ch14 merchandising

7/29/2019 Ch14 merchandising

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PPT 14-1

5th Edition


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Chapter 14

Buying Merchandise

McGraw-Hill/IrwinLevy/Weitz: Retailing Management, 5/e Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.


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Merchandise Management

BuyingSystems

PlanningMerchandiseAssortments

BuyingMerchandise

Pricing

RetailCommunication

Mix


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Merchandise Branding Strategies

Manufacturer (National) Brands

Designed, produced, andmarketed by a vendor andsold by many retailers

Private-Label (Store) Brands

Developed by retailer andonly sold in retailers outlets

Licensed Brand

Developed by licensee andright sold to either

manufacturer or retailer


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Spectrum ofNational vs. Private Label

The Gap

Limited

Marks &

Spencer

IKEA

Wal-Mart

Home Depot

% Store

Brands

National

Brands

Macys

Target


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Relative Advantages ofManufacturer versus Private Brands

Type of Vendor

Impact on Store Manufacturer Private-Label

Brands Brands

Store loyalty ? +Store image + +

Traffic flow + +

Selling and promotional + -

expenses

Restrictions - +

Differential advantages - +

Margins ? ?


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Private Labels

Advantages

Unique merchandise not

available at competitiveoutlets

Difficult for customers to

compare price withcompetitors

Higher margins

Disadvantages

Need to develop

expertise in developingand promoting brand

Unable to sell excess

merchandise

Typically less desirable

for customers


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Manufacturer (National) Labels

Advantages

More desired by

customers

Resell excessive

merchandise

Dont need skills and

people to develop and

promote merchandise

Disadvantages

Lower margins

Vulnerable to competitive

pressures


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Most Recognized Appareland Accessory Manufacturer Brands


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Most Recognized Appareland Accessory Private Label Brands


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Examples ofPrivate-Label Brands


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Private Label Options

Bargain Branding

no-frills product at a discount price.

Copycat Branding

imitates the manufacturer brand in appearance and trade dress

Premium Branding

private label at a comparable manufacturer-brand quality.

Parallel Branding private labels that closely imitate the trade dress and product

attributes of leading manufacturer brands.


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Issues in International Sourcing ofPrivate Label Merchandise

Country of Origin Effects Costs

Foreign Currency Fluctuations

Tariffs

Supply Chain Efficiency and InventoryCarrying Costs

Transportation costs

Quality Control

R l ti Aff ti th


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Regulations Affecting theCosts of Importing Goods

World Trade Organization

NAFTAMaquiladores

Free Trade Zones


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Managing International Sources

Quality Control

More difficult to maintain quality

standards

Human Right Issues

Need to Build Strategic Partnerships


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Domestic vs. International Sourcing

Domestic Higher cost of

merchandise

Shorter lead timeseasier to use quickresponse systems

Easier to control human

rights issues and qualitycontrol

Customer preferencesfor domestic

manufactured products

International

Lower cost

Longer lead times

More control problems

C ti ith V d


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Connecting with VendorsGoing to Market

Internet Exchanges

Wholesale Market Centers

Trade Shows

Resident Buying Offices

Meeting Vendors at Your Company


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Functions Provided by Internet Exchanges

Product Directories

Use of Reverse Auctions

Collaboration in Planning CPRFSoftware

General Information about Trends


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Types of Exchanges

Consortium Exchanges

Transora

Worldwide Retail Exchange

GobalNetXchange

Private Exchanges

Independent Exchanges


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Online Reverse Auctions

Auction A market institution with an explicit set of rules determining

resource allocation and prices on the basis of bids from market

participants.

Why reverse?

Vendors bid for buyers business

Price falls

One buyer, multiple vendors

Sealed vs. open bid auctions


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B

S

S

S

Reverse Auction

S

B

B

B

Traditional Auction

Reverse Auctions

R A ti


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Reverse Auctionsin Retail Buying

Online vs. physical differences

Reduced contact cost

Instant feedback

Bidder anonymity

The retailers goals

Gain competitive pricing

Open vendor base

Improve negotiation process

Maintain valuable relationships


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Price Path on Open-Bid Auction

I i U i R A ti


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Issues in Using Reverse Auctionsto Buy Products

Private vs. Collaborative Auctions/Exchanges

Fixed Cost High for Software

Standardized Software Less Need for Collaborative

Exchanges

Collusion

Consideration of Quality Differences from Bidders

Impact on Supplier Relationships

Used Primarily for Non-Resale Products Carpet, Fixtures


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Negotiating with Vendors

Two-waycommunication

designed to reachan agreement whentwo parties haveboth shared andconflicting interests.


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Planning Negotiations

Consider prior history

Assess current situation

General market conditions

Vendors position

Power of vendor

Set goals

Be aware of vendors goals

Number of people involved

Select an advantageous place


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Issues to Negotiation

Markup opportunities from excess from vendors excess

merchandise

Purchase terms

Transportation costs

Delivery times

Exclusivity

Advertising allowances


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Types of Negotiations

Win

Lose

Win Lose


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Win - Lose Negotiation

Can be good in the short run andbad in the long-run

Short-term solution-- person youare negotiating with cant lose allthe time

Might degenerate into LOSE -LOSE


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Lose - Lose Negotiation

Wastes time and energy

No relationships established

Objectives not met


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Win - Win Negotiation

Collaboration

Long-term relationship

Doesnt mean giving-inEnhances vendor trustCooperation


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Guidelines for Negotiations

Separate people from problem

Insist on objective criteria to evaluateperformance

Invent options for mutual gain

Let the other party do the talking

Know how far to go


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Negotiating Tips

Be aware of time

Location -- comfortable

Keep negotiating participants even

Be patient

Let him/her mention a figure

Dont be afraid to say no


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Negotiating Tips

Dont over negotiate

Dont assume

Visualize the negotiation

Timing is everything

Always leave the door open

Maintain self-esteem


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SUMMARY

Planning is critical

Knowledge is power

A person will only do what is right forhim/her


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Strategic (Partnering) Relationships

Retailer and vendor committed to maintainingrelationships over the long-term and investing inmutually beneficial opportunities


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Strategic Relationships

Win Win --Concerned about expanding thepie, not how to divide the pie

vs.Retailer Vendor

Building Blocks for


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Building Blocks forStrategic Partnerships

Mutual Trust

Open Communications Common Goals

Credible Commitments

Developing Trust:


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Developing Trust:Capability or Competence

Stages in


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Stages inBuilding Strategic Relationships

Awareness

Exploration

Expansion

Commitment


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Legal and Ethical Issues

Contractual Disputes Chargebacks

Commercial Bribery

Slotting Allowances

Buybacks

Counterfeit Merchandise

Gray Markets andDivertedMerchandise

Exclusive Territories Exclusive Dealing

Refusal to Deal

Tying Contracts


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Chargebacks

A practice used by retailers in which they deductmoney from the amount they owe a vendor.

Two Reasons:

merchandise isnt selling

vendor mistakes

Can be a profit center

one senior executive at a large departmentstore chain was told to collect $50 million onchargebacks


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Commercial Bribery

A vendor or its agent offers to give or pay aretail buyer something of value to influence

purchasing decisions.

A fine line between the social courtesy of a freelunch and an elaborate free vacation.

Rule of thumb - accept only limited

entertainment or token gifts.


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Slotting Allowances

Fees paid by a vendor for space in a retailstore.

Currently arent legal.

Retailers argue that they are a reasonablemethod for ensuring that their valuable spaceis used efficiently.

Manufacturers view them as extortion. $9 billion or 16% of all new product

introduction costs in grocery industry.


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Buybacks

Used to get products into retail stores.

Two scenarios:

Retailer allows a vendor to create space for itsgoods by buying back a competitors inventory andremoving it from a retailers system.

Retailer forces a vendor to buyback slow-moving

merchandise.

C f


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Counterfeit Merchandise

Goods made and sold without the permission ofthe owner of a trademark, a copyright, or apatented invention that is legally protected in

the country where it is marketed. Major problem is counterfeiting intellectual

property.

Wh d Ab C f i


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What to do About Counterfeiters

Trademark,copyright, and/or patent products inthe countries in which theyre sold.

US government is engaged in bilateral and

multicultural negotiations and education to limitcounterfeiting. (WTO)

Take steps to protect yourself.

Gray-Market and


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Gray Market andDiverted Merchandise

Gray- MarketMerchandise possesses a validU.S. registered trademark and is made by aforeign manufacturer but is imported into theUnited States without permission of the U.S.

trademark owner.

Not Counterfeit.

Is legal.

Diverted Merchandise is similar to gray-market merchandise except there need not bedistribution across international boundaries.

Gray-market and Diverted


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Gray market and DivertedMerchandise: Taking Sides

Discount stores argue customers benefitbecause it lowers prices.

Traditional retailers claim important service

after sale will be unavailable May hurt the trademarks image.

Avoiding the


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Avoiding theGray-Market Problem

Require customers tosign a contractstipulating that they will

not engage in graymarketing.

Produce differentversions of products for

different markets.

E l i T i i


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Exclusive Territories

Granted to retailers so no other retailer in theterritory can sell a particular brand.

Benefits vendors by assuring them that quality

retailers represent their products.

Assure retailers adequate supply.

Grants retailers a monopoly.

Illegal when they restrict competition.

E l i D li A t


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Exclusive Dealing Agreements

Occur when a manufacturer or wholesalerrestricts a retailer into carrying only itsproducts and nothing from competing

vendors. Illegal when they restrict competition.

T i C t t


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Tying Contracts

An agreement that requires the retailer totake a product it doesnt necessarily desire to

ensure that it can buy a product it doesdesire.

Illegal when they lessen competition.

Ok to protect goodwill and quality reputation

of vendor.

R f l t D l


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Refusals to Deal

Suppliers and retailers have the right to dealor refuse to deal with anyone they choose.

Except when it lessens competition.

T f P h


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Terms of Purchase

Discounts

Trade (Functional) Discounts

Chain Discounts

Quantity Discounts

Seasonal discounts

Cash discounts

ROG and EOM dating

Anticipation discounts

Shipping Terms and Conditions

A S l P i Li t


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A Sample Price List

Price to Wholesaler Price to Retailer

Quantity

per Order Discount Price Discount Price

1 - 10 40 - 5% $57* 30% $70

11 - 25 50 - 10 45 40 60

26 + 50-10-5 42.75 40-10 54

* Based on a $100 suggested retail price.

Example of a Cash Discount


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Example of a Cash Discount

1/30, n/60

Nov 1 Dec 1 Jan 1Date of Invoice 30 days 60 days

1% discount Full amountDue

E l f ROG D ti


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Example of ROG Dating

ROG Dating

Nov 1 Nov 15 Dec 15 Jan 15

Date of Merchandise 30 days ROG 60 days ROGinvoice arrives 1% discount Full amountdue

Example of EOM Dating


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Example of EOM Dating

EOM Dating

Nov 1 Dec 1 Jan 1 Feb 1

Date of 30-day discount 30 days EOM 60 days EOMinvoice period begins 1% discount Full amount

due

Example of EOM Dating,


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p g,Grace Period

EOM Dating, Grace Period

Oct 25 Nov 1 Dec 1 Jan 1 Feb 1

Date of 30-day 30 days EOM 60 days EOM

invoice discount 1% discount Full amountperiod due

begins

Example of Extra Dating


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Example of Extra Dating

Extra Dating

Nov 1 Dec 1 Jan 1 Feb 1 Mar 1 Apr 1

Date of 30-day 60-day 60 days Full

invoice discount Extra Extra amount

period discount 1% discount duebegins period

begins

Alternative Shipping


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pp gTerms and Conditions

Owns Merchandise

Pays Freight in Transit and

Charges Files Claims (If Any)

F.O.B. origin, freight collect Retailer Retailer

F.O.B. origin, freight prepaid Supplier Retailer

F.O.B. destination, freight collect Retailer Supplier

F.O.B. destination, freight prepaid Supplier Supplier

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