Exam 2 Flashcards
Define the paradox of choice:
having too many options to choose from, can cause consumers stress and problematize decision-making.
How do retailers utilize paradox of choice?
Through selling, they purposefully offer lots of choices, but advertise certain aspects for people to buy a specific item
Define Paralysis:
The aspect of being overwhelmed with the options presented and giving up. This is bad for business because it prevents a purchase being made.
Define Buyer’s Remorse:
When a customer feels as though they regret making a purchase, and should have gone with another option.
How do you mitigate buyer’s remorse?
Limit the number of items offered
Offer more customer service for the product.
Give more information about products.
Micro-Merchandise (Personalize what they see).
Shelf Layout (Strategic placement of products).
Define Escalation of Expectation:
With lots of choices available, our expectations rise and that produces less satisfaction.
Define Merchandise Management:
process involved in attempting to offer right quantity of the right merchandise, in the right place, at the right time, in order to meet the company’s financial goals
What is a buyer responsible for?
A buyer is responsible for selecting the merchandise carried by the retailer, and setting a strategy to market that merchandise.
They devise and control sales / profit projections for several product categories.
Other tasks include:
Planning assortment, negotiation with vendors, oversee in-store displays.
What’s the correct categorization of the buyer organization?
Merchandise group –> Department –> Classification –> Category –> SKU
Define Merchandise Group organization and who manages it.
Merchandise grouping is the process of where certain products or items are organized according to group.
Each merchandise group is managed by a GMM (General Merchandise Manager), and a senior VP.
(Example: All Wal-Mart apparel have a GMM that handles clothes and shoes).
Define Department buying organization:
Merchandise groups are made up of departments. These departments are managed by Divisional Merchandise Managers. (DMM)
Example: All of Women’s clothing would be a department.
Define the classification buying organization:
Every department is made up of multiple classification, or a grouping of items targeting the same customer type.
Example: Men’s clothing, men’s shoes, men’s shaving products, beard trimmers, etc). They all target men.
Define the Category buying organization:
Each buyer manages several merchandise categories. (Sportswear, fruit, etc).
Categories are groupings of merchandise that customers think are related, or can be substituted for.
ALL DECISIONS IN MERCHANDISING ARE MADE FROM THE CATEGORY LEVEL. IT”S THE MOST IMPORTANT LEVEL BC SKU IS TOO SMALL, AND CLASSIFICATION IS TOO BIG.
SKU buying organization
the smallest unit available for inventory control.
- can be characterized by size, color, style
Define Micro-Merchandising:
Retailer adjusts shelf-space allocations to respond to customer and other differences among local markets.
(Example: Walmart Stores in Fayetteville cater towards college students, Springdale has a higher Hispanic population and has more hispanic foods / goods, etc.)
Define Cross-Merchandising
retailers carry complementary goods and services to encourage shoppers to buy more.
Example: Putting batteries next to the electronic toys near Christmas.
Define the Merchandising Planning Process in order: (7 Steps)
1: Forecast category sales
2: Develop assortment plan
3: Determine appropriate inventory level and prod. availability
4: Develop plan for managing inventory
5: Allocate merchandise for stores
6: Buy merchandise
7: Monitor and evaluate performance and make adjustments
What are the 3 types of merchandise:
Staple Merchandising, Seasonal Merchandise, Fashion Merchandise
staple merchandise
basic products; continuous amount over time; will be around forever
-very few new product introductions
-ex: eggs, milk, socks, paper.
seasonal merchandise
items whose sales fluctuate dramatically depending on the time of year
-will have a great record of sales we can look back on
-only difference to staples is that with seasonal it changes based on time of year. Hope to zero out inventory by the end of the season.
-ex: coats, sunscreen, Halloween candy, etc
fashion products
type of product or way of behaving that is temporarily adopted by a large number of consumers because the product or behavior is in style. In demand only for a relatively
short period of time. New products are continually introduced into these categories, making the existing products obsolete
-tend to last 2-3 seasons
-ex: hair trends, fashion trends, tiktok product trends.
forecasts
projections of expected retail sales for given periods
components of forecasts (4 bullets)
-overall company projections
-product category projections
-item-by-item projections
-store-by-store projections (if a chain)
forecasts for different merchandise
Staple Merchandise should be based on extrapolating historical sales because sales are constant from year to year.
Alter if you are putting in new stores or for new fashions.
-seasonal products will be based on previous year; change a little for some new products.
-for fashion products, look at marketing research, talk to buyers, look at Category Life Cycle
variations of the category life cycle
-fad: Immediately goes up, then dies.
-fashion – goes up quickly in intro and growth, hits peak in maturity then declines very fast
-staple – incredibly long maturity stage
controllable factors affecting sales projections. (4)
-promotions
-store locations
-merchandise placement – end cap vs. in aisle, bottom shelf or middle shelf
-cannibalization – within your store or chain; buyer cannibalizes each others sales in same category
uncontrollable factors sales projections (5)
-seasonality
-weather
-competitive activity
-product availability
-economic conditions
Staple Merchandise Characteristics: (3)
Predictable Demand, history of past sales, relatively accurate forecast.
Fashion Merchandise Characteristics: (3)
Unpredictable demand, limited sales history, difficult to forecast sales.
Define assortment plan:
: a set of SKUs that a retailer will offer in a merchandise category in each of its stores and channels. It reflects the variety and assortment that the retailer plans to offer in that category
six things to keep in mind when developing an assortment plan
strategy: reflect the retailers strategy (Kum&Go vs. Lowe’s will be very different)
-GMROII: gross margin return on inventory investment; a buyers ROI; only accounts for what a buyer can control
-trade off between too little and too much (paradox of choice vs. long tail theory)
-think about how much you can physically hold (store and warehouses)
-complimentary merchandise: some products won’t sell unless you carry their compliments (conditioner and shampoo, toothpaste and toothbrush)
-budget: each buyer is given $$ budget they can spend
never out list
-list of those products that must always be in stock and the amount of each to be purchased
-primarily consists of staples (think about how bad it would be if a grocery store ran out of milk or eggs)
model stock plan
-list the number of each SKU in the assortment plan that the buyer wants to have available for purchase in each store/channel
-works hand in hand with assortment plan
Silly-Bands article summary:
Fads come and go extremely quickly. If you’re not careful, you could end up losing big time because of how fads and trends die.
why are fads dangerous?
very unpredictable and you end up with a bunch of leftover inventory that nobody wants
how do you know when a fad is over?
when they hit the unpopular segment of the population
how to slow down a fad
-limit availability to product
-make it expensive
-if you can slow down a fad enough to make it a fashion, you can start to predict it
is it possible to slow a fad down enough to turn it into a staple?
yes – happened with cell phones
what is a category?
-distinct manageable group of products that consumers perceive to be related and/or substitutable in meeting a consumer need
-all up to the consumer!!!
-a shopper need state – shoppers think in terms of need states (think bread not specific brand)
-ex: strawberry jelly (substitute = different brand or jam; related = PB)
category management
-a process of managing categories as strategic business units, producing enhanced business results by focusing on delivering consumer value
-a collaborative continuous process between manufacturers and retailers to manage a product category at retail. The purpose is to optimize shopper satisfaction
why are we still using category management?
-trend 1: growing retail power (manufacturers used to have all the power but now the power is in hands of retailer)
-trend 2: growing importance of marketing to shopper
-trend 3: Big Data and insight generation (cat man provides filters and limits the information to make it useful for us to find insights)
incremental opportunities
-attract new consumers – if i can get inside target markets head and figure out their need states, i can arrange my store and website to get new consumers
-incrementally increase purchases by existing consumers
components of category manage.
-core components: strategy, business process
-enabling components: scorecard, trading partner relationships, organization capabilities, info systems
strategy
-strategic choice to organize, lead and manage the business from a foundation of category strategic business units
-have to have top-level support
information systems
the data and systems that support the fact-based decisions of category management and improve the business process productivity
marketing information system (MIS)
-people, equipment, and procedures to gather, sort , analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers
-internal reports systems
-marketing intelligence system (gathers info into a secondary data warehouse)
-DSS (does all the if-then)
-marketing research system (plug the holes)
big data
-household behavior filter: every retailer has different target markets so it helps us decide what households to go after
-need states filter
trading partner relationships
-synergy that is created when trading partners collaborate to maximize their unique resources and perspectives for a common objective - enhancing business results by delivering superior consumer value
why do traders partner with suppliers?
-they know their business better than you do, deeper knowledge
-suppliers drive the future of categories
traditional bowtie model:
-supplier communicates through sales rep, retailer communicates through buyer
-on each side you had one person that was allowed to talk to the buyer
inverted bowtie (diamond. Supplier Left, Retailer Right)
-Supplier Side: got rid of sales rep; Team is overseen with category captain
-Retailer Side: got rid of buyer; replaced with category manager
organizational capability
-refers to the development of category management as a core competency through the creation of an appropriate organizational structure, roles/responsibilities, skill/knowledge development and reward systems
Category Manager roles / responsibility
Role – ownership of the category and responsibility for the coordination of business process activities that flow across traditional work boundaries
Responsibilities
Develop category plans
Achieve category-based objectives
Supplier – Category Consultant or Category Captain/Partner role.
Charged with meeting company, category and brand strategies and objectives through the co-development of category business plans with the category manager
6 skills to know as a retailer AND supplier.
-know about sales/marketing
-lot of data analysis
-corporate strategy
-marketing research
-retail and omni-channel skills
-financial knowledge
Business Process
A structured, measured set of activities designed to produce a specific result for both the trading partners and the consumer.
Output: a formal category plan
What are the 7 steps of the business process?
1: Define category.
2: Category role
3: Category assessment
4: Scorecard
5: Strategy
6: Tactics
7: Implementation
Step 1 Category definition (Bus. Process)
-selecting the SKU’s that will comprise the category’s merchandise assortment and variety
-why? define strategic business unit; allows retailer/supplier alignment
-decision tree: helps with choice paralysis, helps when you need to cut SKUs, transferrable demand
Things to consider for Category definition (BP)
category definitions must start with shopper and their states
-will be impacted by retailers strategy, channels, and target market
-preferable to manage the category as the consumer perceives it, but not always possible
what are the 3 benefits of redefining a category?
-better alignment with supplier
-better alignment with consumer thought process and behaviors
-new perspectives on consumer
what 3 things does a supplier bring to table?
-deep knowledge of consumer
-future outlook on category
-analytical resources
what 4 things does retailer bring to table?
-how they are currently defining category
-knowledge on what is feasible and manageable
-a retail strategy
-knowing who their core customer is
category role (step 2, BP)
-the strategic role a category will play within a retailer’s portfolio and business. For example a retailer may want the category to bring new consumers into the store, be a traffic generator, meet their routine needs or be a destination for seasonal or occasional purchases
-traffic driver could be products like milk/beer
-profit driver would be candy
-convenience like pots and pans
why invest in category role?
-set a level of expectation for the consumer
-establish basis for resource allocation
three step process (category role)
-development of companywide category roles
-assignment of category roles to each category (based on how the consumer views the category)
-allocation of resources consistent with the category role (think about how the assignments determine allocation of resources)
2 Important questions to answer for category roles.
- How important is the category to the retailer?
- How important is the category to the consumer?
category assessment (step 3 BP)
Category Assessment is a review and analysis of all internal and external data, including key inputs from suppliers
-important perspectives: retailer, consumer, marketplace, supplier. Should include SWOT analysis
Why do we do Category Assessment?
Determine gaps between current performance & desired category role
Identify opportunities for improvement & strategy development
Emphasize the ‘why behind the what’
category scorecard (step 4)
CS is a balanced set of category measures and objective goals based on roles
-mix of hard (financial) and soft (customer satisfaction/complaints)
-mix of long and short term goals.
What makes category scorecards important
-method of tracking results and progress
-basis of rewards and recognition
category strategies (step 5)
-total system roadmap that moves the category from the current state to the desired state; the partnering group
Why do we use category strategies, and what 2 questions do they answer?
Provides a framework for tactic development
Questions to answer…
How will the category be marketed?
Which strategies will best support the category role?
7 category strategies you can use.
-increase sales (traffic driving)
-grow market share
-increase foot traffic
-improve gross margin (profit driving)
-increase GMROII (all categories tasked with this)
-increase basket size (convenience)
-gain customer satisfaction (fits well with seasonal)
Category Tactics (Step 6 BP)
Tactics are used to implement chosen strategies.
Examples: Product assortment, pricing, promotion, placement, and supply chain
Category Tactics happens in 4 areas
-product assortment
-placement
-promotion
-price
Step 7 – Plan Implementation
The process of securing management approval and executing the activities called for in the Category Plan.
Ensures follow through by all parties
Problems with store plan implementation?
Lack of incentives and other things for motivation.
Store operations are not factored into the plan.
category review (step 8)
Sn appraisal of category perforce that should consider these 6 topics:
1: Top-line overview: outlining health of overall category,
2: Scorecard: measured results against goals.
3: Assortment: Is the original category definition still correct? Pit each item against the market.
4: Promotion assessment: Evaluate the effectiveness. 5:Pricing assessment: Compare competitors in each channel.
6: Consumer behavior and trends
what is shopper marketing
understanding how ones target consumers behave as shoppers in different channels and formats
common elements of shopper marketing
-understanding how one’s target consumer behave as shoppers in different channels and formats
-all about driving growth for sales and brand equity by improving experience
-application of shopper insights along the path to purchase to affect purchase behavior to increase sales
two things you need for shopper marketing / Key Concept for shopper marketing.
-must have a partner
-requires cooperation across all silos
SHOPPERS ARE NOT CONSUMERS
retailer/supplier partnership
retailer has two items manufacturer doesn’t: deep knowledge of shopper because of omni channel AND retailer controls moment of truth (shelf)
five reasons shopper marketing is a big deal
-more than half of brand choices are made at shelf
-becoming harder for brands to create loyalty
-private label is much higher quality and more competitive than in the past
-balance of power is continuing to shift between retailer and manufacturer (mostly towards retailer)
-historically we focused on consumer, but now we have data on shopper
shopper insights
-insights upon which shopper marketing initiatives are based
-an insight is an understanding of what a shopper will do in a certain situation
goals of shopper marketing
-improve shopping experience across they store (for retailer)
-improve trip frequency and basket size (for retailer)
-increase exposure to and relevance of brands; increase brand equity via environment (for supplier)
category man. vs. shopper market.
-cat man: seeks to understand consumers and optimize shelf within category; data intensive and analytical; collaborative and continuous; broad category focus
-shopper marketing: seeks to understand shoppers; emotion intensive, searching for the motivation to purchase; collaborative, but time-bound and episodic; narrow shopper focus
long-tail theory of retail
-if you take any category sold by a retailer and plot volume against popularity
-popularity = most to least
-plot retailer of every single SKU they sell
-you end up getting the top 20%
why do we use long tail theory?
-shelf space
-physical constraints
-dealing with local population
-there are more sales to be had in the tail of the curve than in the top 20% of the SKUs
if the long tail theory is true, how do I make money out of the tail?
-make everything available – have to carry it no matter how unpopular it is because there is somebody out there who wants it
-cut the price in half – need a low price strategy; will make your money on volume, not margin
-help them find it – where the paradox of choice and long-tail theory connect and come together
Why dynamic and personalized pricing haven’t taken over retail yet - summary
Dynamic and personalized pricing models have been touted as the future of retail for several years, but they haven’t yet become widespread. One reason is that implementing these models can be costly and complex. Retailers need to invest in technology that can collect and analyze data on customer behavior, market trends, and other factors that can influence pricing decisions. Additionally, retailers need to ensure that they are transparent with customers about how pricing decisions are made, or risk damaging trust and loyalty.
Another reason why dynamic and personalized pricing hasn’t taken over retail is that consumers are skeptical of the concept. They worry that they might be charged more than someone else for the same product, or that retailers might use data on their spending habits to price discriminate against them. There is also a concern that personalized pricing could create a “creepy” shopping experience, where retailers use data to make assumptions about customers’ personal lives and interests.
Despite these challenges, some retailers have successfully implemented dynamic and personalized pricing models. For example, airlines have been using dynamic pricing for years, adjusting ticket prices based on demand and other factors. Amazon and other online retailers have also experimented with personalized pricing, using data on customers’ browsing and purchasing history to suggest products and offer discounts.
In conclusion, while dynamic and personalized pricing models have the potential to revolutionize retail, there are still challenges to be overcome. Retailers must ensure that their pricing strategies are transparent and fair, and they must invest in technology that can collect and analyze data effectively. At the same time, consumers must be educated about the benefits of personalized pricing and reassured that their data is being used responsibly.
What do retailers owe customers when it comes to personalized pricing? - summary
Personalized pricing has been a hotly debated topic in the retail industry, with some arguing that it can be an effective way to increase sales and customer loyalty, while others argue that it is unfair and can erode trust between retailers and customers.
One of the key issues with personalized pricing is transparency. Customers need to be able to understand how pricing decisions are made and why they are being charged a certain amount. Retailers must ensure that they are open and honest about their pricing strategies, and that they are not using data to discriminate against certain customers.
Another issue with personalized pricing is privacy. Customers are understandably wary about sharing their personal data with retailers, especially if they are unsure how it will be used. Retailers must be transparent about what data they are collecting and how it will be used, and they must ensure that customers’ data is secure.
Despite these challenges, there are some clear benefits to personalized pricing. By using data to tailor prices to individual customers, retailers can increase sales and customer loyalty. Customers are more likely to return to a retailer if they feel that they are being treated as individuals, rather than just a faceless member of a mass market.
In conclusion, retailers owe their customers transparency and privacy when it comes to personalized pricing. They must ensure that their pricing strategies are fair and not discriminatory, and that customers’ personal data is secure. At the same time, retailers should continue to explore the benefits of personalized pricing, as it can be an effective way to increase sales and customer loyalty in an increasingly competitive retail landscape.
How to use a consumer decision tree to determine shelf layout
candy example in class
pet food
dog or cat
wet or dry
all the brands
size of bag
etc
Category Management: Delivering Value to Customers and Shareholders summary
The report discusses the importance of category management in retail and consumer goods industries. It defines category management as a strategic approach to managing product categories as individual business units, and provides an overview of its key principles and benefits. The report also explores the different stages of the category management process, including analysis, strategy development, implementation, and performance management. It provides several case studies and examples of successful category management initiatives and outlines the key factors that contribute to their success. Overall, the report emphasizes the importance of category management in driving growth, improving profitability, and delivering value to both customers and shareholders.
Consumer-Centric Category Management A Fresh Spin on Maximizing Performance
discusses the concept of consumer-centric category management, which involves tailoring product assortments to meet the specific needs and preferences of target consumer segments. It outlines the steps involved in implementing this approach, including identifying key consumer segments, analyzing their behaviors and preferences, and designing and executing customized category plans. The benefits of consumer-centric category management include increased customer loyalty and satisfaction, improved sales and profitability, and better alignment between product assortments and consumer needs.
surviving sillybandz summary
The article discusses how companies can prolong the shelf life of fads, using Silly Bandz as an example. Silly Bandz, a children’s toy that became popular in the late 2000s, faced a decline in sales as the fad faded. However, the company behind Silly Bandz implemented several strategies to keep the product relevant, such as creating new designs and expanding their target audience. They also leveraged social media to promote their product and engage with customers. The article emphasizes the importance of adaptability and innovation in sustaining the success of a fad product.