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PPT 14-1 5 th Edition. PPT 14-2 Chapter 14 Buying Merchandise McGraw-Hill/Irwin Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill.

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Presentation on theme: "PPT 14-1 5 th Edition. PPT 14-2 Chapter 14 Buying Merchandise McGraw-Hill/Irwin Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill."— Presentation transcript:

1 PPT th Edition

2 PPT 14-2 Chapter 14 Buying Merchandise McGraw-Hill/Irwin Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

3 PPT 14-3 Merchandise Management Buying Systems Planning Merchandise Assortments Buying Merchandise Pricing Retail Communication Mix

4 PPT 14-4 Merchandise Branding Strategies Manufacturer (National) Brands –Designed, produced, and marketed by a vendor and sold by many retailers Private-Label (Store) Brands –Developed by retailer and only sold in retailers outlets Licensed Brand –Developed by licensee and right sold to either manufacturer or retailer

5 PPT 14-5 Spectrum of National vs. Private Label The Gap Limited Marks & Spencer IKEA Wal-Mart Home Depot % Store Brands National Brands Macys Target

6 PPT 14-6 Relative Advantages of Manufacturer versus Private Brands Type of Vendor Impact on Store Manufacturer Private-Label Brands Store loyalty? + Store image+ + Traffic flow+ + Selling and promotional+ - expenses Restrictions- + Differential advantages- + Margins? ?

7 PPT 14-7 Private Labels Advantages Unique merchandise not available at competitive outlets Difficult for customers to compare price with competitors Higher margins Disadvantages Need to develop expertise in developing and promoting brand Unable to sell excess merchandise Typically less desirable for customers

8 PPT 14-8 Manufacturer (National) Labels Advantages More desired by customers Resell excessive merchandise Dont need skills and people to develop and promote merchandise Disadvantages Lower margins Vulnerable to competitive pressures

9 PPT 14-9 Most Recognized Apparel and Accessory Manufacturer Brands

10 PPT Most Recognized Apparel and Accessory Private Label Brands

11 PPT Examples of Private-Label Brands

12 PPT Examples of Private-Label Brands

13 PPT Examples of Private-Label Brands

14 PPT Examples of Private-Label Brands

15 PPT Private Label Options Bargain Branding –no-frills product at a discount price. Copycat Branding –imitates the manufacturer brand in appearance and trade dress Premium Branding –private label at a comparable manufacturer-brand quality. Parallel Branding –private labels that closely imitate the trade dress and product attributes of leading manufacturer brands.

16 PPT Issues in International Sourcing of Private Label Merchandise Country of Origin Effects Costs –Foreign Currency Fluctuations –Tariffs –Supply Chain Efficiency and Inventory Carrying Costs –Transportation costs Quality Control

17 PPT Regulations Affecting the Costs of Importing Goods World Trade Organization NAFTA Maquiladores Free Trade Zones

18 PPT Managing International Sources Quality Control More difficult to maintain quality standards Human Right Issues Need to Build Strategic Partnerships

19 PPT Domestic vs. International Sourcing Domestic Higher cost of merchandise Shorter lead times – easier to use quick response systems Easier to control human rights issues and quality control Customer preferences for domestic manufactured products International Lower cost Longer lead times More control problems

20 PPT Connecting with Vendors Going to Market Internet Exchanges Wholesale Market Centers Trade Shows Resident Buying Offices Meeting Vendors at Your Company

21 PPT Functions Provided by Internet Exchanges Product Directories Use of Reverse Auctions Collaboration in Planning – CPRF Software General Information about Trends

22 PPT Types of Exchanges Consortium Exchanges –Transora –Worldwide Retail Exchange –GobalNetXchange Private Exchanges Independent Exchanges

23 PPT Online Reverse Auctions Auction –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 buyers business –Price falls One buyer, multiple vendors Sealed vs. open bid auctions

24 PPT B S S S Reverse Auction S B B B Traditional Auction Reverse Auctions

25 PPT Reverse Auctions in Retail Buying Online vs. physical differences –Reduced contact cost –Instant feedback –Bidder anonymity The retailers goals –Gain competitive pricing –Open vendor base –Improve negotiation process –Maintain valuable relationships

26 PPT Price Path on Open-Bid Auction

27 PPT Issues in Using Reverse Auctions to Buy Products Private vs. Collaborative Auctions/Exchanges Fixed Cost High for Software –Standardized Software Less Need for Collaborative Exchanges Collusion Consideration of Quality Differences from Bidders Impact on Supplier Relationships –Used Primarily for Non-Resale Products – Carpet, Fixtures

28 PPT Negotiating with Vendors Two-way communication designed to reach an agreement when two parties have both shared and conflicting interests.

29 PPT Planning Negotiations Consider prior history Assess current situation –General market conditions –Vendors position –Power of vendor Set goals Be aware of vendors goals Number of people involved Select an advantageous place Be aware of deadlines

30 PPT Issues to Negotiation Markup opportunities from excess from vendors excess merchandise Purchase terms Transportation costs Delivery times Exclusivity Advertising allowances

31 PPT Types of Negotiations Buyer Vendor Win Lose Win Lose

32 PPT Win - Lose Negotiation Can be good in the short run and bad in the long-run Short-term solution-- person you are negotiating with cant lose all the time Might degenerate into LOSE - LOSE

33 PPT Lose - Lose Negotiation Wastes time and energy No relationships established Objectives not met

34 PPT Win - Win Negotiation Collaboration Long-term relationship Doesnt mean giving-in Enhances vendor trust Cooperation

35 PPT Guidelines for Negotiations Separate people from problem Insist on objective criteria to evaluate performance Invent options for mutual gain Let the other party do the talking Know how far to go

36 PPT Negotiating Tips Be aware of time Location -- comfortable Keep negotiating participants even Be patient Let him/her mention a figure Dont be afraid to say no

37 PPT Negotiating Tips Dont over negotiate Dont assume Visualize the negotiation Timing is everything Always leave the door open Maintain self-esteem

38 PPT SUMMARY Planning is critical Knowledge is power A person will only do what is right for him/her

39 PPT Strategic (Partnering) Relationships Retailer and vendor committed to maintaining relationships over the long-term and investing in mutually beneficial opportunities

40 PPT Strategic Relationships Win – Win --Concerned about expanding the pie, not how to divide the pie vs. Retailer Vendor

41 PPT Building Blocks for Strategic Partnerships Mutual Trust Open Communications Common Goals Credible Commitments

42 PPT Developing Trust: Capability or Competence Competence Salespeople demonstrate competence when they can show that they know what they are talking about. Requires knowledge of: The customer The product The industry The competition

43 PPT Stages in Building Strategic Relationships Awareness Exploration Expansion Commitment

44 PPT Legal and Ethical Issues Contractual Disputes Chargebacks Commercial Bribery Slotting Allowances Buybacks Counterfeit Merchandise Gray Markets and Diverted Merchandise Exclusive Territories Exclusive Dealing Refusal to Deal Tying Contracts

45 PPT Chargebacks A practice used by retailers in which they deduct money from the amount they owe a vendor. Two Reasons: –merchandise isnt selling –vendor mistakes Can be a profit center –one senior executive at a large department store chain was told to collect $50 million on chargebacks

46 PPT Commercial Bribery A 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.

47 PPT Slotting Allowances Fees paid by a vendor for space in a retail store. Currently arent 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.

48 PPT Buybacks 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 retailers system. –Retailer forces a vendor to buyback slow-moving merchandise.

49 PPT Counterfeit 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.

50 PPT What to do About Counterfeiters Trademark,copyright, and/or patent products in the countries in which theyre sold. US government is engaged in bilateral and multicultural negotiations and education to limit counterfeiting. (WTO) Take steps to protect yourself.

51 PPT Gray-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.

52 PPT Gray-market and Diverted Merchandise: Taking Sides Discount stores argue customers benefit because it lowers prices. Traditional retailers claim important service after sale will be unavailable May hurt the trademarks image.

53 PPT Avoiding 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.

54 PPT Exclusive 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.

55 PPT Exclusive 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.

56 PPT Tying Contracts An agreement that requires the retailer to take a product it doesnt 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.

57 PPT Refusals to Deal Suppliers and retailers have the right to deal or refuse to deal with anyone they choose. Except when it lessens competition.

58 PPT Terms of Purchase Discounts –Trade (Functional) Discounts –Chain Discounts –Quantity Discounts –Seasonal discounts –Cash discounts ROG and EOM dating –Anticipation discounts Shipping Terms and Conditions

59 PPT A Sample Price List Price to Wholesaler Price to Retailer Quantity per OrderDiscountPriceDiscountPrice % $57* 30% $ * Based on a $100 suggested retail price.

60 PPT Example of a Cash Discount 1/30, n/60 Nov 1Dec 1Jan 1 Date of Invoice 30 days 60 days 1% discount Full amount Due

61 PPT Example of ROG Dating ROG Dating Nov 1 Nov 15 Dec 15 Jan 15 Date of Merchandise 30 days ROG60 days ROG invoice arrives1% discount Full amount due

62 PPT Example of EOM Dating EOM Dating Nov 1 Dec 1 Jan 1 Feb 1 Date of 30-day discount 30 days EOM60 days EOM invoice period begins 1% discount Full amount due

63 PPT Example of EOM Dating, Grace Period EOM Dating, Grace Period Oct 25Nov 1Dec 1Jan 1 Feb 1 Date of 30-day 30 days EOM 60 days EOM invoice discount 1% discount Full amount period due begins

64 PPT Example of Extra Dating Extra Dating Nov 1Dec 1 Jan 1 Feb 1 Mar 1 Apr 1 Date of 30-day 60-day 60 days Full invoice discount Extra Extra amount perioddiscount 1% discount due begins period begins

65 PPT Alternative Shipping Terms and Conditions Owns Merchandise Pays Freight in Transit and ChargesFiles Claims (If Any) F.O.B. origin, freight collect RetailerRetailer F.O.B. origin, freight prepaid SupplierRetailer F.O.B. destination, freight collect RetailerSupplier F.O.B. destination, freight prepaid SupplierSupplier

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