3Merchandise Management Planning Merchandise AssortmentsRetail Communication MixBuying MerchandiseBuying SystemsPricing
4Merchandise Branding Strategies Manufacturer (National) BrandsDesigned, produced, and marketed by a vendor and sold by many retailersPrivate-Label (Store) BrandsDeveloped by retailer and only sold in retailer’s outletsLicensed BrandDeveloped by licensee and right sold to either manufacturer or retailer
5Spectrum of National vs. Private Label National Brands% Store BrandsWal-MartHome DepotThe GapLimitedMarks & SpencerIKEAMacy’sTarget
6Relative Advantages of Manufacturer versus Private Brands Type of VendorImpact on Store Manufacturer Private-LabelBrands BrandsStore loyalty ? +Store imageTraffic flowSelling and promotionalexpensesRestrictionsDifferential advantagesMargins ? ?
7Private Labels Advantages Unique merchandise not available at competitive outletsDifficult for customers to compare price with competitorsHigher marginsDisadvantagesNeed to develop expertise in developing and promoting brandUnable to sell excess merchandiseTypically less desirable for customers
8Manufacturer (National) Labels AdvantagesMore desired by customersResell excessive merchandiseDon’t need skills and people to develop and promote merchandiseDisadvantagesLower marginsVulnerable to competitive pressures
9Most Recognized Apparel and Accessory Manufacturer Brands
10Most Recognized Apparel and Accessory Private Label Brands
15Private Label Options Bargain Branding Copycat Branding no-frills product at a discount price.Copycat Brandingimitates the manufacturer brand in appearance and trade dressPremium Brandingprivate label at a comparable manufacturer-brand quality.Parallel Brandingprivate labels that closely imitate the trade dress and product attributes of leading manufacturer brands.
16Issues in International Sourcing of Private Label Merchandise Country of Origin EffectsCostsForeign Currency FluctuationsTariffsSupply Chain Efficiency and Inventory Carrying CostsTransportation costsQuality Control
17Regulations Affecting the Costs of Importing Goods World Trade OrganizationNAFTAMaquiladoresFree Trade Zones
18Managing International Sources Quality ControlMore difficult to maintain quality standardsHuman Right IssuesNeed to Build Strategic Partnerships
19Domestic vs. International Sourcing Higher cost of merchandiseShorter lead times – easier to use quick response systemsEasier to control human rights issues and quality controlCustomer preferences for domestic manufactured productsInternationalLower costLonger lead timesMore control problems
20Connecting with Vendors Going to Market Internet ExchangesWholesale Market CentersTrade ShowsResident Buying OfficesMeeting Vendors at Your Company
21Functions Provided by Internet Exchanges Product DirectoriesUse of Reverse AuctionsCollaboration in Planning – CPRF SoftwareGeneral Information about Trends
23Online Reverse Auctions A market institution with an explicit set of rules determining resource allocation and prices on the basis of bids from market participants.Why reverse?Vendors bid for buyer’s businessPrice fallsOne buyer, multiple vendorsSealed vs. open bid auctions
25Reverse Auctions in Retail Buying Online vs. physical differencesReduced contact costInstant feedbackBidder anonymityThe retailer’s goalsGain competitive pricingOpen vendor baseImprove negotiation processMaintain valuable relationshipsV is straddled w/old Ford supply base, has not kept up with mkt pricingOpen – English Auction, common value, downward
27Issues in Using Reverse Auctions to Buy Products Private vs. Collaborative Auctions/ExchangesFixed Cost High for SoftwareStandardized Software Less Need for Collaborative ExchangesCollusionConsideration of Quality Differences from BiddersImpact on Supplier RelationshipsUsed Primarily for Non-Resale Products – Carpet, Fixtures
28Negotiating with Vendors Two-way communication designed to reach an agreement when two parties have both shared and conflicting interests.
29Planning Negotiations Consider prior historyAssess current situationGeneral market conditionsVendor’s positionPower of vendorSet goalsBe aware of vendor’s goal’sNumber of people involvedSelect an advantageous placeBe aware of deadlines
30Issues to NegotiationMarkup opportunities from excess from vendor’s excess merchandisePurchase termsTransportation costsDelivery timesExclusivityAdvertising allowances
35Guidelines for Negotiations Separate people from problemInsist on objective criteria to evaluate performanceInvent options for mutual gainLet the other party do the talkingKnow how far to go
36Negotiating Tips Be aware of time Location -- comfortable Keep negotiating participants evenBe patientLet him/her mention a figureDon’t be afraid to say “no”
37Negotiating Tips Don’t over negotiate Don’t assume Visualize the negotiationTiming is everythingAlways leave the door openMaintain self-esteem
38SUMMARYPlanning is criticalKnowledge is powerA person will only do what is right for him/her
39Strategic (Partnering) Relationships Retailer and vendor committed to maintaining relationships over the long-term and investing in mutually beneficial opportunities
40Strategic Relationships Win – Win --Concerned about expanding the pie, not how to divide the pievs.VendorRetailer
41Building Blocks for Strategic Partnerships Mutual TrustOpen CommunicationsCommon GoalsCredible Commitments
42Developing Trust: Capability or Competence Salespeople demonstrate competence when they can show that they know what they are talking about.Requires knowledge of:The customerThe productThe industryThe competition
43Stages in Building Strategic Relationships AwarenessExplorationExpansionCommitment
44Legal and Ethical Issues Contractual DisputesChargebacksCommercial BriberySlotting AllowancesBuybacksCounterfeit MerchandiseGray Markets and Diverted MerchandiseExclusive TerritoriesExclusive DealingRefusal to DealTying Contracts
45ChargebacksA practice used by retailers in which they deduct money from the amount they owe a vendor.Two Reasons:merchandise isn’t sellingvendor mistakesCan be a profit centerone senior executive at a large department store chain was told to collect $50 million on chargebacks
46Commercial BriberyA vendor or its agent offers to give or pay a retail buyer “something of value” to influence purchasing decisions.A fine line between the social courtesy of a free lunch and an elaborate free vacation.Rule of thumb - accept only limited entertainment or token gifts.
47Slotting Allowances Fees paid by a vendor for space in a retail store. Currently aren’t legal.Retailers argue that they are a reasonable method for ensuring that their valuable space is used efficiently.Manufacturers view them as extortion.$9 billion or 16% of all new product introduction costs in grocery industry.
48Buybacks Used to get products into retail stores. Two scenarios: Retailer allows a vendor to create space for its goods by “buying back” a competitors inventory and removing it from a retailer’s system.Retailer forces a vendor to buyback slow-moving merchandise.
49Counterfeit Merchandise Goods made and sold without the permission of the owner of a trademark, a copyright, or a patented invention that is legally protected in the country where it is marketed.Major problem is counterfeiting intellectual property.
50What to do About Counterfeiters Trademark,copyright, and/or patent products in the countries in which they’re sold.US government is engaged in bilateral and multicultural negotiations and education to limit counterfeiting. (WTO)Take steps to protect yourself.
51Gray-Market and Diverted Merchandise Gray- Market Merchandise possesses a valid U.S. registered trademark and is made by a foreign manufacturer but is imported into the United States without permission of the U.S. trademark owner.Not Counterfeit.Is legal.Diverted Merchandise is similar to gray-market merchandise except there need not be distribution across international boundaries.
52Gray-market and Diverted Merchandise: Taking Sides Discount stores argue customers benefit because it lowers prices.Traditional retailers claim important service after sale will be unavailableMay hurt the trademark’s image.
53Avoiding the Gray-Market Problem Require customers to sign a contract stipulating that they will not engage in gray marketing.Produce different versions of products for different markets.
54Exclusive Territories Granted to retailers so no other retailer in the territory can sell a particular brand.Benefits vendors by assuring them that “quality” retailers represent their products.Assure retailers adequate supply.Grants retailers a monopoly.Illegal when they restrict competition.
55Exclusive Dealing Agreements Occur when a manufacturer or wholesaler restricts a retailer into carrying only its products and nothing from competing vendors.Illegal when they restrict competition.
56Tying ContractsAn agreement that requires the retailer to take a product it doesn’t necessarily desire to ensure that it can buy a product it does desire.Illegal when they lessen competition.Ok to protect goodwill and quality reputation of vendor.
57Refusals to DealSuppliers and retailers have the right to deal or refuse to deal with anyone they choose.Except when it lessens competition.
58Terms of Purchase Discounts Shipping Terms and Conditions Trade (Functional) DiscountsChain DiscountsQuantity DiscountsSeasonal discountsCash discountsROG and EOM datingAnticipation discountsShipping Terms and Conditions
59A Sample Price List Price to Wholesaler Price to Retailer Quantity per Order Discount Price Discount Price% $57* % $70* Based on a $100 suggested retail price.
60Example of a Cash Discount Nov 1 Dec 1 Jan 1Date of Invoice days days1% discount Full amountDue
61Example of ROG Dating ROG Dating Nov 1 Nov 15 Dec 15 Jan 15 Date of Merchandise days ROG 60 days ROGinvoice arrives 1% discount Full amountdue
62Example of EOM Dating EOM Dating Nov 1 Dec 1 Jan 1 Feb 1 Date of 30-day discount days EOM 60 days EOMinvoice period begins % discount Full amountdue
63Example of EOM Dating, Grace Period Oct 25 Nov 1 Dec 1 Jan 1 Feb 1Date of day days EOM 60 days EOMinvoice discount 1% discount Full amountperiod duebegins
64Example of Extra Dating Nov 1 Dec 1 Jan Feb Mar Apr 1Date of day day days Fullinvoice discount Extra Extra amountperiod discount % discount duebegins periodbegins