Assignment Code: BRL-006/TMA/2021-22

Course Code: BRL-006

Assignment Name: Buying and Merchandising-I

Year: 2021-2022

Verification Status: Verified by Professor

Marks: 100

SECTION A

Q1) What is meant by merchandising strategy? Explain its different components.

Ans) Focus on the words ‘merchandising' and ‘strategy' independently to begin with the definition. A strategy, on the other hand, establishes a company's stance, whereas merchandising refers to the basic product mix that a retailer gives to the end consumer. A company's merchandising strategy is defined as its position in relation to a specific product mix, with the goal of maximising resource efficiency, attaining target sales and margins, and reducing stock outs and/or markdowns. The merchandising strategy, in turn, determines a buyer's or merchandise's position in relation to the following factors:

1. The products to be sourced;

2. The terms and conditions agreed with the Vendors and Suppliers;

3. The pricing strategy to be adopted, and

4. The method of packaging and presentation to the end consumer.

Products to be Sourced: Retailers can purchase merchandise from a variety of sources, depending on the nature of the business and the goods, as well as inventory capacity. Drop shipping, local sourcing, low volume wholesalers, mid volume importers and distributors, and big volume manufacturers and liquidation sales are examples of diverse sorts of sources.

Drop shipping allows things to be sold without the need for a physical inventory. The drop shipper retains the inventory for the retailer, who is not obligated to pay until the inventory is sold out. Drop shipping, it goes without saying, can be a good way to test the market for a given product. If the product is successful, a large order may be placed.

Car boot sales, bargain stores, and local outlet stores are all good examples of local sourcing. This is a good way to get started locating things to sell right away, but it is the most limited method of product sourcing. Because wholesalers are often fairly flexible with Retailers, they are the greatest alternative for acquiring lesser volumes. Importers and distributors may be considered for product sourcing once the business is established and the Retailer is in a position to hold larger quantities of product; while they have higher minimum order requirements, they can offer pricing arrangements that are significantly more profitable than dealing with wholesalers.

Buying directly from manufacturers and importing goods from abroad factories and wholesalers are the best strategies to boost profit margins. Many international suppliers can provide low-cost, high-quality goods, which can assist boost profits. Importing, on the other hand, necessitates dealing with a slew of concerns, including managing suppliers, shipping, and importation costs. When a retail company goes out of business, liquidation sales are usually big amounts of products that are sold. Purchasing at a liquidation sale can be a great way to purchase low-cost products, but it does not guarantee a continuous supply of the item.

Vendor’s Terms and Conditions: The terms and conditions of the vendor are an important part of the product merchandising strategy. These are determined by the product's nature. The terms and conditions are negotiated and agreed upon by the buyer and the vendor. Dispatch/Transit time, Posting and Packaging, Payment Options, Exchanges, Defects, Returns, and Lost Items are just a few examples.

Pricing Strategy: Price is one of the four primary components of the marketing mix. Because pricing is linked to product positioning, it is a critical strategic problem. Pricing also has an impact on other marketing mix aspects including product attributes, channel selection, and promotion.

Packaging and Presentation: In merchandising, the product's packaging and presentation are extremely significant. A product, no matter how perfectly constructed, will not attract a buyer unless it is presented in an appealing manner. It is unrealistic to expect a new model car to be shown in a showroom in a filthy state or with scratches on the body. Similarly, the packaging of produce on supermarket shelves should be appealing in appearance, easy to handle, prominently display the brand name, and clearly provide all relevant information, such as nutritional value, ingredients, weight, price, manufacturing date, expiry date, discount, if any, and so on.

The corporate strategy of a Retail business influences the buying strategy. The procurement strategy is more detailed than the corporate strategy, which acts as a guiding framework for all departments within the firm. It serves as a roadmap for the organization's purchasing function, as well as determining the timeline for certain actions to be completed. As a result, while the purchasing strategy reflects the company plan, it is unique to the Company's purchasing department.

The buying policy establishes not only a buyer's obligations and responsibilities, but also allows Suppliers and Vendors to understand whether the Company permits numerous Suppliers to be a part of its sourcing base or limits its buying to/from a few. The technique of selecting Suppliers, as well as the terms and conditions that apply to them, are all determined in the same way.

Q2) “Category Management meets customer needs better than standard brand management”. Elaborate.

Ans) Manufacturers and retailers collaborate to maximise earnings and increase customer value in every given product category through category management (CM). Category management evolved from brand management and efficient consumer response tactics, and it is particularly common in the fast-moving consumer products industry. Consumer buying selections are made from a number of products within a category, not only from a single brand, according to CM. It has grown in popularity because it is thought to better match client needs than traditional brand management. It would be very hard to maintain track of the purchasing process without categorising products.

The nature of the products, how they are consumed, and how they are purchased can all be used to categorise them. As a result, new categories and sub-categories have evolved, allowing businesses to focus on the demands of their customers rather than more traditional techniques. In general, category management (CM) refers to a collection of things that the customer considers to be appropriate substitutes for one another. There are several sections for girls' apparel, boys' apparel, infants' apparel, ladies' apparel, and men's apparel. There are similar traits in each of these categories. A consumer, for example, is seeking for a girl's Levi’s denim. If the Store does not carry the same, a different brand, such as Lee, in the same size and style should be available in the category. The goods should also be priced similarly and promoted in order to appeal to the buyer. Each category's merchandise is sourced from a comparable group of vendors and tailored to appeal to a specific segment of the client base.

The key elements of category management are:

1. Meeting consumer and customer needs.

2. Managing a business unit strategically.

3. Maximizing financial returns.

4. Working together.

For retailers who do not use category management, the merchandising process might be inefficient. Depending on the structure of the company, a buyer or a category manager is in charge of purchasing items in a retail setting. The category manager in today's retailing climate is more than just a buyer in the conventional sense. The following are a few examples of clothes selling categories:

1. Formal, casual, ethnic, accessories, and sporty are all available in men's apparel.

2. Formal, casual, ethnic, and party clothes for women, as well as accessories, jewellery, and perfumes.

3. Baby Care, Baby Cosmetics, and Accessories - Children's Apparel Large and small Retailers must make selections on thousands of different items from hundreds of sellers, both domestically and globally in some circumstances.

4. The purchase process would be chaotic if it is not organised in a methodical manner.

As a result, category management is especially important in modern retailing, as seasonal variations affect merchandise and categories. The cooperation between the retailer and the supplier is perhaps the most important factor in the success of category management.

Q3) Explain the importance of the sales forecasting in the retail business. Describe different factors that are taken into account while making it.

Ans)

Importance of Sale Forecasting

A sales projection is a forecast of a business unit's and rupee's sales for a future period of time, typically several years or more. These projections are usually based on recent sales trends, competitive developments, and economic trends in the industry, region, and/or country where the company operates. Management's key tool for projecting the number of sales that can be achieved is sales forecasting. As a result, the entire budgeting process is dependent on an accurate and timely sales estimate. Sales forecasting aids in the planning of a company's investments, the launch of new items, and the determination of whether to cease or withdraw production, among other things. For most firms, the sales forecasting process is crucial. Seasonal and festival information, particularly in the apparel industry, must be considered when forecasting sales.

The following are some of the key decisions that can be made based on a sales forecast:

1. Employment levels required

2. Promotional mix Promotional mix

3. Investment in production capacity

Different Factors Taken into Account while Making it

For the forecasting to be accurate, managers need to consider all of the following factors:

Historical Perspective: Management examines historical sales experience by product lines, territory, customer classes, and other pertinent facts as a starting point. Management must examine a long enough time horizon to recognise trends and patterns in Rupee sales volume increase and fall. This time frame is usually between five and ten years. If the company's expertise with a given product class is limited, management will consider similar companies' experience.

Business Competence: A company's ability to respond to sales forecast results is determined by its production capacity, marketing methods, financing, and leadership, as well as its ability to change each of these to maximise profit potential and logistic capabilities to deliver the right product at the right price at the right time.

Market Position: Forecasting also takes into account the company's competitive position in terms of market share, research and development, service quality, pricing and financing practises, and public image. Forecasters also assess the client base's quality and quantity to predict brand loyalty, response to promotional initiatives, economic sustainability, and credit worthiness.

General Economic Condition: Even in many specialist markets, the state of the overall economy is still a main determinant of general sales volume, despite the fact that consumer markets have become increasingly segmented in recent years. Forecasters use pertinent data that shows a strong correlation or a casual association with sales volume.

Price Index: If product prices have varied over time, changes in Rupee volume of sales may not be effectively correlated with unit volume. A company boosts its pricing at a point in time when demand is high. Discounting may be used by a company at another time to reduce inventories. This is especially true as a season draws to a close and unsold product remains on the shelf. As a result, accountants create a pricing index for each year that accounts for both price rises and price decreases. A company can track its "real" volume increase by dividing the Rupee volume by the price indexes. An inflation index, which offers prices in constant Rupees, is comparable to this technique. As a result, management can compare Rupee sales quantities that have been adjusted for price.

Q4) Explain the process of setting sales objectives.

Ans) This is the most important figure to prepare, and it should be computed first because it is the foundation for determining stock markdown and purchase figures. It's the one figure that demands the most dexterity and judgement. It is necessary to do the following:

1. Examining and analysing previous sales results for the same time period

2. Taking into account elements that could affect sales. These are the factors:

• Current Sales trends

• Previous rate of growth patterns

• Economic conditions

• Local business conditions

• Fashion factors

• Influencing conditions within and from outside the store or departments

(For example, changes in store idea, market trends, competitions, and so forth.)

Choosing a percentage of expected sales change for a season. After reviewing and analysing past sales performance and current conditions, this would be done. As a result, the total rupee sales volume for the time can be estimated as follows:

L.Y. Sales + Rupee increase = L.Y. Sales + (LY sales anticipated increase percent) = L.Y. Sales + Rupee increase

At the distribution chain, segment, and season levels, sales planning takes place. The planner can go down to the level of category, sub-category, rollout, month, and week. Retailers should establish the stage of the lifecycle of a certain category when planning sales, as well as whether the retail category presented is a craze, a fashion, a mainstay, or a seasonal item, so that merchandising can be planned properly.

Merchandise Category

1. In a brief period of time, usually less than a season, a fad category generates significant sales.

2. Fashion is a category that spans several seasons, with sales fluctuating dramatically from one season to the next.

3. Staple or basic merchandise is in high demand and has been for a long time.

4. The sales of seasonal merchandise vary substantially depending on the time of year.

Retailers use a variety of sources to make sales estimates for a certain goods category, including past sales volume, published secondary data, and customer surveys. For a retailer, deciding on a merchandise strategy is critical.

The Nielsen definition of a Category, which is widely used in the business, states that the products must satisfy a comparable consumer need or be interconnected or interchangeable. In addition, the Nielsen definition stipulates that products in the same category must be logistically workable in the store (for example, there may be issues in having room-temperature and chilled products together in the same category even though the initial two conditions are met).

This description, on the other hand, does not explain how the process works in real-world retailing scenarios, when demographic and marketing concerns take precedence. It entails deciding on a trade-off between the diversity of items available, the range of products available, and the availability of the products.

Q5) What is meant by Break Even Analysis? Explain the “Mark-up” method of pricing.

Ans)

Break Even Analysis: In order for a business to be profitable, it must generate more income than it spends. To obtain the desired revenue, it is vital to comprehend several cost factors as well as the number of pieces required to sell at a specific pricing. Break Even Pricing is another name for this.

Mark-Up Pricing: This is the most widely utilised method in the retail industry. Mark-up is the difference between the selling price to the consumer and the cost of the goods.

The mark-up can be expressed in Rupees or as a percentage. It can also be indexed based on the selling price or the cost price. When a mark-up is based on the selling price, it is referred to as a margin.

Mark-Up ( in Rs. ) = Selling Price – Cost Price

Q6) Distinguish between:

(a) Stock turn and stock to sales ratio

(b) Premium pricing and economy pricing

Ans)

Stock Turn: The number of times your inventory is replaced in a year is referred to as stock turn. If you sell 300 ties every four months and have an average inventory of 300 ties every year, your inventory "turns over" or is completely replaced three times per year. As a result, your turn number is three. On average, 900 ties are sold every three turns in a year.

Stock turn is frequently boosted by lowering the selling price. Wal Mart, for example, sells things at low prices to a larger number of people. However, profit is plainly reduced as a result of this. It's important to strike a balance between good stock turn and proper profit margins on the products offered in the business. In retail, increased stock turn is a numbers game, thus a competitive pricing policy can help achieve greater stock turns while also improving the store's bottom line.

Stock Turn = Annual Sales / Average Inventory.

Stock to Sales Ratio: This is the proportion of available inventory to the quantity actually sold. How many units were on hand for every unit sold? The inverse of Sell Through Percentage is the Stock to Sales Ratio. Some industry data compilers (e.g., Dun & Bradstreet) utilise sales as the numerator rather than cost of sales. Although cost of sales produces a more realistic turnover ratio, it is frequently important to utilise sales for comparison research. Because of the difference in how sales and cost of sales are documented, cost of sales is thought to be more realistic. Sales are often reported at market value, or the price at which the marketplace paid for the firm's good or service. The numerator may be an erroneous measure if the firm had an outstanding year and the market paid a premium for the firm's goods and services. The firm's cost of sales, on the other hand, is recorded at the price it paid for the items offered for sale. In order to cycle inventory, companies may also lower prices to generate sales.

The terms "cost of sales" and "cost of products sold" are interchangeable in this context.

The holding cost of an item whose inventory is sold (turned over) in a year is more than one whose inventory is sold twice, three times, or more in that time. Stock turnover also reveals how busy a company is. Increased inventory turns are used to reduce inventory for three reasons.

1. Increased inventory turnover lowers inventory holding costs. Rent, utilities, insurance, theft, and other costs associated with maintaining a stock of goods to be sold are reduced.

2. As long as the revenue from selling the item remains constant, lowering the holding cost enhances net income and profitability.

3. Faster-turning products improve responsiveness to changing client needs while also allowing for the replacement of outmoded items. In the fashion industry, this is a huge concern. The inventory is too low, despite the fact that high rotations may indicate it. This frequently leads to stock shortages.

It is critical to consider the industry when comparing firms; otherwise, the comparison would be skewed. Making a comparison between a supermarket and a car dealer is inappropriate because supermarkets sell fast-moving items such as sweets, chocolates, and soft drinks, resulting in a higher stock turnover. However, because cars are a slow-moving item, a car dealer like Honda will have a low turnover. As a result, only intra-industry comparisons will suffice.

When it comes to inventory, the Stock to Sales Ratio is a crucial metric for determining whether you're overstocked. If your Stock to Sales Ratio rises without a corresponding increase in sales, you're adding more stock without growing sales, lowering your profitability. If your stock-to-sales ratio falls but your sales stay the same, you'll see a rise in profitability.

Following formula can be used to calculate and manage stock accordingly:

Stock to Sales Ratio = Averaged Units of Inventory Available / Units Sold.

This will reduce the Stock to Sales Ratio as low as possible, without losing sales.

Premium Pricing: This pricing approach is designed to "Differentiate" itself and represent products / services that are distinctive or luxury. These products cater to many social groups.

Examples:

1. Luxury Brands such as Cartier, Gucci, etc.

2. Premium Hotels and resorts.

Economy Pricing: It's referred to as a "No Frills Pricing Model." Simply put, manufacturing and marketing costs are maintained to a bare minimum. The goal here is to create mass markets for these items. This model would be used by hypermarkets and supermarkets, for example, to drive volume in their respective categories.

Q7) Why is assortment planning necessary for a successful business? Discuss the main guidelines for this purpose.

Ans)

Necessity and Guidelines for Planning

The necessity of planning arises because:

1. Without clear and quantifiable goals, a company cannot run properly.

2. A plan lays out these goals and allows you to track your progress.

3. The larger the company, the more important it is to divide it down into manageable pieces.

Complex enterprises should be made simple and understandable so that they may be handled.

Some Guidelines for Planning

When making plans, keep the following things in mind:

1. Be honest with yourself.

2. Don't take on more than you can handle and be realistic about your goals. Take into account your available resources. Ascertain that everything that has to be measured has been planned and that everything that has been prepared can be measured.

3. Vague targets are useless. With the correct tools and talents, certain aims can be met.

4. Always understand your contingencies

5. It is possible that anything will go wrong. If you can predict what these events are likely to be and what influence they will have if they do occur, you can incorporate them into your plan.

6. Do not take detours

7. Good enterprises have frequently failed as a result of deviating from their intended course.

8. Always keep the main goals in mind, both strategic and operational.

9. Maintain consistency - a business that is constantly changing directions is unable to function.

SECTION B

Q8) Describe the important factors that should be considered while making the selection of a vendor.

Ans) Some of the factors relevant for the selection of a vendor are:

Quality

The term "quality" refers to a supplier's capacity and willingness to meet the buyer's requirements. Quality should never be traded for a low price.

Price

Normally, quality and price do not necessarily go hand in hand, but we must look for suppliers who can provide a better-than-average product at an average price. Low-cost purchases, on the other hand, should not be undertaken at the expense of bad quality.

Quick Delivery

The lead time, or the time it takes to receive supplies, should be as short as possible so that things may be delivered quickly. In general, the top suppliers are the busiest, and receiving goods from them requires a considerable wait. Quick delivery, on the other hand, decreases the amount of planning ahead of time and enhances flexibility.

Assurance of Supply

Only those vendors who can guarantee raw materials and other components should be picked. As a result, suppliers who have frequent shortages should be used with caution, as this can disrupt our production schedule.

Size of the Supplier

According to certain authorities, modest orders should be placed with small businesses, whereas large orders should be placed with major businesses. This correlation, however, cannot always be used. If given the opportunity, a small provider will usually work very hard to complete a large order.

Number of Suppliers

The use of a single supplier has the following advantages:

1. In times of shortage, the supplier will give preference to the needs of the customer.

2. A single supplier can also offer the best price with assured supplies.

In times of scarcity, however, two or more suppliers may be advantageous. Large corporations typically purchase from two or more suppliers, reaping the benefits of low prices and excellent service.

Local Suppliers

For the following reasons, a customer may be forced to purchase specific necessities locally at times. The buyer may be forced to buy locally if the company and the public have a good relationship. For example, a local merchant supplying a hospital or charitable trust would assist in garnering donations for such organisations.

1. Local buying is generally justified when small quantities of materials are purchased.

2. There is a feeling of closer co-operation between the vendor and the buyer.

3. The delivery is quickly made.

4. Urgent orders can be met promptly.

5. Disputes, if any, can be easily resolved.

Miscellaneous Considerations

The following considerations should also be made while selecting suppliers:

1. The buyer must keep himself free of unethical influences in order to maintain perfect objectivity.

2. Friendship favours should be avoided.

3. Similarly, commercial bribery in the form of gifts and the like has no place in the selection of vendors. Vendors that are dishonest must be denied indefinitely.

While quality, price, terms, delivery, and service are the most important aspects to consider when choosing a vendor, there are a number of other considerations to consider as well:

1. Is the vendor able to meet your volume requirements?

2. Is the vendor financially stable and has the resources to manage supplies at the volume required?

3. Will they be able to give the correct quality at the right price?

4. Is it possible for them to always deliver on time?

5. Are they able to respond promptly when unexpected and unplanned requirements arise?

6. Are they invested in the product, and will they consider your success to be their own?

7. Are they treating you as a true partner, with a thorough understanding of your requirements, processes, and deadlines?

8. Is it possible for them to grow and progress alongside you?

9. Is the vendor technologically capable of meeting your system's needs?

10. What was their track record on past orders?

11. In terms of efficiency, price, and delivery, how does the Vendor compare to other vendors?

Q9) Describe briefly different retail price strategies.

Ans)

Pricing Strategies

Markup Pricing: A profit margin, or percentage, can be computed by adding a pre-determined (typically industry standard) profit margin to the cost of the goods. The retail markup is calculated by dividing the rupee markup by the retail price. Make sure the initial mark-up is large enough to cover price reductions, discounts, shrinkage, and other expected costs while still making a profit. Different mark-ups might be used on each product line by retailers with a diverse product assortment.

Vendor Pricing: MSRP (Manufacturer Suggested Retail Price) or Prescribed Price is a frequent method employed by small retailers to prevent price wars while still making a profit. Minimum Retail pricing are suggested by some suppliers and are clearly stated in the packaging. The Retailer has no choice but to price products using the Vendor's specified Retail prices. Another disadvantage of utilising pre-set prices is that it prevents a retailer from gaining a competitive advantage. These strategies, however, are not universally applicable in the category of staple commodities.

Competitive Pricing: Consumers have a wide range of options and are often willing to shop around for the best deal. To separate out from the crowd, retailers pursuing a competitive price approach will need to provide exceptional customer service. Simply put, pricing below competition means offering things at a cheaper price than the competitors. If the retailer negotiates the best rates, cuts costs, and implements a marketing strategy that focuses on price specials, this technique works well. This is achievable if the retailer purchases directly from the manufacturers rather than through the distribution route.

Prestige Pricing, or Pricing above Competition: When location, exclusivity, or one-of-a-kind customer service can justify higher rates, this may be considered. Retailers who carry high-quality items that isn't accessible anywhere else may have a lot of success pricing their products higher than their competitors.

Psychological Pricing: When prices are set to a certain level where the customer believes the price to be fair, psychological pricing is applied. Odd-pricing, which uses numbers ending in 5, 7, or 9, is the most popular strategy. Consumers are thought to round down a price of Rs9.95 to Rs9 rather than Rs10. Bata is generally priced at.99 cents.

Other Pricing Strategies

Keystone Pricing is not well-known, despite the fact that it was used previously. This is defined as a profit margin of more than 100% on the cost of goods sold. Pricing things by double the cost paid for them used to be the usual, but these days, few products allow a retailer to keystone the price. Many pricing, sometimes known as combo pricing, is a means of offering multiple products for a single price, for as three things for Rs100 or Rs200, and so on. This is also an alternative to markdowns or special sales events such as the End of Season Sale. And retailers have found that when the multiple price method is employed, customers spend more money.

Another typical retail pricing approach is discounting and price reductions. Coupons, rebates, seasonal prices, and other promotional markdowns are all examples of discounts. Loss leaders are products that are priced below cost. Although retailers make no profit on these cheap items, the goal is that customers would spend more money in the store on other things with greater margins.