retail information systems - university of...

Retail Information Systems

Sales, loyalty cards,

store cards

Ad hoc Research

Projects

Market Intelligence:

Consumer,

Competitor,

Environment

Suppliers

Third Party Data:

Credit rating,

consumer panel,

demographics

Data

Input

Data

Warehouse

Data

Processing

Operational

Database

Buying Plan

Merchandising

Sales

Management

Inventory

Management

Location

Retail Information Systems - Types

Retail information systems can be divided into 4 basic types.

Transaction Processing Systems (TPS)

Management Information Systems (MIS)

Decision Support Systems (DSS)

Executive Support Systems (ESS)

Transaction Processing Systems

Transaction Processing Systems (TPS) are used to facilitate customer

transactions and other routine business processes necessary to conduct

business on day-to-day basis.

Examples include sales recording by:

EPOS (Electronic Point of Sale) systems,

EFTPOS ( Electronic fund transfer at point of sale),

Self Scanning.

Management Information Systems

The purpose of Management Information Systems(MIS) is to assist the middle

managers in their monitoring, controlling and decision making activities.

The reports from MIS are usually summaries of transaction data from TPS

indicating the firms current performance.

The monitoring and controlling function of the management at advance level

has resulted in the development of:

Quick Response(QR) Replenishment Systems

ECR (Efficient Consumer Response)

CPFR ( Collaboration, Planning, Forecasting & Replenishment)

Decision Support Systems

Designed to assist managers in making non routine semi structured and

unstructured decisions.

Combines models and data from various sources to conduct “what if ”

analysis by changing the assumptions underlying various decisions.

In retailing for instance, the DSS can be employed in assisting store location

decisions by working upon the data from existing locations and criteria for the

new locations.

While taking some unstructured decisions, a retailer would require instant

information from suppliers , that’s where Electronic Data Interchange (EDI)

comes to play.

IT & Retail

Electronic Loyalty Cards:

EPOS data carries information about the sales & not about the customer. This

limitation was overcome by retailers by setting up EPOS based Electronic

loyalty cards.

Personalized Electronically Readable Magnetic Card

Purchases are recorded by scanning the card.

Customer earns loyalty points to be redeemed anytime.

A major driver of the loyalty schemes is that they enable the retailers to build

up, relatively cheaply, a database of their customers that’s used in

“Micromarketing & Micro-merchandising.”

IT & Retail

Electronic Shelf Edge Labels:

An electronic LCD label to give customers information about the product & the

prices.

Its linked to the EPOS system, making sure the price charged at check out

point is similar to the one displayed on shelf.

Gives retailers the ability to change the price anytime as per the traffic &

demand.

IT & Retail

Electronic Kiosks:

According to Harvard Business Review, customers using Tech devices like

Kiosks, spend more money on average than ordering from a human Being.

Merchandise Management

“The activity of acquisition, handling, and monitoring of merchandise

categories for an identified retail organization”

What is Merchandising?

Merchandising is planning, buying & selling of merchandise (product).

The American Marketing Association defined merchandising as:

““The planning involved in marketing the right merchandise at the right place

at the right time in the right quantity at the right price”

Factors affecting Merchandising Function:

Merchandising

function

Size of organization

Org

an

iza

tion

stru

ctu

re

Me

rcha

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ising to

be

carrie

d

Types of stores

Merchandise Planning

“Planning & control of the merchandise inventory of the retail firm, in a manner which

balances between the expectations of the target customers & the strategy of the firm”

Implications of Merchandise Planning

Merchandise Planning

Finance

Payments to suppliers Profitability measurements

Store Operations

Space planning Communication about new products & their features

Ma

rke

ting

Ne

w p

rod

uct in

trod

uctio

ns

De

ve

lop

ing

ad

ve

rtise

me

nts

Wa

reh

ou

se

& L

og

isti

cs

De

tails

of P

urc

hase

Ord

er

De

tails

of allo

catio

ns

Merchandise Procurement / Sourcing

Sourcing: Finding or seeking out products from different places, manufacturers or suppliers.

Process of Procuring Merchandise:

Identifying the sources of supply

(National Global)

Contacting & Evaluating the sources of supply

(Vendor initiated, Retailer Initiated)

Negotiating with the sources of supply

(Trade, Chain, Quantity, Seasonal &Cash Discounts)

Establishing Vendor Relations

(Strategic Partnership, Trust, Common Goals, Credible Commitments)

Analyzing Vendor Performance

(Order Execution, Return Policies, Lead time)

Category Management

“The distributor/supplier process of managing categories as SBUs, producing

enhanced business results by focusing on delivering customer value”.

A category is an assortment of items that a customer sees as reasonable substitutes of

each other.

Focuses on a better understanding of consumer needs forming the basis of retailer’s &

supplier’s strategies, goal, & work processes.

Category Management is now considered as the “new science of retailing” because of it

being highly systematic & replacing the brand bias that stems from supplier’s interest.

Components of Category

Management

Strategy/

Business Process

Performance Measurement

Organizational Capabilities

Information Technology

Trading Partner Relationships

Category Management - A Process

Brain Harris Quadrant Category Assessment

Opportunities

- Harmonise product mix with market trends

- Improve price image via low prices for key products

- Maximise shelf space at category level

- Give promotional support to key items

Questionable

- Limit product mix to core assortment & delist marginal

products

- Look for price raises

- Minimise self space at category level

- Transfer logistical & operational work to third parties

Winners

- Continue current policies

- Be alert to adaptation of new products

- Minimise operational problems like “out of stock”

- Optimise margin mix

Sleepers

- Identify key products within category

- Delist slow movers & marginal products

- Give quick movers more self space

- Optimize margin mix

Ma

rke

t Sh

are

Market Growth

Some Key Merchandising Terms

Staple/basic merchandising – Products always in demand (basic

necessities)

Fashion merchandising – Products has high demand for a relatively short

period of time

Seasonal merchandising – Seasonal products

Fad merchandising – Enjoy popularity for a limited period of time;

generated high sales for a short time

Style – Unique shape or form of any product (taste in music)

Assortment – Variety of merchandise mix

Merchandise Planning Process

Stage I: Developing the Sales Forecast

1. Reviewing past sales

2. Analyzing the changes in the economic conditions

3. Analyzing the changes in the sales potential

4. Analyzing the changes in the marketing strategies & the competition

5. Create the sales forecast

Stage II: Determining the Merchandise Requirements

1. The creation of the Merchandise Budget

2. The Assortment Plan


1. The creation of the Merchandise Budget .

Planned sales – Planned sales are projected sales for a period that is planned.

Planned purchase – Planned purchases represent the merchandise that is to be

purchased during any given period.

Planned reduction – Markdowns (deductions in prices), employee discounts &

inventory shrinkage due to theft or pilferage come under planned reduction.

Merchandise Budget

Sales Plan Stock

support plan Planned reduction

Planned Purchase

Gross Margins


1. The creation of the Merchandise Budget .

Planned markup – After calculating the level of inventory that needs to be purchased, the

retailer needs to determine the initial markup for the products.

Markup in Rs. = Selling Price – Cost Price

Markup % = Markup in Rs.

Retail Price

Gross Margin – Gross margin is the difference between the selling price & the cost of the

product, less reductions from markdowns, shrinkage & employee discounts.

Profit = Gross margin – operating expenses

Stock Support Plan: Availability of the required stock leading to planned purchases &

reductions.


2. The Assortment Plan

Assortment

Company Department Merchandise

Classification

Merchandise

Category

Sub

Category

Style

Price Unit

SKU

Stock Keeping Unit


Stage III: Merchandise Control – The Open to Buy

The concept of Open to buy has two folds:

1. depending on sales of the month & the reduction, the merchandise buying can

be adjusted.

2. the planned relation between the stock & sales can be maintained.

Open to buy ensures that the buyer –

Limits overbuying & under buying

Prevents loss of sales due to unavailability of the required stock

Maintain purchases within the budgeted limits

Reduce markdowns i.e., reduction in price which may arise due to excess

buying


Stage IV: Assortment Planning

Assortment Planning involves determining the quantities of each product that will be

purchased to fit into the overall merchandise plan.

Details of color, size, brand, materials etc. have to be specified.

To create a balanced assortment merchandise for the customer.

Depth

Breadth

Product Line

Department Menswear

Shirts

Zodiac

Styles Color ……

Van Heusen Louis

Philippe Arrow

Trousers Accessories


The Range Plan:

The aim of the range plan is to create a balanced range for each category of products that

the retailer choose to offer.

Range planning should take care of -

The no. of items/options available to the customer should be sufficient at all times &

should be such that it helps the customer make a choice.

The overbuying & under buying is limited.

Sufficient quantities of the product are available, so that all the stores can be serviced &

the product is available at all the stores across various locations

The lower limit of the range width is often called aesthetic minimum


The Model Stock Plan:

After determining the money available for buying, a decision needs to be taken on what to

buy? & in what quantity?

Steps:

1. Identify the attributes that the customer would consider while buying the product.

2. Identify the number of levels under each attribute.

3. Allocate the total units to the respective item category.

The Model Stock Plan Men’s shirt

100% (1000)

Casual

40% (400)

Small

25% (100)

Medium

40% (160)

Full Sleeve

30% (48)

Half Sleeve

70% (112)

Button Down

40% (45)

White

40% (18)

Cotton

25% (4)

Cotton Blend

75% (14)

Blue

30% (14)

Cream

20% (9)

Grey

10% (4)

Other

60% (67)

Large

25% (100)

Extra large

10% (100)

Dress

10% (100)

Formal

20% (200)

Sport

30% (300)

Merchandise Pricing

Significance of Pricing

Pricing decision is important because customers have alternatives to choose from, and are

better informed.

Customer are in a position to seek value.

Value = Perceived Benefits

Price

So retailers can increase value or stimulate sales, either by increasing benefits or by reducing

price.

Price – Value Trade off

A retailer may generate value/image through pricing & the value overwhelms the price

shocks to the customer.

“Price may be transparent,

while value is opaque”

“Quality is long remembered,

while price is forgotten over time”

“Product is gain,

while price is pain”

“Marketing and promotions are

anesthetics that numb the pain of price”

Pricing Problems

Price Management:

Markups and Markdowns

Outdated and incorrect

Link to the strategic operations of the business

Ad hoc or reactive ( to competition)

Myth – Reducing price brings customer.

The key issue to examine is the extent to which retailer has control over pricing.

Pricing Considerations

Retail Pricing

Competition Price

Sensitivity

Cost Legal

Constraints

Price

3 Approaches to Pricing

Economics

Approach

Demand

Supply

Finance

Approach

Fixed Cost

Variable Cost

Marketing

Approach

Segmentation

Targeting

Positioning

Margin

Costs

A retailer’s pricing objectives should be in agreement with its mission statement &

merchandising policies. These include:

Profit Oriented Objectives

Sales Oriented Objectives

Status Quo Objectives

EDLP (Every Day Low Pricing):

When a retailer charges same low prices every day throughout the year & seldom runs the

product on sale.

Pricing Objectives/Policies

Profit Oriented Objectives:

Target Return Objective

Profit Maximization

Skimming

Penetration

Sales Oriented Objectives:

They seek some level of unit sales, Dollar sales or market share. The achievement of such

objectives does not necessarily guarantee the profits.

Status Quo Objectives:

Seek to maintain the retailer’s current market share position or level of profits or to compete

on grounds other than price.

Pricing Objectives …… Cont

Pricing Policy:

Rules of action that ensure uniformity of pricing decisions within a retail operation. It should

reflect the expectations a retailer has from its target market.

1. Pricing Above the Market: Relying on high volume, low prices to produce satisfactory

profits.

2. Pricing at Market Levels: Competition based pricing, depends on:

Pricing Zones (range) for a Product

The Size of the retail store.

3. Pricing Above the Market: Certain market sectors are receptive to high prices because

non-price factors are more important than price.

Differentiated products

Services offered

Convenient locations

Extended hours of Operation.

Pricing Policies

Why do People Matter ?

Retailing is about the people and their aspiration ….( People Inside, People Outside)

Front-liners are the key. …. Take their insights

People know you through your staff.

“Technology will play a greater role than before, but I don’t think it will replace the

person-to-person interaction. About 80% of transactions are still taking place in a brick

and mortar environment.” ……

Adam Pressman …. A.T. Kearney

“ A good team of staff & an appropriate working relationship together create an important

& valuable asset”

People In Retailing

“Ethos is the prevailing view or collective thinking that drives the stakeholders of a

company”

The attitude towards staff and customers is part of the Company Ethos.

Ethos determines the selling approach & the strategies. For instance large multiples will have

a prevailing view regarding price, location and merchandise

In Contrast

Many small independent retailer may have a different predisposition towards their retailing

activities …. To stay small and maintain a low cost base.

Ethos motivates the staff to perform

Company Ethos

Short term employment leaves the manager with the discretion as to the level at particular

times. But this discourages the enthusiasm and diligence of the employee.

Short term employment helps to cope with peaks and troughs in the daily operations or

weekly cycles.

“Zero-Hours Contract: Does not guarantee the employee any specific number of work hours.

The discretion lies with the retailer”

Tesco and Sainsburry’s made thousands of their temporary employees permanent & cut the

proportion of temporary staff from 10% to 3%.

A Flexible Workforce

“When customers buy a product or service, they buy into a total(holistic)

image & reputation of the retailer . A good reputation is built up over time

through a succession of satisfied customers who receive an appropriate

combination of Price, Quality and Service”

Good service is delivered through people.

While customer satisfaction reflects from the vision of almost every

retailer, employee satisfaction reflects from the visions of successful

businesses only.

Building a Vision – People

Significance

Changing Attitude of the People.

Organizational Structure

Workforce Planning

Division of Work

Empowerment

Induction

Training

Etc

People Considerations

retail information systems - university of...

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