers fоr pick, расk, аnd ѕhір operations , they are now
used in store floors for іntеrасtіng with сuѕtоmеrѕ and find the
products easily.
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 Gross Margin Return on Inventory Investment

Since 60% – 75% of a working capital is spent on building inventory by an

organized retailer . Hence it is essential that organized retail enterprise focus
on their investment on inventory and monitor its performance .

Investment on inventory is measured through GMROI (Gross Margin Return

on Inventory Investment) which indicates how much gross margin you get
back for each rupee “invested” in inventory.

Through careful analysis of GMROII , retailer can see which lines of

categories are the most rewarding for your inventory investment.
It helps to reduce the gap between planned GMROI and actual GMROI
 Category selection : Long tail model

Tail
Stock drivers
Belly
Tail assortment stock is held in larger
value
Head drivers variety to maximize the footfall and
improve margin. It can be non
Retailers standard and rare stocks .
own brand
Sales
Drivers,
These are
popular brands

Products

70-80% of sales value typically come from about 20% products , ( 80- 20 Pareto rule).
These products are called sales drivers .
 Head categories ( sales drivers ) : Most head products in retail are usually very price
competitive with thin margins, but the retailers rely on fast rotations and high volume
sales in this selection to earn their return on capital.

GMROI = GM% x ( Season’s sale ÷ Av Inventory at price )

OR

GMROII = GM% x Inventory turn over

Hence maximizing GMROII depends on efficient rotation of stock.

Retailers need to achieve a balance between head – belly and tail to get the best of
both the worlds across all crests and troughs in the year.
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1. Gross margin% = { (Net Sales – Cost of Goods ) ÷ Total sales } x 100
For example, consider the sales drivers products yields season’s net sale of
Rs 13 Mn
2. COGS = Beginning Inventory + Total Purchase - Ending Inventory
COGS = 8.2 Mn
The Gross Margin% = 37 %

Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2

If Average Inventory @ retail price = 2.5 Mn
Inventory Turnover = COGS / Average Inventory
Inventory turn over = 3.28
GMROII = .37 x 3.28 = 1.21
Retailer is getting 1.21 in gross margin back for every Re 1.00 invested in
inventory in this category for the season.
Management decisions where GMROI information is applied.

Purchase Inventory by GMROI

• MIX Large vs. Small Goods by GMROI

• Rank Vendors by GMROI

• Rank Departments by GMROI

• Rank Items by GMROI

How inventory Impacts your GMROI.

PROFITS
 Outright stock versus consignment stock

A retailer purchases the goods by making complete payment for

the merchandise in the beginning itself. He specifically selects
only those goods, which he believes can be retailed within a
particular time frame, and attracts huge customer response
without leaving anything to chance.

Consignment inventory is a no risk inventory.

Cash to cash Cycle : A metric that expresses the time measured in days for a company to
convert its investments in inventory and other resources into cash flows from sales.

Aging of stock ( inventory )

Av. Accounts receivable Av inventory (Accounts Payable )

x period x Period X period
( Total credit Sales ) ( COGS ) COGS

Reasons for delay in DOI

DOI : Overstocking of goods at lower echelon of supply chain , overstocking of goods
having short shelf life/ wrong SKU / Not following risk pooling process.

Part shipment /Delivery, Wrong shipment/ In transit delay , delay in replacement of

defective goods , delay in resolving customer issues , wrong invoicing , incorrect
support documentation .
 Open To Buy Methodology

The main challenge in retail is how to earn more gross profit with similar
or reduced inventory level. “Open to buy” is the methodology to
achieve this.
Following “Open to buy” method in purchasing allows to control the
purchasing budget, preventing over- and underbuying. This allows to
increase GMROI, reduce inventory and improve profitability.

Benefits of using OTB plan are :

•Less out of stocks brings more revenue.

•Less markdowns brings more margin.

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 How it works

Planned
sales

“Open to-buy” gives a quick view of how much money is left in the category budget.
Manager should know the input data like planned sales for the month , markdowns and
inventory intakes for any given month. Also defining forward cover for the product
category identifies how many periods of sales should the inventory cover. The system
calculates “open to buy” based on such inputs.

Positive open-to-buy will indicate that there is still room to order more goods,
otherwise there can be risk of out-of-stocks and resulting lost revenue.

Negative open-to-buy indicates overbuying. Manager should reduce inventory buying ,

apply markdowns or initiate other measures how to balance inventory and sales.
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 Open to Buy Planning

Sept Oct Nov Dec Jan

Planned 132000 195000 250000 140000 75000
sales
Mark down 2000 2000 10000 25000 20000
Total 1340000 197000 260000 165000 95000

BOM Inv 72000 108000 200000 25000 60000

Desired 62000 89000 60000 140000 30000
EOM (Open
to Rec)
On Order 45000 95000 75000 75000 25000
OTB 17000 -6000 -10000 65000 5000

*Negative open-to-buy indicates overbuying.

Category management

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• Category management is a business planning and execution
process which consists of key elements
– Define & Manage the category the way consumer buy( Consumer
insight ) and estimate the market size.
– Manage the category as an SBU
– Develop strategic category plans based on mutual category goals
and consumer behavior
– Collaborate between retailers and manufacturers to achieve
desired profit objectives
– Increased focus on Consumer….
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Collaborate between retailers and manufacturers to achieve desired
profit objectives
Category Maturity Curve

Data

Analytics
&
Software
Org.
Skills
Process
&
Culture
Merchandise Planning Process

8 Months

2-3 months

4-5 months

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 Category Planning steps

Category Management Business Process

What How Who buys What are the How will we What are the Who does
products are important is the goals and achieve our elements of what and
included? the category category? objectives? goals? the plan for when?
to the each sub-
What are the consumers? How is the How shall we category or
sub- To the Category measure segment?
categories? retailer? doing? success?

Category Category Category Category Category Category Plan

Definition Role Assessment Scorecard Strategy Tactics Implementation

Category Review
Examine the Scorecard
 Nykaa .com – Multi brand Online retailer
Category : “ Beauty & Wellness” products
1. Category definition: “Transformation from Pupa to butterfly” : where
butterfly is a symbol of freedom, grace and energy.
It offers a comprehensive selection of cosmetics, skincare, hair care,
fragrances, bath and body( Footwear, Jewelry, lingerie, ) luxury and
wellness products for women and men.

2. Nykaa offers beauty and wellness products from all the leading brands
including Lakmé, Kaya Skin Clinic, L'Oréal Paris and its own label. It has over
850+ curated brands and 35,000 products.
CATEGORY MANAGEMENT PROCESS
 CATEGORY ROLE

1. DESTINATION CATEGORY :

2. Routine category

3. Anchor category

4. Seasonal Category

5.Convenience category :

GMROF
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Cumulative sales
80%

%Category investment of the total investment

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Inventory optimization and control

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 Lot size stock optimization
EOM inventory is planned after taking into account the variation in
supplier lead time and continuous demand or both .

Inventory
Level Cycle I Cycle II Placing Order

Working Stock
q
+ Shortage

Safety Stock r
0 d d Time
= Expected
Inventory
 Safety stock when demand vary

SS = z *  d L
Safety stock is expressed in terms of service level. Service level is the
probability ( Z value ) at which stock out will reduce.

If the mean demand per day is 100 units with a standard deviation of 16
in a DC and the supplier’s refill time is 9 days , how much safety stock
should be maintained assuming the service level policy at the store is
95% .
Reorder Level Qty = (usage rate x lead time ) + SS

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 For service level of 95% Z value from the table =1.64

σ d = 16x √ (9)

=16 x 3 =48

SS = 1.64 x 48 =78.74

Reorder level = 9 x 100 + 79 = 979 units

Expected inventory level is 979 units . 72
Expected order quantity with Variable Lead Time

• For constant demand and variable lead time:

R = d L + Zd
L
where:
d = constant daily demand
L = average lead time
 = standard deviation of lead time
L
d = standard deviation of demand during lead time
L
Zd = safety stock
L
Expected order quantity when
Variable Demand and Lead Time
• When both demand and lead time are variable:
2 2 2
R = d L + Z ( ) L + ( ) d
d L
where:
d = average daily demand
L = average lead time

2 2 2
( ) L + ( ) (d ) = standard deviation of demand during lead time
d L

2 2 2
Z ( ) L + ( ) d = safety stock
d L
Reorder Point
Variable Demand and Lead Time Example
• In a carpet Discount Store:
d = 30 yd per day
 d = 5 yd per day
L = 10 days
 L = 3 days
Z = 1.65 for 95% service level

2 2 2
R = d L + Z ( d ) L + ( L ) d

= (30)(10) + (1.65) (5)(5)(10) + (3)(3)(30)(30)

= 300 + 150.8
= 450.8 yds
The above calculation is applicable in cases where demand and lead
time variability are independent—that is, they are influenced by
different factors—and both are normally distributed.

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 Inventory Review Policy
In retail, inventory review is a must. Retailer need to know the real time
inventory levels so that they know when to reorder. Accurate accounting
is must so that you can calculate the cost of goods sold.

The two review methods are periodic( P System , variable quantity ) and
continuous ( Q system, fixed quantity ) , or perpetual, inventory. Periodic
inventory takes stock every week or month. Continuous inventory
constantly tracks inventory quantities so you always know your stock
levels.

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 Inventory Review Policy

Order and keep a

fixed opening
Variable Fixed Period
inventory level &
(interval ) system.
reorder
P system . When drops to
a level R
(Q)
Order Fixed order quantity
Fixed quantity at
quantity fixed interval or continuous system
of time ordering ( Q system )

Constant
Variable
Ordering interval

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Periodic Review system

• Inventory position is reviewed at constant intervals.

• Demand during review period plus lead time period is normally
distributed with mean µ and standard deviation .
• Service level is defined in terms of the probability of no stockouts during
a review period plus lead time period and is reflected in z.
• On-hand inventory at ordering time: I
• Shortages are not backordered.
• Lead time is less than the review period length.
Order Quantity for Variable Demand

• For normally distributed variable daily demand:

Q is the order size to be bought

Q = d (tb + L) + Z d tb + L − I

where:
d = average demand rate
tb = the fixed time between orders
L = lead time
 d = standard deviation of demand
Z d tb + L = safety stock
I = inventory in stock
 Back order System (Planned Shortage Model )
• Backorder: An unfilled customer order. A backorder is demanded against an item
whose current stock level is insufficient to satisfy demand.
• Maintaining high value or slow moving inventory is more expensive.
• Assumes customers will be not lost because of stock outs.
• Reorder when there are Σ S number of backorders

• Backorder cost – Cost incurred for servicing an order while out of stock

• Back orders are initiated when Multi Line Orders need to be serviced by the retailer .
Customer places an order for 5 different items and they request you to ship the order
as a single shipment .
• Inventory available to fill the first two items, but not the third.
OPTIMAL ORDER QUANTITY, Q* & OPTIMAL # BACKORDERS, S*

 2CO D  Ch + Cs   ( DCb ) 2 
Q* =    −  
 Ch  Cs   ChCs 

ChQ * − DCb
S* =
Ch + C s
Cb -- Fixed administrative cost/stock-out
Cs -- Annualized cost per unit short ( business lost due to unfulfilled opportunities. )
Ch --- Holding cost
 Single Period Model
A single period inventory model is a scenario where the nature of the order is
seasonal or perishable in nature. There is only one chance to get the quantity
right when ordering, as the product has no value after the time .

The objective of this model is to balance the impact of running out of stock with
the impact of being left with stock that does not sell. How to calculate the stock
Inventory should increase while the
probability of selling the last item added
is equal or greater than Cu/Co+Cu.

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Cost of understocking = Cu = SP- CP
Cost of over stocking = Co = CP-SV
SV= Salvage value .
Assume SP= Rs 20 , CP= 8 SV =2 Mean demand = 400 and deviation in
demand = 62 .
Cu = 12, Co = 6

Service Level =

Compute the z-value associated to that service level and calculate the
optimal order quantity, using the following: (The value of the z-score
indicates the number of standard deviations the data points away from the
mean. ) For P value of .667 , Z score = .431
Optimal Order Quantity = μ+z×σ = 400 + .431x 62= 426.7
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 Delivering Customer Delight : KANO model
The model assigns three types of attribute to enhance satisfaction.
1. Threshold Attributes (Basics). These are the basic features that customers expect in a a
product or service . For example the basic risk cover offered in a Mediclaim insurance
policy .
2. Performance Attributes (Satisfiers). These elements when exists, the experience of the
customer with the product or service increases. Cash less claim settlement services offered
in the approved hospitals. Return the policy within 15 days ,if not satisfied with the terms.

3. Excitement Attributes (Delighters). These are the surprise elements that can really boost
the customers opinion and attitude towards the overall insurance policy . They are the
features that customers don't even know they want, but are delighted with when they find
them.
For example : Family floater cover in medical insurance which covers the entire family on a
single premium and approved third party administrators( a link between insurance provider
and customer ) who help the customers at all stages of claim approval, processing and
settlement .
Learning from Kano model to delight the customers and enhance the loyalty

Features which customers don’t care about ,but

incurs cost to serve.
KANO Model explains that how customers' reactions to certain features (or
the lack of them) can lead to negative or zero effect on satisfaction levels.

Delighted by the surprise elements

Delighters offered .

Customer weighs up products &

Satisfiers services against another and
judges satisfaction by the
availability of performance
attributes .
Basics
 Measuring Customer satisfaction NET PROMOTER’S SCORE
“ Do things so well, that people can't resist telling others about you”
Walt Disney
Experience of a customer will either promote your brand, stay passive
or detract from the brand
Every organization’s customers can be divided into three categories.

"Promoters" are loyal enthusiasts who keep buying from a company

and urge their friends to do the same.

"Passives" are satisfied but unenthusiastic customers who can be easily

wooed by the competition.

“Detractors" are unhappy customers trapped in a bad relationship.

• The importance of the Net Promoter Score is that it gives you insights into your
customer loyalty spectrum. As you move up the scoring scale, from 0 to 10,
customers defect at lower rates, will spend more and will move from negative word
of mouth to positive.

• By measuring NPS a firm can get an insight of the customer perception of the
quality of service rendered by them .

• Identify the weak points that need to improve to increase customer experience
Managing Customer Loyalty RFM (recency, frequency, monetary value ) analysis
RFM analysis is a marketing technique used to determine the most valuable
customers quantitatively by examining recency , frequency and how much the
customer spends (monetary value ) to develop appropriate marketing strategy .

RFM analysis is based on the Pereto’s principle that "80% of your business comes
from 20% of your customers.“ It is a customer segmentation tool, to group the buyer
according to the above three factors in five equal groups called quintile .
Use RFM analysis to group the customers as

• Active customers : Up Sell/cross sell programs ( 444-555)

• At risk customers : Retention programs (Loyalty campaigns )
• Churn customers : Reactivation programs ( 111-222)
RFM Analysis
The customers are split into quintiles
(five equal groups), and given the
top 20% a recency score of 5, the
next 20% a score of 4 and so on.

Customers are then sorted and

scored for frequency – from the
most to least frequent, coding the
top 20% as 5, and the less frequent
quintiles as 4, 3, 2, and 1.

This process is then undertaken for

monetary as well.
 A customer’s score can range from 555 being the highest, to 111 being the lowest. The
valuable customers are in quintile 5 for each factor (555) that have purchased most
recently, most frequently and have spent the most money.
• Customer with id 9, which has RFM score 155, has made a high number of purchases
with high monetary values but not for a long time. Something might have gone wrong
with this customer, for example, he/she has most likely defected to a competitor's
products and services or has found an alternate source and that is why his/her
recency score is low.

• At this situation, marketers can contact with this customer and get feedbacks about
how to do it better because he/she is one of the valuable customers according to his
frequency and monetary values. Moreover, it is possible to plan a customer
reactivation program and send him/her an extreme promotion in an effort to get
his/her attention .

• A customer’s score can range from 555 being the highest, to 111 being the lowest.
Also customer id 1 and 12 ( 544, 555) need to be upsold, and 511 need a sticky recurring
relationship.
 Dividing customers into different groups.
Customer Category RFM Description
SCORE
Valuable Customers 555 Frequent buyer and good spenders and bought frequently
Loyal customer 444 High frequency buyer , not necessarily bought recently or high spender
Big spenders 434 They trust you enough to spend big money on your products and services
New spenders 333 New Spenders are customers who spend money because of changing life style ,
acquired wealth. Also called new money customers. This is the kind of customer
you want to convert into a loyal, regular customer that loves your products and
brand.
Loyal Joes 452 Loyal Joes buy often, but don’t spend very much. Because they already like and
trust you, your goal should be to increase the share of wallet you have from this
customer.
Lost customers 114 Lost Customers used to buy frequently from you, and at one point they spent
a lot with you, but they’ve stopped. Now it’s time to win them back.
Splurger 222 Splurgers show low to moderate Monetary Value Frequency. They would have the
willingness to spend provided they see value

Deadbeats 111 These customers spent very little and buy very few times, and last ordered quite a
while ago. They are unlikely to be worth much time, so park them in defunct list.
 PRIVATE LABEL MANAGEMENT STRATEGY

• The private label strategy should be integrated into the retailer’s overall
vision of the company, with a clear contributions to the retailer’s goals and a
plan as to how it will create value for customers.

• Private label offerings should have strong appeal and a compelling

proposition for shoppers , and be priced appropriately.

• Retailers must implement the private label value proposition consistently

across all possible categories . Life style categories, healthcare, Gourmet,
etc .

• Private label management requires careful day-to-day execution, including

pricing, promotion, display, and quality management.
Benefit of private label strategy :

1. Private label offering can increase revenues, improve profitability, and strengthen
customer loyalty.

2. Private label create its own space in the category thereby overcoming clutter and
price cut .

3. Private label strategy helps the organization to improve overall gross margin in the
category .

4. Assortment. Retailers can improve their chances of capturing sales by using their
private label products to fill in the gaps and offer a full range of products

98
5 Retailer’s have better access to third-party suppliers and distribution
networks; they are more familiar with brand management techniques.

6 Profitability. To increase shelf space revenue for competitor’s brand

negotiate more favorable terms with suppliers accordingly.

7 Using in-store data and sales information, they can analyze their
customer demographics and segmentation and determine where they
may need private label products to round out their assortment .
 Three pillars of Managing value
Innovation for growth & success
Character building focus on three core
Focus on Three C’s concepts known as 3i :

•Character building Identity building of the product through brand

Integrity building ( Brand promise )
Image building of the brand ( Customer’s
•Co creation opinion about the brand or perception about the
product

•Community support Brand is a soul of a product through which market connect with the
product or service & build a lasting memories. Market’s feeling and
emotions attached to the values delivered by the product is
measured through the brand value .
100
 Brand's value is measured on the following parameters :
•The financial performance of the private label products or services.
•The role in purchase decisions
•The brand's competitive strength.
Financial performance of the product/service brand: (Brand equity ): This is the value that
value derived from higher revenues, lower marketing costs, premium pricing, favorable
negotiating power with channel partners .

Brand’s role in purchase decision : Customer knowledge of your products and services value
delivered which acts a motivator for buying . Measure the buyers brand awareness and
aspiration level. Focus group survey ( digital or traditional method ) is commonly used
approach .

•Brand’s Competitive strength. Competitive metrics reveal areas where competition is not
providing value to customers, such as product gap, non competitive price , weak after sales
support . Metrics also include : Customer acquisition rate, Market share, Sales lift
ROI and distribution channel preferences.
 Brand Extension strategy
Extending the brand image or brand stretching, is a marketing strategy that uses an
established brand name of the parent brand to all the products over the related category to
increase an overall brand image. This strategy helps to appeal to a similar customer base,
while generating new demands .

Offering unrelated items may experience a product fail.

Types of brand extensions
1.Product- brand extension : When a firm launch a companion product which is different
form what they're currently offering, but complement the original product, the original
brand is extended to the companion product . Eg. A firm launches a single serve liquid
dairy creamer(10ml) as a companion product to complement the original Single serve
coffee powder pouch / Tea bag .
2.Brand Line extension
“Kirkland Signature” a private label from Costco- Whole sale
comprise about 40% of its total sales

Kirkland Signature items include those products not available

from national brands , such as organic liquid eggs, organic
coconut water, artisan breads and light beer, Ground coffee ,
Bacon, Peanut butter , paper towel , Local flavour Vodka .
High-involvement decisions can cause shopper a great deal of purchase
dissonance (anxiety) if they are unsure about the product . Store brands need
to help the shopper in making informed product evaluation , choice and
purchase.
Costco topped the lists of top 5 private label retailers in 2016 .
The Wall street Journal
1. Kroger 2.Trader joe’s 3. Sam’s Choice 4. Wegman 5. Kirkland signature

“ Kirkland Signature” compete with national brands in similar category.

Unlike the traditional private label strategy , Costco puts its private label as
premium and sometime charges slightly more for Kirkland Signature items
than their national brand counterparts.

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 BUILDING AWARENESS :
ELABORATION LIKELYHOOD MODEL OF PERSUASION
The ELM of persuasion is a
dual process theory describing
Logical
the change of attitudes occurs
CENTRAL ROUTE OF PERSUATION
Persuasion through central route or
peripheral route depending on
Rural
Communication the power of message,
channel and source .
Emotional
persuasion PERIPHERAL ROUTE OF PERSUATION
 Product Structure

Brand Promise
Brand
Personality
Brand
identity
Brand
Image

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 4 E’s of a store brand.

1. Evangelism : Aggressive private label strategy that includes frequent

product updates and innovations.

2. Experience : Unique and local taste and flavor in the products and
packaging .

3. Exchange : Customize the products according to the choice . VOC

4. Every where : Introduced in every product category .

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 Challenges of managing Private label.

• Limited number of manufacturers with the capabilities and facilities to supply a

range of private label products of high-quality and standards—and many of those
that do exist are bound by contracts with leading multinationals that bar them from
creating private label products for regional competitors.

• Managing Quality control and Assurance of the private label and supply chain .

• Balancing between Quality, Price and Brand .

• Product complexities and after sales service complexities.

• High brand involvement

• Lack of manufacturers to supply and maintain quality assurance and control

FACTORS TO BE EVALUATED

The attributes like :

• Product bulk (Size )
• Post sale service levels
• Product selling methods
• Source of supply
• Quality standard
• Storage and transport system

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FACTORS USED TO BE EVALUATED

The impact on lifestyle and acceptance.

Must Consider:
✓ Targeted customers’ activities, interests, and opinions
✓ The match between consumers’ lifestyle and retailer’s image
✓ Usefulness of trade shows to identify product lines for targeted consumers’
lifestyles

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Sharing demand signals & Sharing POS Data .

Vendor development .

Automate Supply chain

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 Retail Marketing Mix

Private Branded Cost

Location Size
label label

Merchandize Real-estate

Retail Pricing (Mark-up) Supply chain

Mix
Manpower Shopper
Marketing

In-store Out of store

Marketing marketing
115
 Retail Formats
Value retailing Life style retailing

Reliance Trends SPAR AB More Firstcry.com by Reliance Market

Hypermarket Mahindra retail
Shoppers shop Spencer Daily Metro
( Raheja Group) Star Bazaar Tanishq Cash& Carry
Reliance Smart (
West side Big Bazaar Fresh) Food hall Costco
TATA Wholesale
D-Mart Star Daily Toys 'R' Us Warehouse club
Pantaloon
Fashion Retail Spencer Hyper Crossword Sam’s
Ltd ( Aditya warehouse club
Birla) Reliance mart Zivame
BJ’s
Jockey warehouse club
 Decision factors for Retail Formats Classification
The retail format is the store ‘package’ that the retailer presents to the
shopper. A format is defined as a type of retail mix of variables that retailers
use to develop their business strategies.
Retail mix variables constitutes of :
Sr No. Variables Characteristics
1 Merchandise Assortment Narrow to wide
2 Price Deep discount to Premium

3 Service Level Self to customized

4 Ownership Fully owned and leased
5 Floor space 5 K sq ft to 70 K plus
6 Location Residential to high street
Mall
7 Shopping marketing programs Mass to luxurious appeal

8 Management Control
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 SHOPPER MARKETING
OUT OF STORE IN- STORE

• Store layout
• Social media
• Store atmospherics
• Mobile communication
• Store façade
• Billboards
• Off shelf display, aisle, window display
• Banners
• On shelf display
• Hoarding
• Thematic content and display
• Posters
• Packaging of merchandising
• Stickers & labels
• In-store sampling programs
• Print Newspaper ad
• In-store events
• Flyer insert in news paper
• In-store video
• TV commercials
• Digital kiosk
• Interactive display board ( Touch screen)
• Smart card
• Loyalty card and programs
• Signage
• In-store coupons( Coupon booklet )
• Relationship marketing
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Elements that Comprise of In-Store marketing planning
 Retail Space Management
Retailers need to assign limited store space and designated location for each product
category such that sales are maximized. The system uses an Evolutionary Algorithm to
optimize space allocation based on the estimated impact on sales caused by changes in
the space assigned to product categories.

Trade area : 2/3 or 60% of the total area available is used for product promotion and
trade promotion

Backroom space : 20% of the total space is used for back room operation

Customer engagement space : Remaining 20% is used for customer engagement

RSM should be done to reduce honeycomb effect and minimize the product placement
at those locations which gets minimum eye ball contacts .

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Impulse Products
People buy these products just because they look good or have tempting price tags or
attractive offers on them. They are not on the shopping list of buyers, but they buy these
products because they attract the buyer . Impulse products should be placed near the
cash counter or near the products (like demand products) which are bought frequently.
They need to be placed at those space where it seeks maximum attention.

Specialty products :These products have no brand comparison alternatives for customers
to choose from. Specialty products should be placed in a prominent area of the store.

Category products

Adjacent Products
Which products should be placed adjacent to one another so that sales can be increased
by increasing the shopping mood of the buyers.

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 Fixed location decision versus floating location

GMROF or Gross Margin Return on Footage- a tool that shows the relationship between
total sales corresponding to per square feet area of your store.
GMROF = GM% x (Sales* / Sq.Ft.)

*Sales for corresponding area & time frame

GMROF is one of the most widely used metrics for retail stock management . It shows how
much gross profit per square feet inventory investment brings to the retailer. The metrics
help to compare product categories, shelf design, department wise layout, and product
display optimizations.

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SPACE OPTIMIZATION INSIDE THE STORE: GROSS MARGIN RETURN ON FLOOR SPACE

GMROF = GROSS MARGIN % x SALES

TRADE SPACE UTILIZED

PRODUCT A B C D

GM% 12 20 35 50
SPACE 500 700 1000 1200
SALES /sq ft 5000 4000 3500 3000

GMROF 1.2 1.14 1.22 1.25

This model will create optimal space allocation. It will still require an
experienced hand to take the space allocations and create the best location
layout and adjacencies. These are the three elements of macro space
optimization.
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 Store Layout
• Store Layout: the interior arrangement of retail facilities.
1. Grid / Rack 2. Racetrack 3. Free Form

• Selling areas: (2/3 of the total space)

• where merchandise is displayed and customers interact with
sales personnel.
• Sales support areas: Devoted to customer services, merchandise
receiving and distribution, management offices and staff
activities.
 Grid Store Layout

Receiving & storage

Fruit
Books, magazines, seasonal Cart
display area
Vegetables Checkouts

Entrance
Office &
customer
service
Exit
Grid/Rack Layout
Long gondolas in repetitive pattern.
• Easy to locate merchandise
• Does not encourage customers to explore store
• Limited site lines to merchandise

• Allows more merchandise to be displayed

• Cost efficient
Used in grocery, discount, and drug stores.
45-Degree Customer Sightline

LO 3
 Store layout should address:
FOR EXAMPLE

Space The Right Center shelf

Allocation Space space

Positioning The Right Next to first rival

Place

Adjacency & The Right Biscuits and

Attachment Neighbors confectionary after
tea and coffee
Race track Layout

Loop with a major aisle that has access to departments and store’s
multiple entrances.
• Draws customers around the store , high exploration .
• Provide different site lines and encourage exploration, impulse buying
• Used in Life style retailing and upscale department stores
Racetrack Layout
 Free-Form or Boutique Layout

Fixtures and aisles arranged asymmetrically

Pleasant relaxing ambiance. More expensive
Inefficient use of space
Used in Life style (specialty stores ) retailing and upscale department
stores
 Boutique Layout
Lingerie boutique
Storage, Receiving, Marketing

Dressing Rooms

Hats and Handbags

Underwear
Accessories

Sleeping
beauty
Stockings

New arrivals

Billing
Clearance

Skirts and Dresses

Casual Wear

size
Plus

Items

Classic
Curves
Elegance

Open Display Window Open Display Window

 Elements of store Design
1 . Store front: The store exterior includes the store sign,
Marquees , display windows, Facade, entrances, outdoor
lighting, landscaping, and the building itself. The design of an
exterior is often part of the place decision.

2. Store interior & ambience ( layout , Lighting , color,

decorative props , air conditioning , fragrance ,
hygiene , cleanliness

3. Interior display
Internal store Displays: Displays are intended to:
• Stimulate product interest
• Provide information
• Suggest merchandise coordination
• Generate traffic flow
• Remind customers of planned purchases
• Create additional sales of impulse items
• Enhance the store’s visual image
Flyer as a promotional tool

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• Ideal locations for internal displays:
• Just in the entrance and window space
• Entrance to department
• Near cash/wrap
• Next to related items
• Across from elevators and escalators
• Ends of aisles , End cap Pallet display

Components of Display
• Merchandise
• Lighting
• Props
• Digital and non digital Signage
ISP & ISD strategies initiates POS and POD in side the store
1. Dump Bins : Project your brand’s image on the floor and seek
shopper attention
2. Free standing LED and non LED display board, cabinet, shelf , rack,
panel , back drop panel , poster

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 LIGHTING
• Used to direct customer’s attention to the display

Types of lighting .

• Beam spread : Focused on theme display. Diameter of the circle of

the light is big enough .

• Floodlighting: Ceiling lights to direct light over an entire wide

display area.

• Spotlighting: Focuses attention on specific areas or targeted

items of merchandise.

• Pinpointing: Focuses a narrow beam of light on a specific item

 Functional props & fixtures for Display
Functional Props: Used for physical support of the merchandise. (mannequins, stands,
panels, screens)

Carousels Waterfall

Mannequins

Four way rack Dump tables/ Bins T-stand:

Structural Props: Used for highlighting the physical appearance of displays. (boxes,
rods, stairways )

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Decorative Props:
Used to establish the mood/theme or surrounding which works as an attractive setting
for the merchandise being featured ( Mirrors, flowers, painting , seashells, artifacts )
 SIGNAGE

• Is an in- store communication about category location, ongoing

promotion, discount, new arrivals , plus size trending products ,
clearance and complete signs.
• Can tell a story about the goods.
• Should try to answer customers questions.
• Should be informative and concise.
• Can include prices, sizes, department location.
 Merchandize layout & DISPLAY
• Merchandise display includes the ways that goods are presented for sale in
retail stores.
• Shoulder-out presentation:
• Face-forward presentation (face-out presentation):
• Mannequins
 MERCHANDISE
• More interesting if in odd numbers
• Groups:
• One-category, or line-of-goods.

• Related groupings: go together or reinforce each other.

• Theme groupings: event, holiday, etc.

• Variety or assortment groupings: collection of unrelated items all sold at the same
store.