Retail & Sales management

Session 18
Learning from the session
Buying national brand and private label
merchandise
Retailer-vendor relations
Retail pricing
Buying national brand merchandise
Meeting with vendors

Negotiating with vendors

Legal and ethical issues
Meeting with vendors
Wholesale market centres

Trade shows


Negotiation with vendors
Various issues such as price and gross
margin, margin enhancing tactics, terms
of purchase, delivery and exclusivity of
merchandise, advertising allowances (eg.
Co-operative advertising), transportation
need to be negotiated

Tips for effective negotiation
Have at least as many negotiators as the
vendor
Choose a good place to negotiate
Be aware of real deadlines
Separate people from the problem
Insist on objective information
Invent options for mutual gain
Let them do the talking
Know how far to go
Dont burn bridges
Dont assume
Legal and ethical issues
Terms and conditions of purchase
Resale price maintenance (MRP)
Commercial bribery
Charge backs--- deduction of money from
vendor
Slotting fee/slotting allowance--- money for
displaying certain products
Exclusive merchandise
Buybacks/stock lifts/lift-outs




Legal and ethical issues contd.
Counterfeit merchandise goods sold without
trademarks and copyrights
Gray market goods and diverted merchandise
Exclusive dealing agreements
Tying contract
Refusal to deal
Buying private label merchandise
Reverse auctions: Buyer is the retailer and
many potential sellers
Global sourcing: Various risks involved such
as foreign currency fluctuations, tariffs, long
lead time, quality control, social and political
factors and increased transportation costs

Retailer-vendor relations
Strategic relationship/partnering relationship -
--- win-win situation
Four foundations of successful strategic
retailer vendor relationships
Mutual trust
Open communication
Common goals
Credible commitments
eg. Wal-mart and P&G






Various phases of retailer- vendor relations
Awareness: No transactions
Exploration: Transactions on a trial basis
Expansion: Transactions on a larger scale
Commitment: Transactions for a long period
of time
Retail pricing
Various factors considered by retailers during
setting retail prices:
Price sensitivity of consumers
Cost of merchandise and services
Competition
Legal restrictions
Customer price sensitivity and cost
Lower sales for higher priced merchandise
observed
Huge decline of sales in case of price increase
from price sensitive customers and vice versa
In case the customers are not price sensitive,
sales decline will not be drastic in case of
price increase
Price sensitivity can be measured using price
elasticity



Customer price sensitivity and cost
contd
Price elasticity =
Percentage change in quantity sold

Percentage change in price
= (New qty. sold-old qty. sold) (old qty.
sold)

(New price old price) (old price)
Customer price sensitivity and cost contd
If price elasticity is greater than -1, the target
market for a product is considered to be price
insensitive
If price elasticity is less than -1, the target
market for a product is considered to be price
sensitive
Factors affecting price elasticity :
Product substitutes : Greater the number of
product substitutes, greater is the price
elasticity

Customer price sensitivity and cost
contd
Profit maximizing price (for products with
price elasticity less than -1)
Price elasticity x cost
Price elasticity + 1
Setting price based on competition
Pricing above, below or on par with
competitors, depending on the retailers
strategy
Competitors pricing has to be compared
with retailers own pricing
(benchmarking)


Legal and ethical pricing issues
Price discrimination
Predatory pricing
Resale price maintenance
Horizontal price fixing
Bait-and switch tactics
Scanned versus posted prices
Setting retail prices
Retail price =
Cost of merchandise + markup
So what is mark up?
Difference between the retail price and the
actual cost of the merchandise
Mark up percentage =
Retail price Cost of merchandise

Retail price

Setting retail prices
Retail price = Cost of merchandise

1- markup percentage( as fraction)

Unit price of SKU = Rs.14, mark up percentage
=30%,
Then retail price = 14 = 20

1- 0.30

Initial mark up and maintained mark up
Initial mark up is the retail selling price
initially set for the merchandise minus the
cost of merchandise
Maintained mark up is the actual sales
realized for the merchandise minus its
cost
Initial mark up and maintained mark up
eg. Cost price = .60
Initial price = 1
So initial mark up = 0.40,
Actual sales price = 0.90
Reduction = 0.10
Hence maintained mark up = 0.30



Initial mark up and maintained mark up

Initial mark up percentage =
Maintained mark up percentage + percent
reductions


100% + percent reductions
= 33% + 0.10 0.90 = 40%

100% +0.10 0.90




Initial mark up and maintained mark up
Initial retail price =
Cost
= 0.60
1- initial mark up percentage
1- 0.40

= 1
Break even analysis
Break even quantity =
Total fixed costs

Actual unit sales price Unit variable
costs
Price adjustments
Mark downs --- price reductions from the
initial retail price
Reasons for mark downs:
Clearance markdowns

Promotional markdowns

Merchandising optimization software
utilised to determine markdowns

Mark downs contd.
Reduction of amount of markdowns by
working with vendors
Liquidating markdown merchandise
Sale to another retailer
Consolidation of unsold merchandise
Sell through internet auction sites
Donate merchandise to charity
Carry forward merchandise to next season