Assignment Code: BRL-10/TMA/2022-23

Course Code: BRL-010

Assignment Name: Buying and Merchandising

Year: 2022-2023

Verification Status: Verified by Professor

Attempt all the questions.

(A) Short Type Questions 10x7

Q1) Giving a suitable example, explain the concept of the ‘Buying Behaviour Model’.

Ans) Understanding and conceptualising the purchasing habits of retailers would be very important. One of the pioneers in the idea of the purchasing behaviour for Industrial Buyers was Jagdish N Sheth. Sheth's Model is a well-known name for this. The retail and industrial buyer buying behaviours, as well as any bulk buying behaviour, may all be understood using this model.

The retailer's purchasing behaviour is influenced by his product requirements, choice, and supplier's accessibility, as can be seen from the model diagram up top. Even while he should ideally endeavour to choose the greatest supplier, the actual pick may not be the best source for a number of reasons. These factors could include the company's financial situation, the business climate, business discussions, and market disruptions. These elements were categorised by Sheth as situational ad hoc factors. It is impossible to predict how situational elements may affect business decisions.

The type of things the shop needs to carry will be determined by intra-organizational criteria including the type of merchandise, such as food products, apparel, footwear, or medications. product positioning is another. The class of goods, including the price component, will be determined by the niche in which the store intends to operate, whether in high, medium, or lower priced products. The kind of goods sold at a retail business may also be influenced by legal restrictions, such as a government ban on carrying a certain good or substance.

The level of competition in the supplier's product category, the provider's corporate image or position, and its relative marketing efforts all affect how accessible a supplier is. The product requirements and the supplier accessibility have a significant impact on the decision-making process. The choice calculus determines the quantity and number of items to be held for each type of product to be sold to customers.

Q2) What is meant by contribution? How is it important in determining profitability?

Ans) This is one of the crucial elements in figuring out how much to charge for the goods. By subtracting all direct costs or expenses from the sales revenue, the contribution is computed. Since the cost of the goods is a direct expense, the contribution percentage can be calculated by subtracting other direct expenses from the gross margin. Deducting all variable costs from the product price often yields the contribution. We deduct direct expenses from the income to arrive at the contribution value because all direct expenses change or are directly tied to the product's sales volume. For a business to be profitable, all fixed or indirect costs that are unaffected by changes in sales volume must be covered by contributions.

Understanding Profitability

The basic aim of all commercial endeavours is profitability. Without profitability, the company won't last very long. Therefore, estimating future profitability and analysing present and previous profitability are both crucial. Income and expenses are used to determine profitability. Income is money that the firm makes through its operations.

Reasons for Computing Profitability

Profitability is the most crucial indicator of a company's success, regardless of whether you are tracking profitability for a past period or predicting profitability for a future one. A company that is not profitable will not last. A highly lucrative company, on the other hand, can offer its owners a significant return on their investment. One of the most significant objectives for business managers is to increase profitability. Managers are always looking for ways to boost profitability within the company.

A pro forma income statement or a partial budget can also be used to analyse these prospective changes. Prior to implementation, partial budgeting enables you to evaluate how a tiny or incremental adjustment to the company would affect profitability. Various Profitability Ratios can be used to evaluate a company's financial standing. These ratios, which were produced from the income statement, can be compared to standards within the industry.

Q3) Define different types of mark-ups and explain differences between them.

Ans) A merchant may base his costs and other markup components either on the basis of his own experience or on his research of related business scenarios. The retailer can discover at the end of the fiscal year that the markups he actually earned differ from those initially decided at the beginning of the year or business.

Initial Mark-Up

The price at which a product purchased at a particular price would be sold to clients is determined by this markup. Initial mark-up refers to the markup imposed on goods when they are first brought into the store. The planned mark-up is another name for the initial mark-up. Many costs may need to be assumed when calculating the initial markup in light of the retailer's experience with related or related product categories.

Let's define the initial markup first, as displayed below:

Initial Mark-Up Percentage = (Percentage Expenses + Percentage Profit + Percentage Reductions + Percentage Alteration Expenses – Percentage Cash Discounts) ÷ (Percentage Sales + Percentage Reduction)

Maintained Mark-Up

To determine planned operational expenses, anticipated profit, and planned decrease based on specific estimated expenditures. These aid in determining the initial markup % used to determine the retail price or MRP of the products in a particular category. Thus, it is necessary to determine the real markup, also known as the maintained markup, which was attained at the conclusion of the operational cycle. This is obtained by identifying the actual costs incurred across a range of categories within a specific time period for which the maintained markup is to be computed. Therefore, "Maintained Mark-up" can be defined as the actual markup derived from actual expenses and outcomes at the conclusion of the business cycle, season, or financial year.

Let's explain the formula for determining the actual markup in percentage terms:

Maintained Mark-up Per cent = (Net Sales Value – Gross Cost of Merchandise Sold) ÷ Net Sales Value

Cumulative Mark-Up

The average markup received on goods sold over the course of a season or other length of time is known as the cumulative markup. Thus, the opening inventory value at both the retail price and the cost price must be the starting point for the calculation of cumulative markup. Then, as the season progresses, we must continue to add the total gross new purchases made over the specified period and account for them in the total retail merchandise. If there is a change in the policy for markups or markdowns during the season or a certain period, this will also have an impact on the retail merchandise value.

Thus, Cumulative Mark-Up Per Cent = Cumulative Mark-Up Value ÷ Cumulative Retail Value

Q4) What do you mean by targeted sales? Discuss relevant factors that affect it.

Ans) Sales targeting is the act of selecting the customers who are most likely to purchase your goods and then planning an approach to directly appeal to them. It entails eliminating those who are unlikely to purchase your goods and focusing all of your attention on those who are most important to your company. Putting aside this colourful example, sales targeting provides the following advantages:

1. Reducing Wasted Time: Productivity is a significant factor in many sales teams. Your salespeople are not putting their efforts where they are most needed if they are wasting time chasing bad leads. The overall amount of time wasted by your sales staff will be significantly decreased by a better sales targeting system.

   
   

2. Improving Close Rates: Your close rates will rise with improved sales targeting, and it won't take much more work. You'll close more sales because you'll be conversing virtually solely with potential customers.

   
   

3. Taking advantage of the Pareto principle: According to the Pareto principle, which is an unofficial theory, just 20% of a system's causes account for 80% of its consequences. That suggests that in your company, 20% of your clients will account for 80% of your revenue. You may find the 20 percent of clients who are the most crucial by using sales targeting to reach out to them personally.

Factors Affecting Targeted Sales

1. The Quality of Product: Your product or service's quality is important. Your top salesmen might be able to persuade potential customers to buy from you the first time. But it would be challenging to persuade them to buy from you again if the goods is of poor quality.

2. The Pricing of Your Product: According to research, 35% of salespeople view overcoming pricing concerns as one of their top obstacles. It's possible that you have no control over pricing.

3. The Customer Care Service: It's possible that customers have already spoken with other divisions of your business by the time they reach out to your sales staff. They might have previously contacted your marketing team or customer service agents.

4. The Quality of Salespeople: Some of the most undervalued skills are soft skills. Many people don't believe that abilities like communication, problem-solving, and time management are important.

5. The Budget for Sales Activities: To make money, you must spend money. Prospecting, lead qualification, prospect meetings, prospect drives, prospect presentations, training, etc. all demand financial resources to be carried out.

6. The Lack of Enough Employees: For your sales team to have a good performance, they must spend time selling your company’s products. But this is not the case for many salespeople.

7. The Lack of Collaboration across Departments: Selling necessitates cooperation. Not merely the individuals on your sales team should collaborate.

Q5) Describe briefly the current retail scenario in India. Which products command the top position in retail at present?

Ans) The types of product categories sold, and the retail formats utilised to sell such product categories are changing in the Indian retail environment. Both the categories that are offered on retail counters and the development of new retail formats have advanced significantly during the past ten years. Currently, the organised retail sector of India is dominated by the fashion industry. This is consistent with how retail evolved in other parts of the world, where fashion drove early retail development.

Food and Grocery Scenario in the International Market

Over a number of decades, the global retail environment has changed as a result of numerous events on the political and economic fronts. It serves as the Indian retail sector's torchbearer, guiding it through various stages of evolution. It will be fascinating to research how much of the major retail chains that operate in the US and European markets' overall business is made up of food and grocery sales. The largest expenditure category for Indian consumers is food and groceries, at least in terms of the Indian market. We anticipate that organised retail in the food and grocery sectors would expand at an exponential rate due to the existence of all the key drivers and effective pan-Indian retail models.

Big Bazaar: The Hyper Market Chain

In the year 2001, Pantaloons Retail Limited launched the chain in India. Within a matter of three weeks, outlets in Hyderabad and Bangalore opened after the first one in Kolkata. The three hypermarket-style outlets generated more than Rs 43 crores in sales and more than Rs 2.89 crores for the PBDIT in just the first year. A revelation by the top management led to the opening of the Big Bazaar chain of stores. The senior management understood that volume was important in the retail industry and could not be obtained through lifestyle retail models. The management was aware that the volumes would come from the steadily expanding middle class, which needed to be reached.

1. Market Environment: To adapt the concept of hypermarket stores to the requirements of the Indian setting, PRIL management made this decision.

2. Strategy of Big Bazaar: Indian consumers have a tendency to cut costs, which is bad news for the country's credit card providers. The management of PRIL considered capitalising on this idea and chose to provide value to the customer.

3. Buying and Merchandising Process at Big Bazaar: The majority of the product categories at huge Bazaar were mostly selected based on price. The management's goal was to provide high-quality goods at the most competitive pricing.

4. Food Bazaar: The management was certain that the food sector would experience the fastest growth in the Indian retail environment based on the pattern in the global market. The idea that food and all the subcategories within it will never go out of style was the driving force behind this phenomena.

Q6) Explain the concept of brand potential index with a suitable example.

Ans) The management can determine which areas or regions the concerned category, or the business selling the concerned product category/sub product category, is performing well by creating an appropriate index. This might be compared to the national index created for the relevant category or subcategory of products. The following stages for creating the category index have been given by Chiplunkar R. M (Product Category Management):

1. Determine the total national sales for a given category, and then divide those total national sales by the country's target population. The ratio that has been determined is set at 100 as the index to which other regions' or locations' index calculations are compared in order to determine any potential gaps.

2. The Category Development Index is calculated by dividing the area's sales, if they are known or estimated, by the area's population or the number of households.

3. We can now create the area's Brand or Store Development Index. To get the Brand Development Index or Shop Development Index, divide the sales of the brand or store by the total number of households or the target market.

4. Now, we may determine whether the concerned store or brand is performing better, the same, or worse than the category index for the country or the concerned area or location by comparing BDI/SDI with CDI.

Q7) Describe important parameters used for assessing the performance of a retail store.

Ans) The buying and merchandising team must constantly monitor a number of variables. The team and the store management team must pay special attention to these metrics since they are crucial. The following are these criteria:

Sales Percentages: Comparative Analysis

Every store performs this fundamental sales analysis to determine how it is performing in comparison to how it performed during the same time previous year. The analysis can be conducted at the level of the store's seasonal average sales or separately for each significant product category. The comparison study is performed for a specific time frame, such as a week, month, or quarter, as well as on a cumulative basis, or from the beginning of the season to the present.

Productivity Measures: SPF

Let's examine the process used to determine the space's productivity. The sales return per square foot, which is computed as follows, is the space efficiency.

Productivity of the Space = Sales per Square Foot per Day = Total Sales of the Store or the Space Utilised ÷ Total Space Utilised in Square Feet

The carpet area or the built-up area may be used as the square footage in the formula above. The SPF is ordinarily computed for each day.

SPF as a Planning Measure

Let's learn more about sales per transaction, sales per employee, and SPF as a planning metric. Sales per square foot per day can also be used for planning. The SPF is used to calculate the amount of space needed for a specific department, product category, or even a shop in a specific area.

Sales per Transaction

This is yet another crucial factor that the buying and merchandising team uses to determine if a product category or a store's sale will be in high demand. Average sales value per bill is the definition of a sale per transaction. Because every transaction in a store is identical to one bill, the quantity of sales per transaction is equal to the total amount paid on each bill. No matter how many products are purchased in a single bill or transaction, this is true.

The following formula can be used to determine sales per transaction:

Sales per Transaction = Total Sales for a Period ÷ Total Number of Transactions/Bills made during the Given Period

(B) Essay Type Questions: 15x2

Q8) What is meant by pricing? Explain different types of pricing commonly used in the retail business. Discuss different factors that affect pricing of merchandising in the retail business.

Ans) Pricing practises are crucial to determining whether a store succeeds or fails in the domestic or international market, regardless of where they operate. In order to get the intended customers to the store, the retailer must make sure the price is appropriate. The pricing will bring in the correct amount of revenue for him to cover the cost of the goods, his retail operating expenditures, and provide him a reasonable goal profit so he can continue to operate and expand his current retail business.

Every retailer must decide on his or her pricing policy at the outset of the business, the fiscal year, or the season in order to make it work with the strategy and objectives of the company. The effectiveness of the method depends significantly on how the products are priced. Pricing policy establishes the image the retailer wants to convey to the market as a whole or to consumers in general, which in turn defines the type of customers the retailer will be able to draw into its physical locations.

The following are some of the most popular pricing strategies used in the market today:

Everyday Low Pricing: Walmart, which works with the best and lowest prices for its goods, has made this philosophy well-known. Retailers who adhere to this type of policy are required to use the finest market buys and sell their products for the lowest costs possible. Because of the retailer's high turnover and little markup or margin, they are profitable. The retailer works with products that have high saleability, with smaller assortments, necessary levels of interiors and atmosphere, and just the essential degree of service in order to keep operational costs low.

Leader Pricing: The majority of general kirana stores and supermarkets adhere to this principle. Here, the shop sets pricing for a few products that may be much lower than those of any nearby stores while yet being quite competitive.

Competitive or Market Pricing: The majority of department stores and multi-brand outlets that carry a large variety of branded goods adhere to this strategy. The availability of a large assortment at the stated rates or in accordance with the MRP pricelist is the main draw for consumers. At times, businesses may benefit from special promotions and seasonal deals that are offered in-store.

Premium Pricing: This price is intended to be greater than what is typically offered for regular brands or products. With this kind of price strategy, the shop aims to appeal to a specific demographic of high-income and SEC consumers who need to uphold a particular standard of living. These merchants typically carry products that consumers view as premium, allowing them to mark up these products reasonably.

Along with adhering to a specific set of rules, many shops occasionally run special deals that may not quite fit with their brand identity.

Factors Affecting Retail Pricing

1. Merchandise Type: The type of item has a significant impact on how much is marked up.

2. Manufacturer’s or Supplier’s Policy: In the case of department shops, many of the branded goods are purchased straight from the companies who make or distribute them. The majority of these branded goods are sold at the MRP that is imprinted on their price tags.

3. Competition: Supermarkets and general kirana stores, in particular, must continually be aware of the pricing other retailers are charging for comparable goods. It goes without saying that these businesses need to keep their loyal customer base.

4. Demand and Supply for Products: Retailers of fresh/perishable goods, commodities, groceries, fruits, etc. in particular need to consider the supply and demand condition for products in their store.

5. Warehousing and Delivery Expenses: Large size retail chains must account for costs associated with warehousing and delivery to the retail locations. Since the retail sites are dispersed, such retail chains must maintain regional warehouses to facilitate the movement of goods to various stores within the region.

6. Government Rules and Regulations: This plays a significant role in the Indian economy in particular sectors, such as the pharmaceutical industry, where manufacturers are required to maintain MRP prices for some basic medications in accordance with the costs established by government regulatory agencies.

Q9) What do you mean by merchandising? Describe its key elements. Describe different roles of the merchandiser in the retail business.

Ans) The word "merchandise" is derived from the word "merchant," which meant "goods" in old French. Buying and selling products with the intention of making a profit is referred to as "merchandising." Merchandise, according to Business Dictionary, refers to things and commodities that are sold at retail. The purchase, displaying, and selling of goods are the main goals of merchandisers. The preparation required in marketing the appropriate product at the right place at the right time in the right quantities at the right price is known as merchandising, according to the American Marketing Association.

Key Elements of Merchandising

Merchandise Strategy: Targeting the right customers with the right products at the right time and place is the foundation of a merchandise strategy. The right location suggests that the store should have enough floor space and a suitable atmosphere.

Communication Strategy: A good commerce strategy depends heavily on effective communication. It necessitates an efficient approach and a clear course of action. Goals and objectives of the retail company, characteristics of the goods and services, and the state of the environment should all be considered. The marketer tries to persuade members of the wholesale and retail channels to supply and advertise particular products.

Customer Strategy: A successful retail business must prioritise customer happiness. On the reception desk itself, there must be a good standard of customer service. The retail employees must have great communication abilities. The staff must have patience when interacting with the clients. They should have exceptional telephone and listening skills.

Format and Environment Strategy: Retailers are creating new shop format tactics by utilising customer ingenuity, technology, and processes. They are concentrating on making sure that the proper products are supplied to store shelves in order to delight customers. They are working hard to ensure that the space is effectively managed.

From the aforementioned essential components, it is clear that the merchandise strategy will be the most significant one. The other three factors indicated above will be significantly impacted by this method. All three of these crucial factors must be considered when making decisions about customer service, communication, and store layout and atmosphere.

Role of Merchandiser in a Retail Business

The merchandiser's position in the retail industry, where the retailer sells to end users, is very different from that of an export merchandiser. The key duties of a retail merchandiser are:

1. Researcher: The merchandiser must research the purchasing habits of the intended customers. The purchasing behaviour provides insight into a person's unique purchasing habits, frequency of purchases for a particular product, preferred locations, and times to make purchases, preferred price ranges, distinctive or salient features of the product they seek out, quantities purchased in a single transaction, and other factors.

2. Planner: The merchandiser's next responsibility is to prepare the appropriate assortment once the type of goods or range of goods has been decided. He or she can finalise the budgets and forecast the quantities needed for the specific selling season or time period.

3. Coordinator: The merchandiser oversees the purchasing activities of numerous buyers who are working on various products under the category since they are in charge of that line or category of products.

4. Controller: To increase sales and the profitability of the retail channel, the merchandiser must manage the performance of each selling location. He or she will need to keep track of each product type in the category they are in charge of in order to achieve this goal.

5. Visual Displays: The merchandiser must make sure that the product display is as effective as possible in terms of consumer pick-ups.

6. Sales Promotion: Another vital task performed by the merchandiser is this one. To create the annual promotional calendar, he will need to collaborate closely with the marketing and buying divisions.

7. Trainer: The merchandiser must also serve as a trainer, which is a crucial task. He or she must instruct their buyers and supporting employees on a variety of topics, including how to work prices, how to use markdowns, how to use maintained markups, how to use actual markups, and more.

8. Motivator: The merchandiser is responsible for leading a group of employees that report to him. Typically, buyers, assistant merchandisers, and visual merchandisers are the employees who report to him/her. In addition to aiding his team's operational effectiveness in many merchandising-related matters, the merchandiser must continually be in contact with them. He must also mentor them in various functional matters.