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PURCHASE NEGOTIATION AND SUPPLY
CHANNEL RELATIONSHIP
Retail Management
Presented by: GROUP 2
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Learning ObjectivesWhat is Merchandise Buying
Process of Merchandise Buying
Factors Affecting Merchandise Buying
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KEY TERMSMerchandise Management is the analysis,
planning, acquisition, handling, and control ofthe merchandise investments of a retailoperation
Merchandise Line is a group of products that
are closely related because they are intended for the same end use (all televisions)
are sold to the same customer group (kids clothing)
or fall within a given price range (budget mens wear)
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Contd.Variety refers to the number of different
merchandise lines that the retail stocks in thestore.
Breadth (or assortment) is the number ofmerchandise brands that are found in a
merchandise line.
Depth is the average number of stock-keepingunits within each brand of the merchandiseline. 4
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Merchandise Buying
ProcessThe process through which a retailer decides
what merchandise to buy and in what quantity
Steps in Merchandise management
Creating an assortment plan for a category
Forecasting Sales Outlining the flow of merchandising
Buying a merchandise
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QUESTIONS EXPLAINING THE
PROCESS
What branding options are available to the
retailers?
How do retailers buy national brands?
How do retailers prepare for and conductnegotiations with their vendors?
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Contd.What legal and ethical issues are involved in
buying merchandise?
What issues do retailers consider whenbuying and sourcing private-label
merchandise internationally?
Why are retailers building strategicrelationships with their vendors?
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Contd.
National-label brand: Also known as manufacturerbrands, are products designed, produced andmarketed by a vendor and sold to many different
retailers
Umbrella branding (e.g. Kellogs, Amul)
Not associating name with a product (e.g. P&G)
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Contd.Private-label brands: Also called store-
brands, are products developed and managedby retailers
Retailers typically develop the specificationsfor their private labels and then contract withmanufacturers, often located in countries withdeveloping economies, to produce the product
Also national-brand manufacturers candevelop a private-label brand for a specificretailers e.g. Levis Signature jeans wasdeveloped specifically for sale at Wall-Mart inUSE. . STOP, FORCA eans etc. 10
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Contd.Licensed Brands: These are the brands for
which the owner of a well known brand entersinto a contract with a licensee to develop ,produce and sell the branded merchandise
Licensees may be :A retailer
A third party
E.g. Any retailer selling a sweatshirt with auniversitys logo printed on it has to obtainthe license from that university by paying
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Manufacturer Vs Private
brands
-: Disadvantage ; +: Advantage; ?: depends on circumstances
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Impact on store Manufacturer brands Private-label brands
Store Loyalty ? +
Store Image + +
Traffic Flow + +Selling & Promotionalexpense
+ -
Restrictions - +
Differential Advantage - +
Margins ? ?
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MEETING WITH VENDORSTo reach to a buying decision a retailer must
meet a vendor. The places where a retailercan meet a vendor include
Wholesale market centers: A Concentration ofvendors within a specific geographic locationthat may be under one roof or even on theInternet
Trade shows: These are the shows wherevendors display there product range andofferings to the buyers(retailers)
Vendors office
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Wholesale market Vs Trade
showsThe meetings during market weeks offer an
opportunity for in-depth discussion where as tradeshows have the advantage for buyers to see the
merchandise offered by different vendors
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NEGOTIATING WITH
VENDORSNegotiating is the process of finding mutually
satisfying solutions when the retail buyer andvendor have conflicting objectives.
The mantra for negotiation is
Knowledge Is PowerThe more a buyer knows about his situation
and that of the vendor, more powerfully canhe negotiate
In this process the buyer may provide thevendor with some new ideas or current trendse.g. fashion trend in some other region etc.
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MAJOR ISSUES IN
NEGOTIATIONPrice and Gross Margin
Additional Markup Opportunities
Terms of PurchaseDelivery and Exclusivity
Advertising Allowances
Transportations
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LEGAL & ETHICAL ISSUESTerms & conditions of purchase
Resale price maintenance
Commercial BriberyChargeback
Slotting allowances
Exclusives
Counterfeit Merchandise
Gray Markets
Tying Contract
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Protect individualretailers from chainretailers
Vendors can offerdifferent terms to retailersfor the same merchandise,if the costs ofmanufacturing, selling anddelivery are different
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LEGAL & ETHICAL ISSUESTerms & conditions of purchase
Resale price maintenance
Commercial BriberyChargeback
Slotting allowances
Exclusives
Counterfeit Merchandise
Gray Markets
Tying Contract
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It is a requirementimposed by any vendorthat retailer can not sell
a particular item for lessthan a specific price
Example of BOSESpeakers
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LEGAL & ETHICAL ISSUESTerms & conditions of purchase
Resale price maintenance
Commercial BriberyChargeback
Slotting allowances
Exclusives
Counterfeit Merchandise
Gray Markets
Tying Contract
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No vendor or hisagents are allowed tooffer something ofvalue to the buyer toinfluence the purchasedecision
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LEGAL & ETHICAL ISSUESTerms & conditions of purchase
Resale price maintenance
Commercial BriberyChargeback
Slotting allowances
Exclusives
Counterfeit Merchandise
Gray Markets
Tying Contract
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Retailer deducts anamount of money fromwhat he owes to avendor
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LEGAL & ETHICAL ISSUESTerms & conditions of purchase
Resale price maintenance
Commercial BriberyChargeback
Slotting allowances
Exclusives
Counterfeit Merchandise
Gray Markets
Tying Contract
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It is an amount that avendor pays to a retailerfor securing a space inthe retail outlet to display
its products
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LEGAL & ETHICAL ISSUESTerms & conditions of purchase
Resale price maintenance
Commercial BriberyChargeback
Slotting allowances
Exclusives
Counterfeit Merchandise
Gray Markets
Tying Contract
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Retailers ask thevendors for an exclusivearrangement so that noother retailer can sell the
item or brand
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LEGAL & ETHICAL ISSUESTerms & conditions of purchase
Resale price maintenance
Commercial BriberyChargeback
Slotting allowances
Exclusives
Counterfeit Merchandise
Gray Markets
Tying Contract
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A retailer should not sellthe goods of a particularbrand or with atrademark without
obtaining the permissionof the brand owner
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LEGAL & ETHICAL ISSUESTerms & conditions of purchase
Resale price maintenance
Commercial BriberyChargeback
Slotting allowances
Exclusives
Counterfeit Merchandise
Gray Markets
Tying Contract
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A retailer should not getinvolved into graymarketing, that is sellinga country specific
registered trademarkproduct made by aforeign manufacturer atlesser prices
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LEGAL & ETHICAL ISSUESTerms & conditions of purchase
Resale price maintenance
Commercial BriberyChargeback
Slotting allowances
Exclusives
Counterfeit Merchandise
Gray Markets
Tying Contract
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In such a contractvendors restrict theretailer from buying theneeded merchandise
until he purchases themerchandise that vendorasks him to buy even if itis not needed by theretailer
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BUYING A PRIVATE-LABEL
BRANDBuying and Selling private-label brands is a
strategic decision as it involves a significantinvestment
Retailers offering PL have specializeddepartments which have people for:
Identifying trends
Designing & specifying products
Selecting manufacturers
Maintaining staff to monitor the conditions underwhich products are developed
Testing the quality of manufactured products
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Reverse AuctionsOne buyer (retailer) and many potential sellers
(vendors)
Retailer provide the specification of what theywant to a group of potential vendors, whothen bid for fulfilling the requirement
Buyer may not buy from the lowest bidder butfrom the one who assures good quality andon-time delivery with a reasonable price
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Global SourcingDiminishing barriers(tariffs, duties etc.) to
International trade have opened the door tooutsourcing of manufacturing of products to
countries with developing economies
Low labor cost acts as a major factor
However the factors that give rise to the cost
includeForeign currency fluctuations
Tariffs
Longer lead time
Increased transportation cost
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STRATEGIC
RELATIONSHIPSIt occurs when a retailer and a vendor are
committed to maintaining the relationshipover the long term and investing in
opportunities that are mutually beneficial tothe parties
It creates a Win-Win situation as:Size of profit increases
Sales volume increases
Both parties focus on uncovering and exploitingjoint oppurtunities
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Fundamentals of successful Strategic relationship
Mutual Trust
Open Communication
Common GoalsCredible Commitments
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A belief that thepartner is
Honest
Benevolent
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Fundamentals of successful Strategic relationship
Mutual Trust
Open Communication
Common GoalsCredible Commitments
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To shareinformation
To develop sales-forecast together
To sort out theproblems inrelationship
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Fundamentals of successful Strategic relationship
Mutual Trust
Open Communication
Common GoalsCredible Commitments
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To have commongoals like
Enhancingprofit
Increasing thesales volume
Businessexpansion
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Fundamentals of successful Strategic relationship
Mutual Trust
Open Communication
Common GoalsCredible Commitments
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These are tangibleinvestments inrelationship
It may includespending money toimprove suppliersproduct or servicesprovided to thecustomer
FACTORS AFFECTING
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FACTORS AFFECTINGMERCHANDISE BUYING
In selecting merchandising sources thefollowing criteria should be considered:
Selling historyConsumers perception of the manufacturers
reputationReliability of delivery
Trade termsQuality of Merchandise
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Contd.After sale service
Transportation time
Inventory carrying cost
Fashionability
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Common Buying Errors Buying merchandise that is either priced too high or too lowfor the stores target market.
Buying the wrong type of merchandise (i.e., too many shirtsand no trousers) or buying merchandise that is too trendy.
Having too much or too little basic stock on hand. Buying from too many vendors. Failing to identify the seasons hot items early enough in the
season.
Failing to let the vendor assist the buyer by adding new
items and/or new colors to the mix. (All too often, theoriginal order is merely repeated, resulting in a limitedselection.)
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POULIN
RIYASJOYRAJ AND
ARAVIND