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Note On Retail Management

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Published in: Management Subjects
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Concepts of Retail Management

Ayon R / Kolkata

13 years of teaching experience

Qualification: MBA/PGDM (L.P.U. (PUNJAB) - 2014), CS (I.C.S.I. (INSTITUTE OF COMPANY SECRETARIES OF INDIA) - 2013), B.Com (UNIVERSITY OF CALCUTTA - 2010), Integrated PG (C.I.M.A. (U.K) - 2013), PG Diploma (PRACHEEN KALA KENDRA CHANDIGARH - 2014)

Teaches: CA - CPT, CMA Foundation, CS - Foundation, ICWA & ICWAI, Accountancy, Business Studies, Commerce Subjects, Economics, B.Com Tuition, BBA Tuition, Bank Clerical, IBPS, BBA Subjects, Management Subjects, Tabla

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  1. B.COM (MARKETING HONS.) 3rd Year NOTES ON RETAIL MANAGEMENT (50 MARKS) UNIT -1 RETAILING 1. Concept of Retailing. The distribution of consumer products begins with the producer and Ans. ends at the ultimate consumer. Between the producer and the consumer there is a middleman—the retailer, who links the producers and the ultimate consumers. Retailing is defined as a conclusive set of activities or steps used to sell a product or a service to consumers for their personal or family use. It is responsible for matching individual demands of the consumer with supplies of all the manufacturers. The word 'retail' is derived from the French work retailer, meaning 'to cut a piece off' or 'to break bulk'. A retailer is a person, agent, agency, company, or organization which is instrumental in reaching the goods, merchandise, or services to the ultimate consumer. Retailers perform specific activities such as anticipating customer's wants, developing assortments of products, acquiring market information, and financing. Retailing encompasses selling through the mail, the Internet, door-to-door visits—any channel that could be used to approach the consumer. When manufacturers like Dell computers sell directly to the consumer, they also perform the retailing function. 2. Functions of Retailing. Ans. Retailers play a significant role as a conduit between manufacturers, wholesalers, suppliers and consumers. In this context, they perform various functions like sorting, breaking bulk, holding stock, as a channel of communication, storage, advertising and certain additional services.
  2. Sorting Manufacturers usually make one or a variety of products and would like to sell their entire inventory to a few buyers to redu7ce costs. Final consumers, in contrast, prefer a large variety of goods and services to choose from and usually buy them in small quantities. Retailers are able to balance the demands of both sides, by collection an assortment of goods from different sources, buying them in sufficiently large quantities and selling them to consumers in small units. The above process is referred to as the sorting process. Through this process, retailers undertake activities and perform functions that add to the value of the products and services sold to the consumer. Breaking Bulk B. Breaking bulk is another function performed by retailing. The word retailing is derived from the French word retailer, meaning 'to cut a piece off'. To reduce transportation costs, manufacturers and wholesalers typically ship large cartons of the product, which are then tailored by the retailers into smaller quantities to meet individual consumption needs. Holding Stock c. Retailers also offer the service of holding stock for the manufacturers. Retailers maintain an inventory that allows for instant availability of the product to the consumers. It helps to keep prices stable and enables the manufacturer to regulate production. Consumers can keep a small stock of products at home as they know that this can be replenished by the retailer and can save on inventory carrying costs. D. Channel of Communication Retailers also act as the channel of communication and information between the wholesalers or suppliers and the consumers. From advertisements, salespeople and display, shoppers learn about the characteristics and features of a product or services offered. Manufacturers, in their turn, learn of sales forecasts, delivery delays, and customer complaints. The manufacturer can then modify defective or unsatisfactory merchandise and services. E. Transport and Advertising Functions Small manufacturers can use retailers to provide assistance with transport, storage, advertising and pre-payment of merchandise. This also works the other way round in case the number of retailers is small. The number of functions performed by a particular retailer has a direct relation to the percentage and volume of sales needed to cover both their costs and profits.
  3. 3. Development of retailing in India. Ans. The Indian retail industry has emerged as one of the most dynamic and fast-paced industries due to the entry of several new players. It accounts for over 10 per cent of the country's Gross Domestic Product (GDP) and around 8 per cent of the employment. India is the world's fifth-largest global destination in the retail space. Market Size India's retail market is expected to nearly double to US$ 1 trillion by 2020 from US$ 600 billion in 2015#, driven by income growth, urbanization and attitudinal shifts. While the overall retail market is expected to grow at 12 per cent per annum, modern trade would expand twice as fast at 20 per cent per annum and traditional trade at 10 per cent#. India's Business to Business (B2B) e-commerce market is expected to reach US$ 700 billion by 2020.## Online retail is expected to be at par with the physical stores in the next five years. India is expected to become the world's fastest growing e-commerce market, driven by robust investment in the sector and rapid increase in the number of internet users. Various agencies have high expectations about growth of Indian e-commerce markets. Indian e- commerce sales are expected to reach US$ 120 billion! by 2020 from US$ 30 billion in FY2016.Further, India's e-commerce market is expected to reach US$ 220 billion in terms of gross merchandise value. Retailing in India is one of the pillars of its economy and accounts for about 10 percent of its GDP. The Indian retail market is estimated to be US$ 600 billion and one of the top five retail markets in the world by economic value. India is one of the fastest growing retail markets in the world, with 1.2 billion people. As of 2003, India's retailing industry was essentially owner manned small shops. In 2010, larger format convenience stores and supermarkets accounted for about 4 percent of the industry, and these were present only in large urban centers. India's retail and logistics industry employs about 40 million Indians (3.3% of Indian population). Development phase Until 2011 , Indian central government denied foreign direct investment (FDI) in multi-brand retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or any retail outlets. Even single-brand retail was limited to 51% ownership and a bureaucratic process. On 14 September 2012, the government of India announced the opening of FDI in multi-brand retail, subject to approvals by individual states. This decision was welcomed by economists and the markets, but caused protests and an upheaval in India's central government's political coalition structure. On 20 September 2012, the Government of India formally notified the FDI reforms for single and multi brand retail, thereby making it effective under Indian law. The Indian retail trading has received Foreign Direct Investment (FDI) equity inflows totaling US$ 537.61 million during April 2000—March 2016, according to the Department of Industrial Policies and Promotion (DIPP).
  4. The Economist forecasts that Indian retail will nearly double in economic value, expanding by about $850 billion by 2020. The projected increase alone is equivalent to the current retail market size of France. Indian retailers A 2012 PWC report states that modern retailing has a 5% market share in India with about $27 billion in sales, and is growing at 15 to 20% per year There are many modern retail format and mall companies in India. Some examples are in the following table. Indian Retail Group Pantaloon Retail Shoppers Stop Spencers Retail Reliance Retail Bharti Retail Birla More Tata Trent Lifestyle Retail Future Group Market Reach in 2011 and Note 65 stores and 21 factory outlets in 35 cities, 2 million square feet space 51 stores in 23 cities, 3.2 million square feet space 200 stores in 45 cities, 1 million square feet space 708 mart and supermarkets, 20 wholesale stores in 15 cities, 508 fashion and lifestyle ? 1 ,206 crore (US$180 million) per month sales in 201 343] 74 Easyday stores, plans to add 10 million square feet by 2017 575 stores nationwide 59 Westside mall stores, 13 hypermarkets 15 lifestyle stores, 8 home centers 193 stores in 3 cities one of three largest supermarkets retailer in India by sales ?916 crore (US$140 million) per month sales in 2013
  5. Challenges of Indian Retailing A McKinsey study claims retail productivity in India is very low compared to international peer measures. For example, the labour productivity in Indian retail was just 6% of the labour productivity in United States in 2010. India's labour productivity in food retailing is about 5% compared to Brazil's 14%; while India's labour productivity in non-food retailing is about 8% compared to Poland's 25%. Total retail employment in India, both organised and unorganised, account for about 6% of Indian labour work force currently - most of which is unorganised. This about a third of levels in United States and Europe; and about half of levels in other emerging economies. A complete expansion of retail sector to levels and productivity similar to other emerging economies and developed economies such as the United States would create over 50 million jobs in India. Training and development of labour and management for higher retail productivity is expected to be a challenge. In November 2011 , the Indian government announced relaxation of some rules and the opening of retail market to competition. 4. Factors Determining growth of Retailing in India. Ans. Retailing in India is effected by the following factors as described under: 1 Increase in per capita income: Per capita Income means how much an individual earns, of the yearly income that is generated in the country through productive activities. India has marked growth in per capita income by 10.5% which shows tremendous increase in GNP (Gross National Product) of the country. Increase in per capita income reflects hike in income of Households which in turn will consume more, thus leading to growth of retail sector. Household prefer to shop from big giants as compare to their Kirana store. 2. Demographical changes: India is having huge young age working population which is generating huge income and high savings. For any developing country young age group, income, savings are key factors for its growth. Presence of these key factors has helped in attracting big retail giants to India 3. High standard of living: Standard of living in India has improved. Earlier Shopping in India always had an emotional tag attached to it, along with that people use to have myth that shopping from shopping complexes or Malls is
  6. costlier and it suits only to rich class. But now things have .changed, people have changed their misconception and have adopted Mall culture. This shows that standard of living has increased. 4. Change in consumption pattern: Consumption patterns among various classes have changed over the years. Earlier customers were brand loyal due to which they were allowing new brands to enter the market. But now customers are showing good response to new product entering the market because they have realised that they are paying for quality. This drastic change in customers perception has opened ways for many new entrants. 5. Availability of low-cost consumer credit: It is rightly said that sales generated on credit are more as compare to cash sales. With the change in credit policies, many new customers have entered the market. Purchasing on credit basis with good credit worthiness gives both seller and buyer flexibility to transact. Earlier due to lack of cash many buyers use to postpone their purchases, but now with modernization they are carrying it on credit basis as it is cheaper to repay. 6. Improvements in infrastructure: With many infrastructural changes taking place right from metro rails to Bandra-worli sea link in the country, retail is also expanding its wings. With huge infrastructure spending which has entered the country in form of FDI (Foreign Direct investment), more retail giants have proposed to enter Indian market. Entry to various sources of financing: An economy gets finance from two 7. routes either in form of FDI (Foreign direct investment) or as Fll (Foreign institutional investment). Now both the ways are opened up for retail sector. Previously so as to protect small Kiryana stores route for FDI in retail was difficult but later on when it was found that retailing is generating employment of around 8% in economy FDI route was also simplified. 5. Role of retail in a Nations' Economy Ans. In an economy retailing contributes towards the nations development in the following ways as described under:-
  7. 1. 2. 3. 4. Mobilizing Finance: Retailing industry mobilize the investment and savings of people, as a small shop can be set up with minimal investment. They store merchandise, mark prices on it, place items on the selling floor and otherwise handle products; usually they pay suppliers for items before selling them to final customers. They complete transactions by using appropriate locations, and timings, credit policies, and other services e.g. delivery. They influence life style of consumers and help people to build their identity in a social setting. Economic Development: Retailing has great impact on economic development of a nation. Retailing has become an intrinsic part of our daily lives. Consumer spending on retail goods drives much of the global economy, and the retail industry employs a large number of people. Nations that have enjoyed the greatest economic and social progress have a vibrant retail sector. Retailing is one of the most important industries in the world and plays a predominant role in economic development of the country. A healthy retail sector growth and speeds up economic development. Employment: There are a large number of people and companies involved in the production, distribution, and retail of goods. Globally, retailing is the largest revenue generator and employment provider next only to agriculture. It provides opportunities to the poorest and unskilled along with the educated and skilled. As a major source of employment retailing offers a wide range of career opportunities including; store management, merchandising and owning a retail business. Social Responsibility: Successful retailers also recognize that people want to see the improvements in the general level of consumption and social cohesion over time. Retailers have to enhance their perceived value to the community by acting as a focal point and through effective public relations and promotional campaign including sponsorships. This encourages social responsibility behavior by the corporates where public welfare programs get funded by a certain percentage of purchase prices of company's products.
  8. UNIT - 2 RETAIL FORMATS. 1. Concept of Retail Format. Ans. The format of a retailer is the overall appearance and feel that it presents to customers, primarily its look and layout, the sort of range it stocks and the approach taken to pricing. Format is distinct from fascia which, strictly speaking, refers solely to external appearance. Retailers occasionally use it as as a synonym for format. The format, together with range, pricing and marketing, is one of the key determinants of a retailer's success. Of these, the format is very often the hardest to get right. A good format will both draw in customers (generating footfall) and help present products well to generate sales. Because the format is so important, growth investors can often benefit by identifying smaller retailers who have recently developed formats that are good enough to provide a platform for sustained growth.. 2. Classification of Retail Format. Ans There are many types of retail formats like discount stores, supermarkets, convenience stores, department stores, etc. These retail store formats vary from each other on the basis of their product assortment (product depth and width), price and location. Classification of retail formats Narrow/ Deep product Product factors SVide/ Shallow product assortment Locat ion factors Hypermarket Price factors Full-price stores Discount stores Classification of Retail Formats
  9. 1, Product Factors: Retail store formats can be classified on the basis of the number of products sold by the retailer and the range of products in each category. Narrow and Deep Product Assortment: The store has one product category or a very narrow, related range of products. The store however stocks large amount of variety of these products. The variety available in this store format is unparalleled and is the competitive criteria among these stores. These are sometimes called specialty stores. The price range in these stores could either be narrow, catering to a specific market segment, or it could be broad covering a large number of segments. Product categories in which this format is popular are footwear, clothing, furniture and furnishing. As the economy of a country develops, people will want more sophistication and variety in greater number of categories and this can be provided only in this type of format. This format can afford specialization of retail personnel which will be necessary in handling customers' enquiries as categories develop. Some specialty stores have a very limited number of product categories (typically one) and the complete range in that category is available under one roof. These stores can afford lower prices because of their influence on the manufacturers as they sometimes control the market of the category.
  10. For instance, IKEA is one such store that stocks every type of furniture, in all price ranges and usage. Called category killers, these stores eliminate competition in the specified category. Wide and Shallow Product Assortment: The store has a number of products, but stocks a limited variety of all these goods. The store usually stocks related items, for instance, lifestyle goods for the whole family that include clothes, books, home decor, jewellery, cosmetics, accessories, stationary, toys, etc. For instance, in India, Ebony Shopper's Stop are such stores. This store format is gaining wide acceptance in India as the store acts as a one- stop-shop for the complete family. Usually such stores are also accompanied by food joints and entertainment plazas that provide an ideal day out. Such formats always face a conflict between the number of product categories they should store and the range in each category. If the number of product categories is large, chances are that the range in each one of them would be smaller because of space constraints or else it may become too unwieldy. But this arrangement will leave a lot of customers dissatisfied as they may find the range too limited. The other option is to have limited product categories and a wide range in each one of them. But this will reduce the number of occasions that the customer will find a reason to walk into the store.
  11. These store formats will ultimately be targeted to specific segments. One such store targeted towards the up market will stock premium brands in all categories, whereas the down-market store will stock popular or less premium brands. Hypermarkets : The evolution of hypermarkets has resulted in wider and deeper product assortments for customers. These retail formats are characterized by very large retail spaces that are leased out to various brands. These huge retail formats have many single brand stores in many of the product categories. The choice of the brands offered conveys the depth of the category, image of the store and reflects the intended target market. 2, Location Factors: One specific type of specialty store is the grocery store or the chemist, whose critical factor for success is the proximity to the customer. These stores operate in those product categories for which the customer desires convenience of location. The products may be urgently required like medicines. Some of these products, like grocery items, vegetables and fruits, have to be bought frequently as they would be spoiled if they were stored for a long time. The importance of a store's proximity to customers has not waned even with improvement in transportation and more families owning
  12. vehicles because, in most households, both husbands and wives are working longer hours. Purchasing for the household is done only during weekends. Such families need nearby stores when they have to purchase fresh grocery items during the weekdays. Therefore such stores should stock only those items whose purchases the family cannot postpone till the weekend. These stores can have arrangement to deliver the items on a regular basis to the households. Families make major purchases for the household during the weekend. But they often combine the purchasing of supplies with an entertainment trip. The family would watch a movie and buy its supplies on a common trip. For such excursions, location of stores is not important in terms of proximity to customers. Proximity to customers may even become a liability, because for most people, the idea of entertainment is not walking into the theatre or restaurant which is next door. Customers would like to travel some distance for their weekend trips. But location still remains important. The store has to be located at places where the customers are most likely to visit during their weekends. Shopping and entertainment have to be packaged together for customers who do not have the time to shop during weekdays.
  13. 3, Price Factors: Some retail stores may charge normal or list prices, while some may charge lower than list prices on a regular basis. Retail stores that offer products on the list price do not give discounts on a regular price, though they engage in promotions. All the stores mentioned above charge list prices from their customers. But there are stores called discount stores which sell products at low prices daily. They can do this by bulk buying, accepting low margins, managing costs tightly and choosing locations where real estate prices are low. These discount stores get price concessions from manufacturers because of the high offload from these stores. 3. Multi Channel Retailing. Ans. Multichannel retailing is when a company provides numerous ways for customers to purchase goods and services. This marketing strategy could include selling through traditional outlets such as catalogs, brick- and-mortar stores, mail, and telephone. But, it also includes nontraditional electronic and mobile outlets like websites, chats, emails, apps, and social networks. Multichannel retailing is a way to build a brand and reach a lot of consumers. You want to target channels that give you the most return on your investment. Let's review the benefits of multichannel retailing and look at Sears as an example.
  14. 4. Advantages and Disadvantages of Multi Channel Retailing. Ans. When a customer is considering buying a product he tries to access its value by looking at various factors which surround it. Factors like its delivery, availability etc which are directly influenced by channel members. Similarly, a marketer too while choosing his distribution members must access what value is this member adding to the product. He must compare the benefits received to the amount paid for using the services of this intermediary. These benefits can be the following: Cost Saving The members of distribution channel are specialized in what they do and perform at much lower costs than companies trying to run the entire distribution channel all by itself. Time Saving Along with costs, time of delivery is also reduced due to efficiency and experience of the channel members. For example if a grocery store were to receive direct delivery of goods from every manufacturer the result would have been a chaos. Everyday hundreds of trucks would line up outside the store to deliver products. The store may not have enough space for storing all their products and this would add to the chaos. If a grocery wholesaler is included in the distribution chain then the problem is almost solved. This wholesaler will have a warehouse where he can store bulk shipments. The grocery store now receives deliveries from the wholesaler in amounts required and at a suitable time and often in a single truck. In this way cost as well as time is saved. Customer Convenience Including members in the distribution chain provides customer with a lot of convenience in their shopping. If every manufacturer owned its own grocery store then customers would have to visit multiple grocery stores to complete their shopping list. This would be extremely time-consuming as well as taxing for the customer. Thus channel distribution provides accumulating and assorting services, which means they purchase from many suppliers the various goods that a customer may demand. Secondly, channel distribution is time saving as the customers can find all that they need in one retail store and the retailer Customers can buy in small quantities Retailers buy in bulk quantities from the manufacturer or wholesaler. This is more cost effective than buying in small quantities. However they resell in smaller quantities to their customers. This phenomenon of breaking bulk quantities and selling them in smaller quantities is known as bulk breaking. The customers therefore have the benefit of buying in smaller quantities and they also get a share of the profit the retailer makes when he buys in bulk from the supplier. Resellers help in boosting sales
  15. Resellers often use persuasive techniques to persuade customers into buying a product thereby increasing sales for that product. They often make use of various promotional offers and special product displays to entice customers into buying certain products. Customers receive financial support Resellers offer financial programs to their customers which makes payment easier for the customer. Customers can buy on credit, buy using a payment plan etc. Resellers provide valuable information Manufacturers who include resellers for selling their products rely on them to provide information which will help in improving the product or in increasing its sale. High-level channel members often provide sales data. On all other occasions the manufacturer can always rely on the reseller to provide him with customer feedback. Disadvantages of Multi Channel Retailing. Revenue loss The manufacturer sells his product to the intermediaries at costs lower than the price at which these middlemen sell to the final customers. Therefore the manufacturer goes for a loss in revenue. The intermediaries would never offer their services to the manufacturer unless they made a profit out of selling his products. They are either made a direct payment by the manufacturer, for instance shipping costs or as in the case of retailers by selling the product at costs higher than the price at which the product was bought from the manufacturer (also known as markup). The manufacturer could have sold at this final price and made a greater profit if he had been managing the distribution all by himself. Loss of Communication Control Along with loss over the revenue the manufacturer also loses control over what message is being conveyed to the final customers. The reseller may engage in personal selling in order to increase the product sale and communicate about the product to his customers. He might exaggerate about the benefits of the product this may lead to miscommunication problems with end users. The marketer may provide training to the salespersons of retail outlets but on the whole he has no control on the final message conveyed. Loss of Product Importance The importance given to a manufacturers product by the members of the distribution channel is not under the manufacturers control. In various cases like transportation delays the product loses its importance in the channel and the
  16. sales suffer. Similarly a competitors product may enjoy greater importance as the channel members might be getting a higher promotional incentive. 5. Current scenario of Indian Multi Channel Retailing. The wave of organised retail hit over a decade ago. Today, the retail scenario in India is grappling with the desired levels of profitability and returns. Despite heavy investment of time and capital during this long gestation period, the return from the retail business continues to be a major concern. The year 2014 was no exception, with leading retailers keeping their financial goal of profitability on the top of their agenda. At store level, the retailers are focusing on improving store profitability further through productivity enhancement and better inventory management. At corporate level, they are keeping major costs such as supply chain and manpower in line with the revenue to ensure profits. Recently, having bid adieu to 2014, we, at OMG India, were mulling over what the new year holds for the retail industry. We have listed some of the trends and predictions for this new year. 6. Personalised in-store experiences 'Personalised Retail' is a trend where the retailer provides an in-store experience that is customised for each visitor. Personalising the shopping experience for customers can increase profit margins, strengthen customer loyalty and level the playing field with competitors. Consumers not only desire but also expect a personalised experience. They expect retailers to have good knowledge of their preferences and interests. Whether it is about greeting customers as they enter the store, sending personalised e-mails, tailoring deals based on their previous purchase behaviour or making purchase recommendations — personalisation is the surest way to promote customer loyalty; and loyalty is valuable when it comes to attracting new customers. The retail industry requires that store employees keep their existing customer base satisfied. 6. Use of technology
  17. While loyalty programmes, point of sale (POS) solutions, billing management solutions, RFID technology or inventory management solutions are all that a majority of retailers have banked upon thus far, the future of retail IT looks much more promising. According to a report by the consulting firm Deloitte, there will be significant investments in technology facilitating a coherent multi-channel marketing strategy in foreseeable future. However, it would be some time till we see large-scale usage of analytics by a significant chunk of brick and mortar retailers in India. The retailer needs to consider technology as an enabler of providing richer experience to its customer base. The future belongs to retailers who implement and harness the best tools and flexible ownership models to create value-based, one-on-one relationships with shoppers. What will matter in the future is an understanding of the various ways in which a consumer engages with a retailer — basically the points at which a consumer 'touches' the retail brand. 7. Use of smart phones 8. Nowadays, retailers are utilising the power of mobile phones in the best possible ways to reach out to consumers. Smartphones on their part have empowered consumers to search for products, do research, compare prices, transact, review and seek comments from peers on social networks. In a way, smartphones have transformed the way consumers shop. Providing in-store apps, loyalty programmes, customised coupons and offers which are not available online, will not just engage customers but help combat showrooming. Moreover, customer experience — in-store as well as online needs to be integrated and optimised to maximize business results. Relationship marketing With rapid evolution of technologies and changing customer behaviour, marketing has acquired an all new meaning. Today, marketing revolves around relationship marketing, which is also defined as a strategy designed to foster customer loyalty, interaction and long-term engagement'. Relationship marketing is a model designed to develop strong connections with customers by providing them with information directly suited to their needs and interests and by promoting open communication. There is an increased effort to not just push products but enhance customer experience and brand loyalty in this form of marketing. 9. Growth of private label brands
  18. Private labels are catching up fast with consumers these days. About 5 per cent of all modern trade sales in India are store branded (versus I per cent in China and 3 per cent in Indonesia). Of late, private-label sales have consistently outgrown sales in modern trade, and these store brands are now spreading to unconventional categories like confectionary and dairy. According to a survey, at least 58 per cent of modern trade shoppers have bought some store brand in the past four weeks. Interestingly, in 2014, India's modern trade shoppers believed that private-label products were more synonymous with quality than ever before. Twenty-nine per cent of shoppers felt that the quality of private-label brands was at par with renowned brands (up from 25 per cent in 2013), while 26 per cent of shoppers felt that the quality of private-label products was improving (up from 21 per cent in 2013). UNIT - 3 PRICING AND PROMOTION IN RETAIL 1. Factors effecting the retail Pricing. Ans. The pricing decisions for a product are affected by internal and external factors. A. Internal Factors: 1. Cost: While fixing the prices of a product, the firm should consider the cost involved in producing the product. This cost includes both the variable and fixed costs. Thus, while fixing the prices, the firm must be able to recover both the variable and fixed costs. 2. The predetermined objectives: While fixing the prices of the product, the marketer should consider the objectives of the firm. For instance, if the objective of a firm is to increase return on investment, then it may charge a higher price, and
  19. if the objective is to capture a large market share, then it may charge a lower price. 3. Image of the firm: The price of the product may also be determined on the basis of the image of the firm in the market. For instance, HUL and Procter & Gamble can demand a higher price for their brands, as they enjoy goodwill in the market. 4. Product life cycle: The stage at which the product is in its product life cycle also affects its price. For instance, during the introductory stage the firm may charge lower price to attract the customers, and during the growth stage, a firm may increase the price. 5. Credit period offered: The pricing of the product is also affected by the credit period offered by the company. Longer the credit period, higher may be the price, and shorter the credit period, lower may be the price of the product. 6. Promotional activity: The promotional activity undertaken by the firm also determines the price. If the firm incurs heavy advertising and sales promotion costs, then the pricing of the product shall be kept high in order to recover the cost. B. External Factors: 1, Competition:
  20. While fixing the price of the product, the firm needs to study the degree of competition in the market. If there is high competition, the prices may be kept low to effectively face the competition, and if competition is low, the prices may be kept high. 2. Consumers: The marketer should consider various consumer factors while fixing the prices. The consumer factors that must be considered includes the price sensitivity of the buyer, purchasing power, and so on. 3. Government control: Government rules and regulation must be considered while fixing the prices. In certain products, government may announce administered prices, and therefore the marketer has to consider such regulation while fixing the prices. 4. Economic conditions: The marketer may also have to consider the economic condition prevailing in the market while fixing the prices. At the time of recession, the consumer may have less money to spend, so the marketer may reduce the prices in order to influence the buying decision of the consumers. 5. Channel intermediaries:
  21. 2. The marketer must consider a number of channel intermediaries and their expectations. The longer the chain of intermediaries, the higher would be the prices of the goods. Approaches of Product Pricing. Ans. Setting price for a product or service is not an easy task and your pricing approaches matters a lot in this regard. The price of a product or service is kept to a level that can generate both profit as well as demand. But generally the cost of the product or service provides the lower limit of the price and the perceived value by consumers provides the upper limit for setting price. Business Organizations should also take into account the prices of their competitors along with other internal and external factors. There are general Pricing Approaches that can be applied by businesses in setting prices for their products or services. These pricing approaches are of three types. Types of Pricing Approaches Cost-Based Pricing Approaches Buyer-Based Pricing Approaches Competition-Based pricing Approaches Each of the above is based on different dimensions of product or service. 1. Cost Based Pricing Approach: These pricing approaches are the simplest one in which the cost of product or service is added with a certain proportion of markup as profit to ascertain a certain price. Examples include construction businesses that estimate the cost of any project and submit their bid by adding a certain portion of profit to
  22. their estimated cost. Moreover Accountants, Lawyers and other professionals charge a price of their services by adding the cost of work with a certain proportion of markup. Markup pricing is not regarded as an effective pricing model as it ignores both demand and the pricing of competitors. Therefore, it is almost impossible for a business to keep its price as best one by adopting this category of pricing. But still Cost based pricing is popular due to the following reasons. It makes pricing simpler so the marketers do not change the price of their product or service with the changing demand. When the majority of businesses in the market adopt this pricing model, there would be minimum price competition due to similarity in prices. Generally cost based pricing looks fairer for both buyers and sellers as buyers are not exploited under condition of higher demand and also the seller can earn a reasonable profit in such pricing. Target Profit Pricing and Break-Even Analysis Target profit pricing is also called break-even analysis in which the total cost and total revenue are forecasted at different levels of sales. In this way a reasonable profit can be availed at a reasonable price. The fixed cost remains unchanged even at zero level of production and sales. On the other hand variable cost changes with the level of production and sales. Both of these costs are combined to ascertain the expected total cost at certain sales volumes. When the sales volume increases the total cost decreases and the total revenue increases. Break-even is that point of sales volume where cost is equalized by the revenue and the profit is zero. The estimated demands, break -even points and profits are compared with different prices by the management of business. Buyer Based Pricing Approach: 2. These pricing approaches is extensively applied by many organizations in which the perceived value of buyer is regarded as a base for Setting Price for a product or service. In this pricing model the value of product or service is perceived by customers that give the guideline for the price of that product or service. In other words the price is not set after the production of product, but before the production. This means that the organization considers the customers along with their perception about certain product or service. On this basis, the business sets a certain price and then starts manufacturing that
  23. product. The expected value and price provide guideline for the cost and design of the product so that it can match the perceptions of the customers. It is difficult for a business organization to ascertain the different perceived value by the customers on different products. For this purpose these organizations conduct surveys and experiments. If a business keeps the price of its product higher than the perceived value of customers, then its sales are affected. On the other hand, if a business keeps its product's price lower, then maybe its sales increase, but the profit does not increase accordingly. Therefore, those organizations, which want to adopt this value-based pricing strategy, should keep the price of their products in accordance with their perceived value by customers. But more effective strategy is that the businesses should try to deliver more value to the customers than they perceived in order to retain them as loyal customers. Competition-Based Pricing Approach: 3. In this pricing model, businesses keep the price of their products or services on the basis of the prices of their competitors. Also, customers in the market perceived value to any product or service in relation to prices of similar products of competitors. So there is some sort of going rate pricing in which the prices of products are altered according to changes in the prices of competitors. For example, steel or fertilizer manufacturing businesses face oligopolistic competition in which they charge almost similar prices in the market same like the competitors. There is a market leader whose price is followed by all other smaller competitors. When the price of market leader is changed, other competitors in the market also adjust their prices accordingly. Some smaller business may keep a slight difference in their price as compared to the market leader, but this slight difference remains constant in different conditions. There is one big advantage of adopting this ongoing rate of competition based pricing, which is the prevention of price wars in the market among competitors. Another form of competition, pricing model is sealed bid pricing in which the price of a job is raised by keeping in view the prices set by competitors. In this case the pricing also ignores the cost and demand factor, but the businesses try to keep their prices little higher than their cost in order to earn a revenue. Pricing is not confined to only above categories rather there are other factors that affect the pricing decisions like environmental etc.
  24. 1. 2. 3. 3. Need and Objectives of Promotional Mix in Retailing. Ans. There are three main objectives of a promotional mix: Increase demand: These strategies are used during the product life cycle in order to increase sales. Eventually a product will reach its saturation point, at which time investing in sales will decrease as the company focuses its attention on a new product. Present information about the product: In order for customers and consumers to want the product they need to understand what the product is and how it benefits them. Information about the product will differ depending on the specific target market. Differentiate a product: This is especially important if there are multiple competitors in the same market. For example, Apple was able to differentiate itself in the computer industry. For many years it was the preferred computer for those who had advanced computing skills. Then Apple did an advertising campaign to show general users how easy it is to use. This took advantage of the complaints the market had over Windows operating software, which came standard with most PCs. In order for a market to accept a new product they need to know how it address their pain point. Information about the product should address the 'What's in it for me" aspect that is inherent in human nature. 4. Customer Relationship Management. Ans. Customer relationship management (CRM) is an approach to managing a company's interaction with current and potential future customers that tries to analyze data about customers' history with a company and to improve business relationships with customers, specifically focusing on customer retention and ultimately driving sales growth.
  25. 5. One important aspect of the CRM approach is the systems of CRM that compile data from a range of different communication channels, including a company's website, telephone, email, live chat, marketing materials, and social media. Through the CRM approach and the systems used to facilitate CRM, businesses learn more about their target audiences and how to best cater to their needs. However, adopting the CRM approach may also occasionally lead to favoritism within an audience of consumers, resulting in dissatisfaction among customers and defeating the purpose of CRM. Benefits of Customer Relationship Management. Ans. With CRM systems customers are served better on day to day process and with more reliable information their demand of self service from companies will decrease. If there is less need to contact with the company for different problems, customer satisfaction level increases.[29] These central benefits of CRM will be connected hypothetically to the three kind of equity that are relationship, value and brand, and in the end to customer equity. Seven benefits were recognized to provide value drivers. 1. 2. 3. 4. 5. 6. 7. Enhanced ability to target profitable customers. Integrated assistance across channels. Enhanced sales force efficiency and effectiveness Improved pricing. Customized products and services Improved customer service efficiency and effectiveness Individualized marketing messages also called as campaigns. Improve customer services: In general, customers would have some questions, concerns or requests. CRM services provide the ability to a company for producing, allocating and managing requests or something made by customers. For example, call center software, which helps to connect a customer to the manager or person who can best assist them with their existing problem, is one of the CRM abilities that can be implemented to increase efficiency. Increased personalized service or one-to-one service: Personalizing customer service or one-to-one service provides companies to improve understanding and gaining knowledge of the customers and also to have better knowledge about their customers' preferences, requirements and demands. Responsive to customer's needs: Customers' situations and needs can be understood by the firms focusing on customer needs and requirements. Customer segmentation: In CRM, segmentation is used to categorize customers, according to some similarity, such as industry, job or some other characteristics, into similar groups. Although these characteristics, can be one or more attributes. It can be defined as a subdividing the customers based on already known good discriminator. Improve customization of marketing: Meaning of customization of marketing is that, the firm or organization adapt and change its services or products based on presenting a different and unique product or services for each customer. With the purpose of ensuring that customer needs and requirements are met Customization is used by the organization. Companies can put investment in information from
  26. customers and then customize their products or services to maintain customer interests. Multichannel integration: Multichannel integration shows the point of co creation of customer value in CRM. On the other hand, a company's skill to perform multichannel integration successfully, is heavily dependent on the organization's ability getting together customer information from all channels and incorporate it with other related information. Time saving: CRM will let companies to interact with customers more frequently, by personalized message and communication way which can be produced rapidly and matched on a timely basis, and finally they can better understand their customers and therefore look forward to their needs. Improve customer knowledge: Firms can make and improve products and services through the information from tracking (e.g. via website tracking) customer behaviour to customer tastes and needs. CRM could contribute to a competitive advantage in improving firm's ability of customer information collecting to customize products and services according to customer needs.

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