category management & private label profitability w. frank dell ii, cmc dellmart & company...
TRANSCRIPT
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CATEGORY MANAGEMENT CATEGORY MANAGEMENT &&
PRIVATE LABEL PRIVATE LABEL PROFITABILITYPROFITABILITY
W. Frank Dell II, CMC
DELLMART & Company
May, 2001
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2DELLMART & COMPANY
AgendaAgenda Category Management
– Introduction– Distributor Program– Supplier Program
Private Label Profitability– Introduction– Activity Based Costing– Net Profit Applications
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3DELLMART & COMPANY
ObjectivesObjectives Provide an overview of category management and
its process Identify strengths and weaknesses Outline a supplier’s approach
INTRODUCTION
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4DELLMART & COMPANY
DefinitionsDefinitions Category
A distinct, manageable group of products/services that consumers perceive to be interrelated and/or substitutable in meeting a consumer’s needs.
Category Management
The distributor/supplier process of managing categories as strategic business units, producing enhanced business results by focusing on delivering consumer value.
INTRODUCTION
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5DELLMART & COMPANY
Charter for ChangeCharter for ChangeFrom
Push
Salesperson
Buyer/Seller
Cost Averaging
Deals
Sales Drivers
To
Pull
Business Team
Account Management
Cost to Serve
Pay for Performance
Profit Drivers
INTRODUCTION
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6DELLMART & COMPANY
Charter for ChangeCharter for ChangeFrom
Data Protection
Data
Shelf Management
Win/Lose
Fast
To
Data Sharing
Knowledge
Assortment Management
Win/Win
Fastest
INTRODUCTION
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7DELLMART & COMPANY
Does Category Management Does Category Management Work?Work?Copps Corporation - Wisconsin, USA
Snack Category 3 year increase 87%– Year 1 33%– Year 2 22%– Year 3 15%
Candy Category 2 year increase 111%– Year 1 60%– Year 2 32%
INTRODUCTION
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8DELLMART & COMPANY
Brand ManagementBrand Management
Started in the 50’s & 60’s Brand General Manager
ProductDevelopment
Promotions
Advertising
Profit & LossResponsibility
BrandManagement
INTRODUCTION
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9DELLMART & COMPANY
Supplier MigrationSupplier Migration
Brand Management
Snap, Crackle & Pop
Vs
Tony The Tiger
Vs
General Mills
Category Management
Kellogg
Vs
General Mills
&
Breakfast Alternatives
INTRODUCTION
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10DELLMART & COMPANY
ComponentsComponents
Strategy
Business Process
ScorecardCollaborative Trading Partner Relationships
Information Technology
Organization Capabilities
DISTRIBUTOR
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11DELLMART & COMPANY
ElementsElements Manage the category as a strategic business unit Develop strategic category plans based on category
goals, competitors and market conditions Determine price, merchandising, promotion and
product mix Collaborate with suppliers
DISTRIBUTOR
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12DELLMART & COMPANY
Process ActivitiesProcess Activities
Category Definition
Category Role
Category Assessment
Category Scorecard
Category Strategies
Category Tactics
Plan Implementation
Cat
egor
y R
evie
w
DISTRIBUTOR
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13DELLMART & COMPANY
DefinitionDefinition What products are in a category? How will categories be grouped?
Source: ECR Category Management
Category
Sub-Category
Sub-Category
Segment
Segment
Segment
Segment
Sub-Segment
Sub-Segment
Sub-Segment
Sub-Segment
Sub-Segment
Sub-Segment
Sub-Segment
Sub-Segment
DISTRIBUTOR
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14DELLMART & COMPANY
Category RoleCategory RoleDestinationTo be the primary category provider and help define the retailer as the store of choice by delivering consistent, superior target consumer value.
RoutineTo be one of the preferred category providers and help develop the retailer as the store of choice by delivering consistent, competitive target consumer value.
Occasional/SeasonalTo be a major category provider, help reinforce the retailer as the store of choice by delivering frequent, competitive target consumer value.
ConvenienceTo be a category provider and help reinforce the retailer as the store of choice by delivering good target consumer value.
DISTRIBUTOR
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15DELLMART & COMPANY
AssessmentAssessmentDISTRIBUTOR
Share&
Efficiently
Contribution&
Productivity
Market Share&
Benchmarks
Buyer Profile&
Purchase Behavior
Distributor
Market
Consumer
Supplier
CategorySub-Category
SegmentBrandSKU
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16DELLMART & COMPANY
Distributor ScorecardDistributor ScorecardConsumer Current Target Retention Level ______________________________ Purchase Incidence ______________________________ Satisfaction Rating ______________________________Share Category of Department ______________________________ Category of Market ______________________________Sales Category $ ______________________________ Growth ______________________________ Sales/Sq. Ft/Week _______________ ______________Profit Gross Profit $ ______________________________ Gross Margin ______________________________ Gross Profit Sq. Ft/Week ______________________________
Private Label Sales ______________________________ % of Gross Profit ______________________________ Gross Margin ______________________________
Product SupplyDays of Supply ______________________________Inventory $ ______________________________Turns ______________________________GMROI ______________________________Service Level ______________________________
DISTRIBUTOR
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17DELLMART & COMPANY
Consumer StrategiesConsumer Strategies
Category Roles
Attract Strategy - Traffic Building - Image EnhancingBuild Loyalty Strategy - Transaction Building - Turf ProtectorMicro marketing
DC/Store Receiving - Auto ReplenishmentTransportation - DSD, BackhaulDC/Store Handling - Cross Dock - Sale-Ready Packaging
DC/Store Receiving - Auto ReplenishmentTransportation - DSD, BackhaulDC/Store Handling - Minimize Handling - Reduce Shrink
Transportation - Reduce Transit TimeDC/Store Handling - Reduce Shrink - Sale-Ready Packaging
DC/Store Receiving - Auto Replenishment DC/Store Handling - Minimize Handling - Reduce Shrink
Acquisition Strategy - Best Quality/Reliability - Best Cost & Terms
Transaction Strategy - All EDI & EFT
Acquisition Strategy - Best Quality/Reliability - Best Cost & Terms
Transaction Strategy - Majority EDI & EFT
Acquisition Strategy - Best Quality/Reliability - Best Cost & Terms
Transaction Strategy - Some EDI & EFT
Acquisition Strategy - Low Cost
Full Service - (If Necessary)
Differentiated - (From Competition)
Build Loyalty Strategy - Transaction Building - Turf Protecting
Cluster Marketing
Semi-Service - (If Necessary)
Non-Differentiated - (From Competition)
Attract Strategy - Traffic Building - Excitement Creating
Cluster Marketing
Build Loyalty Strategy - Transaction Building
Uniform Marketing
Self Service - (If Necessary)
Non-Differentiated - (From Competition)
Self-Service
Non-Differentiated - (From Competition)
Category Roles
Category Strategies
Procurement Distribution Marketing In-Store Service
Destination
Routine
Occasional/Seasonal
Convenience
DISTRIBUTOR
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18DELLMART & COMPANY
Distributor StrategiesDistributor Strategies
Traffic Building
Transaction Building
Profit Contribution
Cash Generating
Excitement Creating
Image Creating
Turf Defending
Higher Ring-up, Impulse Purchasing
Higher Gross Margin, Higher Turns
Higher Turns, Frequently Purchased
Impulse, Lifestyle-Oriented, Seasonal
Category Strategies Category Strategies Characteristics
Frequently Purchased, Highly Promoted, Impulse, Unique Items, Seasonal
Used by Retailers to Draw Traditional Customer Base
High Share, Frequently Purchased, High % of Sales
DISTRIBUTOR
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19DELLMART & COMPANY
Distributor TacticsDistributor Tactics
Prime Store Location - High Traffic - High Exposure TimeHigh Cube Allocation (Cube to Time Supply)
Leadership - Best Value (Per Unit or Use) - Entire Category
Competitive/Consistent - Equal to Competition (Per Unit or Use) - Sub-Categories - Segments - Major Brands/SKU - Reduce Shrink
Competitive/Seasonally - Close to Competition (Per Unit or Use) - Sub-Categories - Segments
Non-Inflammatory - Within Reach to Competition (Per Unit or Use) - Major Brands/SKUs
Complete Variety - Sub-Categories - Segments - Brands - SKUs
Broad Variety - Sub-Categories - Segments - Major Brands - Major SKUs
Timely Variety - Sub-Categories - Segments
Select Variety - Major Brands/SKUs
High Level of Activity (If Necessary) - High Frequency - Long Duration - Multiple Vehicles
Average Store Location - High Frequency
High Cube Allocation (Cube to Time Supply)
Average Level of Activity (If Necessary) - Average Frequency - Average Duration - Multiple Vehicles
Good Store Location - High Traffic
Average Cube Allocation (Cube to Time Supply)
Available Store Location
Low Cube Allocation (Cube to Time Supply)
Seasonal/Timely Activity (If Necessary) - Multiple Vehicles
Low Level of Activity - Multiple Vehicles
Category Roles
Category Tactics
Assortment Pricing Shelf Presentation
Promotion
Destination
Routine
Occasional/Seasonal
Convenience
DISTRIBUTOR
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20DELLMART & COMPANY
Retail Category PortfolioRetail Category Portfolio
Flagship Cash Machine Maintain/Grow
Core Traffic Under Fire Rehab
Sales Dollars LowHigh
High
Low
GrossMarginPercent
DISTRIBUTOR
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21DELLMART & COMPANY
Retail Category PortfolioRetail Category Portfolio
Sleeper Winners
Questionable Opportunity Gaps
Market Growth
RetailerShare ofMarket
Low High
High
Low
DISTRIBUTOR
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22DELLMART & COMPANY
Consumer Based Category Consumer Based Category RolesRoles
Staples Niches
Necessities Fill-ins
Reach
Frequency
LowHigh
High
Low
DISTRIBUTOR
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23DELLMART & COMPANY
Before OrganizationBefore Organization
VP Merchandising
Buyer Buyer Buyer Administration
Retail Pricing AdvertisingSpace
DISTRIBUTOR
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24DELLMART & COMPANY
After OrganizationAfter Organization
Product Supply
Space Allocation
Retail Merchandising
Category Analysis
Retail Pricing
Advertising Coordination
Price/Data Integrity
Marketing Services
Allowance/Cost Control
CategoryManagement
DISTRIBUTOR
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25DELLMART & COMPANY
ResponsibilitiesResponsibilities
Responsibilities Retailers Wholesalers
Negotiation with suppliers 84.6%
Determine investment buys 76.9%
Determine promotions- items/schedule 73.1%
Sales/profit/market share goals 57.7%
Develop strategic alliances 53.8%
Budget development 50.0%
Strategic category planning 46.2%
Competitive store analysis 34.6%
Optimize by store clusters 26.9%
Develop shelf plan-o-gram
86.4%
83.1%
71.2$
69.5%
66.1%
64.4%
61.0%
61.0%
44.1%
42.4% 26.9%
DISTRIBUTOR
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26DELLMART & COMPANY
Category DefinitionsCategory DefinitionsNUMBER OF CATEGORIES RETAILERS WHOLESALERS
1 TO 99 20.0% 16.7%
100 TO 199 30.0% 16.7%
200 OR MORE 27.5% 25.0%
Average Number 191 148
DISTRIBUTOR
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27DELLMART & COMPANY
Review FrequencyReview Frequency
0.00% 10.00% 20.00% 30.00% 40.00% 50.00%
Weekly
Monthly
Quarterly
Semi-annually
Annually
Sporadic
Retailer Wholesaler
DISTRIBUTOR
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28DELLMART & COMPANY
What’s Really Happening?What’s Really Happening?
1. Official approach leaves out consumer
Merchandisers see CM to lift sales
Executives see CM to raise margins
Neither see it for what it was intended: framework for understanding the consumer
2. Wide gap between results and expectations
Cornell study ranged from 3 to 8 point lift in EBIT
73% of CM practitioners rate experience “somewhat” or “not at all” successful
Many of the few that claim success can’t support it with metrics
3. Official approach is too complicated
Only 15% claim to be following the guidelines
CEO at large chain: “We’d have to hire 14 full-time people just to fill out and maintain the templates.”
Personnel talent a problem
4.“One-size-fits-all” is not working
40% don’t even see need to assign roles
Half do not employ Activity-Based-Costing
Industry current-state is too diverse. Take merchandising approaches: high/low, every-day low, premium, limited selection, semi-warehouse, superstore, etc..
DISTRIBUTOR
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29DELLMART & COMPANY
ScopeScope
Category Leader
Respected
Supplier
Preferr
ed Supplier
Cost Reductio
n
Alliance
SUPPLIER
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30DELLMART & COMPANY
Sales EvolutionSales Evolution
Available Sales
Gross Margin
Share
D.P.P.Category
Management
SUPPLIER
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31DELLMART & COMPANY
PerspectivePerspectiveDifferences
Supplier
Retailer Store
Brands
Check your bias at the door
Bring your knowledge
SUPPLIER
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32DELLMART & COMPANY
PrinciplesPrinciples Consumer is the common focus Mutually agreed objectives, strategies, tactics and
scorecard measures Rewards support collaborative goals Relationships and trust are earned, not given Information sharing is essential Win/win is critical for success Multifunctional access and communication Openness to change traditional attitudes and
relationships
SUPPLIER
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33DELLMART & COMPANY
Supplier StepsSupplier Steps
Preparation ExecutionCoordination
Create team Develop plan Collect information Develop tools Package program
Target customers Present plan Establish goals Organize team Develop scorecard Establish schedule
Share information Perform analysis Develop plan Implement plan Monitor results Modify plan
SUPPLIER
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34DELLMART & COMPANY
ObjectivesObjectives Provide introduction to Activity Based Costing (ABC) Identify Net Profit Applications
INTRODUCTION
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35DELLMART & COMPANY
Why Net Profit?Why Net Profit? Gross Margin ineffective management tool Simple relationship - cost Vs retail price Not a predictor of profit
INTRODUCTION
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36DELLMART & COMPANY
What is Net Profit?What is Net Profit? Sales
- Cost of Goods Sold
= Gross Margin
+ Direct Revenue
- ABC Costs
= Net Profit
INTRODUCTION
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37DELLMART & COMPANY
DefinitionDefinition ABC is a cost allocation or assignment methodology Cost assignment based on:
– Activities - Tasks within a process– Drivers - Factors creating costs
ABC
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38DELLMART & COMPANY
ABC Vs DPPABC Vs DPPABC DPP
Sales Yes Yes
Cost of Goods Yes Yes
Direct Revenue Yes Yes
Headquarters Yes No
Warehouse Yes Yes
Transportation Yes Yes
Store Yes Yes
ABC
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39DELLMART & COMPANY
Allocates All CostsAllocates All Costs Headquarters
– Management
– Merchandising
– Finance & Accounting
– Human Resources
Warehouse– Management
– Labor
– Benefits
– Space
– Utilities
Transportation– Labor
– Equipment
– Supplies
Stores– Management
– Labor
– Benefits
– Space
– Utilities
ABC
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40DELLMART & COMPANY
Primary ProcessesPrimary Processes
Product-In Product-Out
Buying DistributionStore
OperationsAdministration
ABC
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41DELLMART & COMPANY
Costs Follow Product FlowCosts Follow Product Flow
Distribution Center
Direct Store Delivery
Drop Ship Wholesaler
Store
ABC
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42DELLMART & COMPANY
Greatest cost is Display Greatest cost is Display SpaceSpace
ABC
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43DELLMART & COMPANY
Sales By DepartmentSales By Department
Edible29%
Non-Edible9%Frozen
7%Dairy15%
Bakery4%
HBC4%
Gen. Merch.1%
All Other31%
Edible
Non-Edible
Frozen
Dairy
Bakery
HBC
Gen. Merch.
All Other
ABC
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44DELLMART & COMPANY
Gross Margin By DepartmentGross Margin By Department
Edible20%
Non-Edible7%
Frozen7%
Dairy18%
Bakery4%
HBC3%
Gen. Merch.1%
All Other40%
Edible
Non-Edible
Frozen
Dairy
Bakery
HBC
Gen. Merch.
All Other
ABC
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45DELLMART & COMPANY
Net Profit By DepartmentNet Profit By Department
Edible29%
Non-Edible10%Frozen
10%
Dairy30%
Bakery5%
HBC3%
Gen. Merch.2%
All Other11%
Edible
Non-Edible
Frozen
Dairy
Bakery
HBC
Gen. Merch.
All Other
ABC
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46DELLMART & COMPANY
Superior Private Label Superior Private Label CategoriesCategoriesPrivate Label products achieved results superior to branded in the following categories:
Baby Food & Formula Bleach Rfg Dips Hair ConditionerBaking Cups/Paper Charcoal Rfg Sour Cream Hair Spray/SpritzBaking Needs Diapers English Muffins Home Health DiagnosticsBottled Water Pet Suppliers Adult Incontinence Internal AnalgesicsCandy Tobacco Products Cold/Allergy/Sinus Liq MouthwashCoffee Creamer Fz Fruit Cold/Allergy/Sinus Tab Shaving CreamPasta Fz Potatoes/Onions Cosmetics - Nail Weight Control Liq/PwdPowdered Milk Fz Prepared Vegetables Eye Care Products Auto Fluids/AntifreezeSpices/Seasonings Other Frozen Foods First Aid Treatments FilmSugar Rfg Butter Food Care Products Plastic BottlesVegetables Rfg Cottage Cheese
ABC
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47DELLMART & COMPANY
PLMA ModelPLMA ModelAPPLICATIONS
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48DELLMART & COMPANY
Success FactorsSuccess Factors Logical presentation Reasonable assumptions Demonstrate knowledge of business Promote benefits
– Consumer sales– Customer profits
APPLICATIONS
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49DELLMART & COMPANY
New ProductsNew Products Life blood for retailers and
suppliers Primary driver of growth Replacement Vs
Cannibalization Strategy
APPLICATIONS
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50DELLMART & COMPANY
ApproachApproach Select items for replacement
– Low sales– Matching consumer target markets
Collect customer and competitive data Run model Present
– Current sales and net profit– Projected sales and net profit
APPLICATIONS
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51DELLMART & COMPANY
Retail SpaceRetail Space Most coveted merchandise
element Interacts with pricing Shelf space is greatest item
cost
APPLICATIONS
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52DELLMART & COMPANY
Balance SpaceBalance SpaceToo Little
Consumer can’t find Reduced sales Lost sales
Too Much Lower profits
APPLICATIONS
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53DELLMART & COMPANY
Diminishing ReturnsDiminishing Returns
$-
$5.00
$10.00
1 2 3 4 5 6 7 8
Facings
Sales
Excess space does not increase sales Minimum - Case plus order cycle
– Minimizes stocking labor
APPLICATIONS
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54DELLMART & COMPANY
ApproachApproach Determine minimum units and facings Identify net profit Test & evaluate alternatives
– Increase unit sales– Increase facings
Present– Current sales and net profit– Projected sales and net profit
APPLICATIONS
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55DELLMART & COMPANY
Retail PricingRetail Pricing Price discussions should not
be taboo Price too high
– Lost sales
Price too low– Lost sales
– Lost profit
APPLICATIONS
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56DELLMART & COMPANY
Retailer GoalsRetailer Goals
Low
• Price Image
• Gross Margin• Quality Ratio
High
APPLICATIONS
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57DELLMART & COMPANY
ConsumersConsumers Recall up to 200 item prices Frequently purchased items High consumables Translates to 500 - 1,000
items creating store’s price image
APPLICATIONS
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58DELLMART & COMPANY
Value is KingValue is King
Value = Price
Quality
APPLICATIONS
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59DELLMART & COMPANY
ApproachApproach Compare product quality Load model Test & evaluate alternatives
– Change retail price– Hold constant and change unit sales
Present– Current sales and net profit– Projected sales and net profit
APPLICATIONS
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60DELLMART & COMPANY
PromotionsPromotions Most frequently used
promotion tool– Advertising
– Display
– Price reduction
Private Label under-represented– Accrual funds
– Lack targeted program
APPLICATIONS
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61DELLMART & COMPANY
Why Promote?Why Promote? Create merchandising excitement Attract customer Foster consumer trial Load pantry Reward loyal consumers Present value proposition
APPLICATIONS
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62DELLMART & COMPANY
Promotions are DifficultPromotions are Difficult
SelectionSelection
CompetitionCompetition
HolidayHoliday
WeatherWeather
SeasonSeason
ThemeTheme
PricePrice
ProfitProfit
ExecutionExecution
StoresStores
AdvertisingAdvertising
BuyingBuying
APPLICATIONS
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63DELLMART & COMPANY
Many Promotional FactorsMany Promotional Factors
Advertising(ABC)
Advertising(ABC)
PricePrice DiscountDiscount
DisplayDisplay POPPOP SeasonSeason
APPLICATIONS
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64DELLMART & COMPANY
Promotion ConclusionsPromotion Conclusions Low Private Label share
Moderate Private Label share
Natl. BrandPrivate Label
Natl. BrandPrivate Label
APPLICATIONS
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65DELLMART & COMPANY
ApproachApproach Research past promotions Load model Test & evaluate alternatives
– Change price– Change index
Present– Current sales and net profit– Projected sales and net profit
APPLICATIONS
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66DELLMART & COMPANY
SummarySummary Net Profit is the ultimate sales tool PLMA Net Profit Model
– Easy to use– Provides great flexibility– Great learning tool
Coach customer to increase profits
APPLICATIONS