UNIT 1 INTRODUCTION TO BUYING Introduction to Buying

and
AND MERCHANDISING

Structure

1.0 Objectives
1.1 Introduction
1.2 Merchandise Management
1.3 Principles of Merchandising
1.4 Merchandise Planning Process
1.5 Merchandising Strategy
1.6 Merchandise Mix
1.7 Let Us Sum Up
1.8 Key Words
1.9 Answers to Check Your Progress
1.10 Terminal Questions

1.0 OBJECTIVES

After studying this unit, you should be able to:

 explain the meaning of merchandising;
 describe the principles of merchandising;
 explain the merchandise planning process;
 discuss the merchandising strategy, and
 describe merchandise mix.

1.1 INTRODUCTION

Merchandising is the process of making products in Retail outlets available to

consumers, by stocking and displaying them on shelves. It may be called as the
heart of the retailing. For a successful venture, it is necessary to identify the
needs and wants of the customers in a proper way so that the correct merchandise
is purchased at a right time and the business does not incur loss and at the same

time, it does not lose its customer. 5

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Merchandise Management involves planning, acquisition, handling and control
the merchandise so that the sales and profits of a category can be maximised. It is
a coordinated process and involves buying, sourcing, merchandising, and sales.
In order to keep the buying process straight, items are grouped into categories.
In this unit, you will learn about the merchandise management in the retail
business. You will further learn the principles of merchandising and the planning
process. You will also learn about the merchandising strategy and the
merchandising mix.

1.2 MERCHANDISE MANAGEMENT

Merchandising is the heart of retailing. Merchandising is the supply chain practice

of making products in Retail outlets available to consumers, primarily by stocking
shelves and displays.

It is taking the product (or merchandise) from a company and selling it to the
customer. It is ensured that the products are visible in stores and presented in an
appealing fashion. Merchandise analysis is identifying need and wants of
customers in order to buy the correct merchandise.

What is merchandising? Merchandising is a marketing practice in which the

brand or image from one product or service is used to sell another.

Merchandising, as commonly used in marketing, also means the promotion of

merchandise sales by coordinating production and marketing, and developing
advertising, display, and sales strategies to increase Retail sales. It includes
disciplines in pricing and discounting, physical presentation of products and
displays, and the decisions about which products should be presented to which
customers at what time.

Merchandise Management is the process by which a retailer attempts to offer

the Right Quantity of Right Merchandise in the Right Place at the Right
Time and at the same time meeting the organisation’s financial objectives.
Every Retailer space is most precious and the merchandise has to justify the
Return on Investment (ROI). The buying decision hence is a very strategic
decision to a retailer.

Merchandise Management is an integrated approach to inventory assortment

offerings, marketing communications and selling. It does not limit your
approach to inventory selection and pricing issues only. It takes all three;

merchandising, marketing and sales to create a highly desired

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Merchandise Management involves planning, acquisition, handling and control
effective

merchandising, marketing and sales to create a highly desired

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 Introduction to Buying
experience. An integrative approach will help create the right management
and
to address aged inventory, stock balancing, pricing strategies, Vendor
performance, assortment planning, product selection for purchase and repurchase,
managing gross margin return on investment and increasing product turnover.
It is highly desirable to adopt an approach to solve the merchandising challenges
by taking an integrated approach to managing resources and creating emotional
connectivity with your company, brand and products.

Merchandise management is the process of analysis, planning, acquisition,

handling and control of the merchandise investments of a Retail business with the
objective of maximizing the sales and profits of a category. It sounds simple but
involves different processes like buying, sourcing, merchandising, and sales. It
may be virtually impossible to keep the buying process straight without grouping
items into categories. In general, a category is an assortment of items that the
customer sees as reasonable substitutes for each other.

For Example: Men’s formal apparels, ladies ethnic wear and infant’s apparels are
categories. It is important to understand that merchandising is an integral part of
the over-all strategy for the success of a retail venture. It is much more than
simply stocking and arranging the products on shelves. It is truly an integral
component of the Store’s overall business and can go a long way toward
improving its image and consequently sales. Merchandising is all about creating
a congenial environment in the Retail Store that aids customers in their overall
shopping experiences. It begins long before customers actually enter the Store. In
this context, following points are helpful:
i) The Retail Store should look appealing and welcoming to customers;
ii) Try to have clear and professional-looking signage that is distinctly visible
to the customers;
iii) Display merchandise arranged in an orderly fashion;
iv) The items should have unambiguous signs showing prices and
promotional offers prominently displayed;
v) The interiors should be neat and orderly;
vi) The staff should display helpful and pleasing manners to assist customers with
their shopping needs.
The role of merchandising is to make customers feel that there is always
something new and innovative to look at and shop for every time they come in to
make a purchase. For example, window-dressing does not cost much, but it adds
the "professionalism". If there is really a good window dresser, you will find
increase in sales straight away - many products sell out when the customer sees

them within a window 7

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1 PRINCIPLES OF

Drawing upon the basic five rights of merchandising, the basic principles around
which the function of merchandising needs to revolve are:

1. Understand the Target Market: The Retailer exists for the customer. Thus
products retailed in the store should be a reflection of consumers’ needs and
wants. The first step towards this would be the ability to understand who is the
consumer? What type of products that he/she actually requires?

2. Build the Merchandise Plan, one Store at a Time: Each Store is different;
the customers visiting each Store are different. Hence they have to be
understood as separate entities. While the merchandise plan is built for the
company as a whole, there has to be an element wherein peculiarities of each
Store and region are taken into account.

3. Buy What Your Customers Want, Not What You Want: The buyer is the
representative of the consumers, and it is necessary to remember that the
choice and taste of target consumers may be very different from his/her. The
buyer therefore needs to offer what the consumer will want rather than what
he/she likes.

4. Build the Right Assortment: In the case of most products that are bought
and consumed, the consumer is always looking for choice. A wide
assortment of the right kind of goods goes a long way in building consumer
loyalty towards the brand and or the store, as the case may be.

5. Be Consistent: When building a range of products for the consumers, it is

necessary to ensure consistency across all product offerings. Consistency is
required not only in the choice of products offered but also in terms of their
quality. This follows from the principle that a Retailer cannot be everything
for everybody. Keeping in view the target market, products and brands
offered should be consistent with the image that the retailer seeks to create for
itself, in the minds of the customers.

6. Offer Value: The consumer’s decision to buy a product is not always

governed by price alone. While taking the buying decision, he/she is seeking
value in the purchase made. Low price may not always be a factor favouring
sales, and the perception of value that the product provides eventually
influences the consumer’s decision.

7. Understand the Needs of the Vendor and Negotiate a Win-Win: While

Vendors play a key role in the entire buying process, it is necessary that a

8 buyer understands the strengths and weaknesses of each Vendor and also
 Introduction to Buying
factors that motivates them. If the goals of the organization are consistent
what the Vendor seeks to achieve, a better and long-term working relationship Merchandising

is envisaged.

8. Share Information: Sharing information with the Vendors often goes a long
way in creating a sense of responsibility and involvement among them.
Crucial information that is shared on a timely basis may even affect the long
term success or failure of a product or a range of products.

9. Accept the Mistakes Committed: A product or a range launched may not

always meet with the expected success. When a buyer is informed that some
particular merchandise has not met with the success that was anticipated, it
is essential to liquidate/move the goods and open up the selling space to
other inventory.

10. Seek to Surprise the Customer: The merchandise is what draws the
consumer to the Retail Store. If the merchandise in the Store excites the
customer and exceeds his expectations time and again, the customer will
have reason to keep coming back to the Store.

1.4 MERCHANDISE PLANNING PROCESS

Merchandise planning can either be top down or bottom up planning. In the case
of top down planning, the senior management of the company would forecast the
growth that they envision for the company and then this process would be
translated down to how the growth is to be achieved. Look at Figure 1.1 which
shows the merchandising planning process.

Figure 1.1 : Merchandising Planning Process

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Many companies prefer top down planning as it is believed to be more in
with the Company’s goals and mission; however, by the same principle, it may
not focus on the local peculiarities of tastes and choices. Bottom up planning on
the other hand would start with planning at the individual store and stock keeping
unit level and then up to the regional and national level.

The process of planning also needs to be considered on other scales. The first
dimension to be considered is the time span for the plan. The Company could
have a five year growth plan which could in turn be broken down year- wise and
then with respect to quarters, months and eventually weeks. Another element of
planning involves the locations. It answers the basic question in term of how does
the Company plan to achieve the sales growth that it has projected. The overall
sales target is broken into the sales to be achieved region- wise, store- wise, based
on the year on year growth to be achieved and also the new stores that would
augment the existing ones. Having done this, planning with reference to the
merchandise per se begins. Merchandise planning is done to the last level of
Stock Keeping Unit planning.

Check Your Progress A

1. Define Merchandising.
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2. List the steps for successful Merchandising.
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3. What do you mean by Offer Value?
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4. List the steps for Merchandising Planning.
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5. What do you mean by top down Planning?
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 Introduction to Buying
1 MERCHANDISING Merchandising

To start with the very definition, focus separately on the words ‘Merchandising’
and ‘strategy’. Fundamentally, a strategy defines a company’s position;
merchandising on the other hand refers to the basic product mix that the Retailer
offers to the end consumer. Look at Figure 1.2 which shows the areas influenced
by the merchandise strategy. A merchandising strategy is defined as a
Company’s position with respect to a given product-mix aimed at ensuring
optimization of resources, achieving target sales and margins and reducing stock
outs and/or markdowns. The merchandising strategy in turn, dictates the position
that a particular buyer/merchandise adopts with respect to the following criteria.
1. The products to be sourced;
2. The terms and conditions agreed with the Vendors and Suppliers;
3. The pricing strategy to be adopted, and
4. The method of packaging and presentation to the end
consumer. Let us learn them in detail.

Produc
ts To
be

The method Vendor

of packaging Merchandisi Terms and
and ng Conditions
Price
Figure 1.2 : Areas Influenced by the Merchandise Strategy
Strategy
To be
Adopt
Products to be sourced: Retailers may buy product from a variety of sources,
which depend on the nature of the business and the product, as well as the
capacity for the inventory. There are different types of sources, e.g. drop
shipping, local sourcing, low volume: wholesalers, mid volume: importers and
distributors and high volume: manufacturers and liquidation sales.

Drop shipping allows the products to be sold without having to hold inventory of
the merchandise. The drop shipper holds the stock for the Retailer, who is not

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required to pay until the stock is sold out. It is obvious that drop shipping can be
good sourcing practice to test the market for a specific product. If the product
sells, a bulk order of the product may be placed.

Local sourcing is suitable for the products such as car boot sales, discount shops,
and local outlet Stores. This is a good technique to get started immediately in
finding products to sell, but it is the most limited type of product sourcing.

Wholesalers are the best option for purchasing low volumes, because they are
generally very flexible with Retailers. Once the business is established, and the
Retailer is in a position to hold larger quantities of product, importers and
distributors may be considered for product sourcing; although they have higher
minimum order requirements, they can offer pricing arrangements which can
be considerably more profitable than dealing with the wholesalers.

The best ways to increase profit margin is to purchase directly from the
manufacturers and to import goods from overseas factories and distributors. Many
international Suppliers can offer low priced, high quality goods that can help
increase profitability. But importing requires dealing with many issues, such as
managing Suppliers, shipping and importation fees.

Liquidation sales are usually bulk lots of merchandise that are being sold when a
Retail Company goes out of business. Buying at liquidation can be a very good
way of getting very low priced merchandise for sale, but it does not create an
ongoing supply of the product.

Vendor’s terms and conditions: Vendor’s terms and conditions is an important

step in the product merchandising strategy. These depend on the nature of
product. The buyer and the Vendor negotiate and set the terms and conditions.
Some examples are: Dispatch /Transit time, Posting and Packaging,
Payment Options, Exchanges, Defects, Returns, Lost items, etc.

Pricing strategy: One of the four major elements of the marketing mix is price.
Pricing is an important strategic issue because it is related to product positioning.
Furthermore, pricing affects other marketing mix elements such as product
features, channel decisions, and promotion. Different pricing strategies are
discussed in detail in unit 9.

Packaging and presentation: The packaging and presentation of the product

plays an important role in merchandising. No matter how well is it made, a
product will not attract a buyer unless it is presented in an attractive manner.

1 cannot be expected that a car of a new model in a showroom will be presented

Buying and
required to pay until the stock is sold out. It is obvious that drop shipping can be
It

1 cannot be expected that a car of a new model in a showroom will be presented

 Introduction to Buying
a dirty state or having scratches on the body. Similarly, the packaging of Merchandising
produce displayed on the shelves of a supermarket is equally important; it should
be attractive in appearance, easy to handle, showing the brand name
prominently, and providing all the information, such as nutrition value,
ingredients, weight, price, manufacturing date, expiry date, discount, if any, etc.
clearly.

The corporate strategy of a Retail organization influences the buying strategy.

While the corporate strategy serves as a guiding framework for each and every
department within the organization, the buying strategy is more specific. For the
organization, it serves as guide for the function of buying, as well as to decide the
time-frame for specific actions to be accomplished. Thus, while the buying
strategy is reflection of the corporate strategy, it is specific only to the
Company’s buying department.

The buying policy not only ascertains a buyer’s duties and responsibilities, but
also enables the Suppliers and Vendors to clearly understand whether the
Company allows many Suppliers to be a part of its sourcing base, or restricts its
buying to/from a few Suppliers. The method of Supplier selection and the terms
and conditions that apply to them are also similarly determined.

1.6 MERCHANDISE MIX

Merchandise refers to the complete range of products that the Retailer chooses to
offer to its customers. Merchandise mix covers the breadth and depth of products
sold by the Retailers. Often, it is also referred to as the product assortment. Over
a period of time, the merchandise mix may change in keeping with the market
conditions, and may vary even during the course of the same year. For example,
the merchandise mix offered during Diwali is different from that offered in
summer time.

The merchandise mix comprises of products which the Retailer terms as staple,
classic or basic; combined after taking into consideration fashion, fads and
seasonal preferences. Staple/classic merchandise lines include those products that
are always in demand. Often, they make for the basic necessities of life such as
sugar, salt, pulses, etc. or are those products for which there is always a steady
demand. Depending on the type of the Retail model, the Retailer has to ascertain
the staple products for its stores. In many cases, these products can also be termed
as classics. Examples of the products which can be classified as staples are: which

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 Introduction to Buying
a dirty
shirts forstate
men,orsocks,
havinghandkerchiefs,
scratches on the body. Similarly,
stationery, etc. the packaging of

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Buying and
Developing a profitable merchandise mix is a continuous process. Using
metrics and benchmarks makes a consistent review of products and categories
possible. Reviewing historical performance, setting objectives and then
comparing the actual performance will lead to an actionable strategy for
developing an appropriate merchandise mix.

It is always advantageous to enlist the assistance of the marketing and

creative teams to support the merchandise-mix objectives.

Merchandise Line

It comprises of a group of closely related products intended for the same end use,
and sold to the same customer group. A given merchandise line also falls within
the same price range. Thus we can say that a combination of merchandise lines
makes up the merchandise mix.

Check Your Progress B

1. What do you mean by Merchandising Strategy?

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2. List the four components of the Merchandising Strategy?

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3. What is meant by Drop Shipping?

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4. What is Merchandise Mix?

…………………………………………………………………………………
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5. Which of the following statements are True or False?

i) Merchandising begins long before the customer enters the Retail Store.

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 Introduction to Buying
i A wide assortment of the right kind of goods goes a long way
building consumer loyalty. Merchandising

iii) Top down planning begins from the stock keeping unit and goes up
to the Company.
iv) Liquidation sales create an ongoing supply of the product.
v) Merchandise mix covers the breadth and depth of products sold by
the retailers.

1.7 LET US SUM UP

Merchandising can be defined as the marketing practice in which the brand or

image from one product or services is used to sell another. Merchandising, as
commonly used in marketing, also means the promotion of merchandise sales by
coordinating production and marketing, and developing advertising, display, and
sales strategies to increase Retail sales. It is important to understand that
merchandising is an integral part of the over-all strategy for success of a Retail
venture. It is much more than simply stocking and arranging the products on
shelves. It is truly an integral component of the store’s over-all business and can
go a long way toward improving its image and consequently sales.
Merchandising is all about creating a congenial environment in the Retail store
that aids customers in their over-all shopping experiences.

The basic principles around which the function of merchandising needs to revolve
are: understand the target market, build the merchandise plan, one Store at a time,
buy what your customers want, not what you want, build the right assortment, be
consistent, offer value, understand the needs of the Vendor and negotiate a win-
win, share information, accept the mistakes happen, and seek to surprise the
customer.

Merchandise planning can either be top down or bottom up planning. In the case
of top down planning, the senior management of the company would forecast the
growth that they envision for the Company and then this process would be
translated down to how the growth is to be achieved. Bottom up planning on the
other hand would start with planning at the individual Store and stock keeping
unit level and then up to the regional and national level.

A merchandising strategy is defined as a Company’s position with respect to a

given product-mix aimed at ensuring optimization of resources, achieving
target sales and margins and reducing stock outs and/or markdowns.
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Buying and
The merchandising strategy dictates the position that a
buyer/merchandise adopts with respect to the products to be sourced, the terms
and conditions agreed with the vendors and suppliers, the pricing strategy to
be adopted, and the method of packaging and presentation to the end
consumer.

Merchandise mix covers the breadth and depth of the products sold by the
Retailers. Often, it is also referred to as the product assortment. Over a period of
time, the merchandise mix may change in keeping with the market conditions,
and may vary even during the course of the same year.

1.8 KEY WORDS

Brand: A trademark or distinctive name identifying a product or a manufacturer.

Category: It is the classification of one or many items or beings.

Discounting: To deduct or subtract from a cost or price.

Liquidation: Liquidation is usually the last stage of a workout plan or

bankruptcy proceeding for a Company.

Merchandise: The objects of commerce; whatever is usually bought or sold in

trade, or market, or by merchants; wares, goods, commodities.

Pricing: To establish a selling price for a product.

Product Mix: The variety of product lines that a Company produces, or that a
retailer stocks.

Stock Outs: Situation where the demand or requirement for an item cannot be
fulfilled form the current inventory.

Supply Chain: The network of retailers, distributers, transporters, storage

facilities and suppliers that participate in the sale, delivery and production of a
particular product.

Target Market: Target market is the specific group of customers that a company
aims to capture.

1.9 ANSWERS TO CHECK YOUR PROGRESS

B 5 i) True ii) True iii) False iv) False v) True

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1.10 TERMINAL Merchandising

1. Explain merchandising. Describe different factors that are helpful in the

merchandising.
2. Describe basic principles of merchandising.
3. What is meant by merchandising strategy? Explain its different components.
4. Describe different types of the product sources giving the advantages of
each type.
5. What do you mean by merchandising mix? How can a profitable merchandise
mix be developed?

Activitie
s

1. Study the merchandising being followed in your nearby Mall

with particular emphasis on the following points:
a) Window dressing
b) Signage
c) Display of merchandise
d) Reception of the customers by the staff
2. Would you like to make any suggestions to improve the
above points further?