ASSIGNMENT 1

TOPICS COVERED:
PRODUCT MANAGEMENT, BRAND MANAGEMENT AND RETAILING, MERCHANDISE MANAGEMENT, MODEL STOCK PLAN

BY P.RAMASUBRAMANIAM 11MAT08

PRODUCT MANAGEMENT

INTRODUCTION

Product development is the process of designing, building, operating, and maintaining a good or service. Software and Internet companies use a product development process to ensure that they are not just manufacturing a technology, but creating a product that people will want to buy and continue to use. To be sure, a base technology is at the heart of the product, but product development ensures that the customers voice is not lost in the rush to an exciting technology. Product development adds things like pricing, marketing, and customer support to the technology to create a complete product.Product management is an organizational
lifecycle function within a company dealing with the planning or forecasting or marketing of a product or products at all stages of the product lifecycle.

Product management (inbound focused) and product marketing (outbound focused) are different yet complementary efforts with the objective of maximizing sales revenues, market share, and profit margins. The role of product management spans many activities from strategic to tactical and varies based on the organizational structure of the company. Product management can be a function separate on its own and a member of marketing or engineering.

PDMA

While involved with the entire product lifecycle, product management's main focus is on driving new product development. According to the Product Development and Management Association (PDMA), superior and differentiated new products ones that deliver unique benefits and superior value to the customer is the number one driver of success and product profitability.

Product strategy Product strategy focuses on planning and managing the product business model over its lifecycle. The main components of the product business model are: Product market definition defining the target markets and customers, the urgent customer needs to address, and the total solution needed to meet those needs better than competing solutions. This includes defining both market and product roadmaps laying out how the innovation will be commercialized over time. Business system definition how the product or service will be developed, marketed, sold and delivered. This includes both defining the key internal functional disciplines and models needed, as well as identifying external partners in one or more parts of the business system. Economic model how the innovation will make money, including funding, investment, revenue, costs and cash flow. Getting the product market definition right is probably the single biggest driver of value in the whole venture. The difference between focusing on a large, unmet need with a compelling, superior solution, and offering an unexciting product to a small market with no compelling needs, cannot be over-stated. The former will create good returns even with mediocre execution, while the latter will soak up huge amounts of investment for a long period of time without ever really succeeding. The large majority of problems with innovation and new ventures excessive funding needs, lengthy time-to-market, lengthy sales cycles, slow rate of market traction, poor valuation are a result of poor product market definition. The business system definition is also very important. Many ventures try to commercialize innovation using an inappropriate business system, because it reflects their prior experience, not the needs of this venture. So for example, they follow a not invented

here mentality and try to build everything in-house, when technology or IP is available externally at much lower cost and time-to-market; or they try to build a direct sales force when a web-based and licensing model would be far more value creating. Naturally, the economic model is also of central importance, to ensure all opportunities and risks are considered from the beginning, and to ensure that product market strategy and business system put in place to execute on that strategy deliver optimal financial results. The primary responsibilities within product strategy include: In-depth market analysis, including customer research, competitive analysis and market eco-system analysis. Internal collaboration to lead the cross-functional team in defining the right solutions to meet the identified market needs. Internal and external collaboration, communication and management to ensure the implementation and execution of the product business model across its lifecycle. The main client discipline for product strategy is general management. By creating a powerful and value-creating product business model, product management enables general management to attract the right caliber of executives, secure the right amounts of funding, and build the optimal network of alliances and strategic partnerships for the venture. Product development Product development focuses on building and delivering products as efficiently as possible. The primary responsibilities of the product development role comprise: Developing clear and detailed whole product definitions the total set of product features and benefits, together with target product economics (selling prices, costs and margins). Working with the engineering discipline (including research, design, development and testing) to ensure products are designed and developed to meet requirements. Defining the customer experience desired for customers to purchase, receive, install and maintain the product. Working with the operations discipline (sourcing, production, delivery, support, billing) to design and implement processes that deliver the desired customer experience. The product development role is critical to managing a number of common challenges: Reducing product complexity and production, delivery and support costs. Minimizing re-work due to unclear or incorrect product features. Eliminating time and money spent on unnecessary features and functionality.

Ensuring rapid market acceptance through continual customer input during development. Ensuring operational needs are considered in parallel with product design and development. Ensuring the totality of the product and customer experience fully realizes the product vision and strategy. Product marketing: Product marketing focuses on attracting and winning customers as effectively as possible. The primary responsibilities of the product marketing role comprise: Clearly defining the target markets, customers, needs and buying cycles, and working with both the marketing and sales disciplines to ensure there is complete consistency and focus on the target market. Developing the products core messaging value proposition, elevator pitch, detailed product descriptions, product presentations and demonstrations, white papers and case studies. Working with marketing to provide subject matter expertise, content and input for marketing communications programs such as web site and collateral design, media and analyst relations, direct marketing, trade shows and conferences. Working with sales on customer presentations, developing proposals and tailoring deals to win business. The product marketing role is critical to managing a number of common challenges: Ensuring close coordination between sales and marketing in terms of target market and key messages. Enabling high response rates to marketing programs based on optimal targeting, positioning and messaging offering real value to target customers, media contacts, analysts and conference organizers that is of high interest and meets their needs. Ensuring the groundwork is laid by marketing before beginning to incur high selling costs. Keeping sales cycle short by offering compelling solutions to urgent needs in well defined markets. Facilitating high sales win rates through tailoring product positioning, pricing and benefits to individual customer needs. Aspects of product management Depending on the company size and history, product management has a variety of functions and roles. Sometimes there is a product manager, and sometimes the role of product manager is held by others. Frequently there is Profit and Loss (P&L) responsibility as a key metric for evaluating product manager performance. In some companies, the product management

function is the hub of many other activities around the product. In others, it is one of many things that need to happen to bring a product to market. Product management often serves an inter-disciplinary role, bridging gaps within the company between teams of different expertise, most notably between engineering-oriented teams and business-oriented teams. For example product managers often translate business objectives set for a product by Marketing or Sales into engineering requirements. Conversely they may work to explain the capabilities and limitations of the finished product back to Marketing and Sales. Product Managers may also have one or more direct reports such as a Product Executive who can manage operational tasks or a Change Manager who can oversee new initiatives. Product planning

Identifying new product candidates Gathering market requirements Defining product requirements Determine business-case and feasibility Scoping and defining new products at high level Evangelizing new products within the company Building product roadmaps, particularly Technology roadmaps Working to a critical path and ensuring all products are produced on schedule Ensuring products are within optimal price margins and up to specifications Product Life Cycle considerations Product differentiation Detailed Product planning 7 functions of marketing

Product marketing

Product positioning and outbound messaging Promoting the product externally with press, customers, and partners Conduct customer feedback and enabling (pre-production, beta software) Bringing new products to market Monitoring the competition more detail on Product marketing

Product Life Cycle In its simplest form, the product life cycle consists of three phases: 1. Develop the product 2. Operate the product 3. Decommission the product

Brand management: Brand management is the application of marketing techniques to a specific product, product line, or brand. Brand Management is the process taken to create perceived value for the purpose of a monetary or authority gain. The American Marketing Association (AMA), sums it up as Branding is what differentiates you, your name, your company, a symbol, logo, design or term from that of the competition. The Brand, in whatever shape of form, acts as the enabler for your targeted consumer to identify your service, goods or information by. The discipline of brand management was started at Procter & Gamble as a result of a famous memo by Neil H. McElroy.

Brand:

A brand is the identity of a specific product, service, or business.A brand can take many forms, including a name, sign, symbol, color combination or slogan. The word brand began simply as a way to tell one person's cattle from another by means of a hot iron stamp. A legally protected brand name is called a trademark. The word brand has continued to evolve to encompass identity - it affects the personality of a product, company or service. A concept brand is a brand that is associated with an abstract concept, like breast cancer awareness or environmentalism, rather than a specific product, service, or business. A commodity brand is a brand associated with a commodity. Got milk? is an example of a commodity brand. In the automotive industry, brands were originally called marques, and marque is still often used as a synonym for brand in reference to motor vehicles

Brand name:
The brand name is quite often used interchangeably with "brand", although it is more correctly used to specifically denote written or spoken linguistic elements of any product. In this context a "brand name" constitutes a type of trademark, if the brand name exclusively identifies the brand owner as the commercial source of products or services. A brand owner may seek to protect proprietary rights in relation to a brand name through trademark registration. Advertising spokespersons have also become part of some brands, for example: Mr. Whipple of Charmin toilet tissue and Tony the Tiger of Kellogg's Frosted Flakes. Local branding is usually done by the consumers rather than the producers.

Brand identity: The outward expression of a brand, including its name, trademark, communications, and visual appearance. Because the identity is assembled by the brand owner, it reflects how the owner wants the consumer to perceive the brand - and by extension the branded company, organization, product or service. This is in contrast to the brand image, which is a customer's mental picture of a brand. The brand owner will seek to bridge the gap between the brand image and the brand identity. Effective brand names build a connection between the brand personality as it is perceived by the target audience and the actual product/service. The brand name should be conceptually on target with the product/service (what the company stands for). Furthermore, the brand name should be on target with the brand demographic.Typically, sustainable brand names are easy to remember, transcend trends and have positive connotations. Brand identity is fundamental to consumer recognition and symbolizes the brand's differentiation from competitors. Brand identity is what the owner wants to communicate to its potential consumers. However, over time, a product's brand identity may acquire (evolve), gaining new attributes from consumer perspective but not necessarily from the marketing communications an owner percolates to targeted consumers. Therefore, brand associations become handy to check the consumer's perception of the brand. Brand identity needs to focus on authentic qualities - real characteristics of the value and brand promise being provided and sustained by organizational and/or production characteristics.
Brand equity refers to the marketing effects and outcomes that accrue to a product with its brand name compared with those that would accrue if the same product did not have the brand name. Because of the well known brand name the company some time charges premium prices from the consumer . And, at the root of these marketing effects is consumers' knowledge. In other words, consumers' knowledge about a brand makes manufacturers/advertisers respond differently or adopt appropriately adept measures for the marketing of the brand The study of brand equity is increasingly popular as some marketing researchers have concluded that brands are one of the most valuable assets that a company hasBrand equity is one of the factors which can increase the financial value of a

brand to the brand owner, although not the only one [8]. Elements that can be included in the valuation of brand equity include (but not limited to): changing market share, profit margins, consumer recognition of logos and other visual elements, brand language associations made by consumers, consumers' perceptions of quality and other relevant brand values.

Brand management is

The total approach Brand management starts with understanding what 'brand' really means. This starts with the leaders of the company who define the brand and control its management. It also reaches all the way down the company and especially to the people who interface with customers or who create the products which customers use.

Brand management performed to its full extent means starting and ending the management of the whole company through the brand. It is simply far too important to leave to the marketing department. The CEO should be (and, in fact, always is) the brand leader of the company.

Creating the promise Creating the promise means defining the brand. A good brand promise is memorable and desirable. It cannot be effective if nobody remembers it, and is no good either if nobody wants it!

A good brand promise evokes feelings, because feelings drive actions. Volvo offers feelings of safety. Mustang offers feelings of excitement.

The promise must be unique and identified with you alone. Within an industry, promises can be very close, but if you want any hope of success, you must stake out the very specific territory of your promise and know clearly how it is different from the promises of other firms.

The right promise is not just something you make up on a Friday afternoon. It comes through a deep understanding of your marketplace and your customers. It also comes from a deep understanding of the capabilities and motivations of the

people in your company. Creating a promise you cannot consistently keep, year after year, is plain suicide.

Making the promise Once you have created the promise, the next (and not so trivial) step is to somehow inject it into the minds of your customers, your staff and everyone who receives anything from you or has any impact on what you deliver.

This is where marketing people come into their own. Although it is still not their sole preserve, a large part of marketing, which includes advertising and PR, is about positioning the company and its products in the minds of customers and against your competitors.

Keeping the promise Ah, now. Creating and making the right promise is one thing, but then you have to keep it. If you do not, you brand will still exist, but now the promise will be of slipshod products and inconsistent delivery.

Keeping promises means managing capability. It means consistent processes that are capable of delivering what is required. It means technology and systems which are reliable and usable. It means motivated people who are willing and able to deliver the goods. Brand is A brand is a promise | A brand is an associated image | Everything and everyone is a brand Coca-cola is the most valuable brand in the world, with the name alone worth billions of dollars. But why? What is a brand? Brand management is a total approach to managing brands that is sometimes extended, by those who understand the power of brands, to cover the whole approach to managing the company. A brand is a promise First and foremost, a brand is a promise. It says 'you know the name, you can trust the promise'. As all promises, it is trusted only as far as those promises are met. Trust is a critical first step and brands aim to accelerate that step by leveraging the implied promise of the brand.

A brand is an associated image Most brands have a logo which acts as a short-cut to remind us of the brand promise. The logo uses color, shape, letters and images to create a distinctive image that is designed both to catch our eye and to guide our thoughts in the right direction. The brand may also be associated with tunes, celebrities, catchphrases and so on. All parts of the brand image works as a psychological trigger or stimulus that causes an association to all other thoughts we have about the brand. Everything and everyone is a brand If you get down to the detail, everything is a brand, because we build our understanding of the world by creating associations about everything. A tree has an implied promise of beauty and shade. Even words are brands. When I say 'speed', you will conjure up images of fast cars, etc.

People are brands, too. When people see you, or even hear your name, they will recall the image they have of you, (which is something you can actively manage or 'let happen'). In a company where people are visible to customers, such as a service business, the people are very much a part the brand

Types of brand

Product The most common brand is that associated with a tangible product, such as a car or drink. This can be very specific or may indicate a range of products. In any case, there is always a unifying element that is the 'brand' being referred to in the given case.

Individual product Product brands can be very specific, indicating a single product, such as classic Coca-Cola. It can also include particular physical forms, such as Coca-cola in a traditional bottle or a can.

Product range Product brands can also be associated with a range, such as the Mercedes S-class cars or all varieties of Colgate toothpaste.

Service As companies move from manufacturing products to delivering complete solutions and intangible services, the brand is about the 'service'.

Service brands are about what is done, when it is done, who does it, etc. It is much more variable than products brands, where variation can be eliminated on the production line. Even in companies such as McDonald's where the service has been standardized down to the eye contact and smile, variation still occurs.

Consistency can be a problem in service: we expect some variation, and the same smile every time can turn into an annoyance as we feel we are being manipulated. Service brands need a lot more understanding than product brands.

Organization Organizations are brands, whether it is a company that delivers products and services or some other group. Thus Greenpeace, Mercedes and the US Senate are all defined organizations and each have qualities associated with them that constitute the brand.

In once sense, the brand of the organization is created as the sum of its products and services. After all, this is all we can see and experience of the organization. Looking at it another way, the flow also goes the other way: the intent of the managers of the organization permeates downwards into the products and the services which project a common element of that intent.

Person The person brand is focused on one or a few individuals, where the branding is associated with personality.

Individual A pure individual brand is based on one person, such as celebrity actor or singer. The brand can be their natural person or a carefully crafted projection.

Politicians work had to project a brand that is attractive to their electorate (and also work hard to keep their skeletons firmly in the cupboard). In a similar way, rock stars who want to appear cool also are playing to a stereotype.

Group Not much higher in detail than an individual is the brand of a group. In particular when this is a small group and the individuals are known, the group brand and the individual brand overlap, for example in the way that the brand of a pop group and the brand of its known members are strongly connected.

Organizations can also be linked closely with the brand of an individual, for example Virgin is closely linked with Richard Branson.

Event Events have brands too, whether they are rock concerts, the Olympics, a spacerocket launch or a town-hall dance.

Event brands are strongly connected with the experience of the people attending, for example with musical pleasure or amazement at human feats.

Product, service and other brands realize the power of event brands and seek to have their brands associated with the event brands. Thus sponsorship of events is now big business as one brand tries to get leverage from the essence of the event, such as excitement and danger of car racing.

Geography Areas of the world also have essential qualities that are seen as characterizations, and hence also have brand. These areas can range from countries to state to cities to streets and buildings.

Those who govern or represent these geographies will work hard to develop the brand. Cities, for example, may have de-facto brands of being dangerous or safe, cultural or bland, which will be used by potential tourists in their decisions to visit and by companies in their decisions on where to set up places of employment.

Merchandise Management: The objective here is to identify the merchandise that customers want, and make it available at the right price, in the right place at the right time. Merchandise Management includes (i) merchandise planning (ii) merchandise purchase, and (iii) merchandise control. Merchandise planning deals with decisions relating to the breadth and depth of the mix, needed to satisfy target customers to achieve the retailers return on investment. This involves sales forecasting, inventory requirements, decisions regarding gross margins and mark ups etc. Merchandise buying involves decisions relating to centralized or decentralized buying, merchandise resources and negotiation with suppliers. Merchandise Control: deals with maintaining the proper level of inventory and protecting it against shrinkage (theft, pilferage etc.). Merchandising management is the science of evaluating human behavior and buying habits in order to determine the best way to stock, display, and sell goods

at retail stores. It's no accident that the ice-filled tubs of soda are sitting next to the cash register at the convenience store on a hot summer's day -- a merchandise manager determined that more product would be sold by doing it.

Merchandise in accordance to local demand

In-depth knowledge of the area where the store is located is the mantra. Retailers should identify not only the financial objectives for each product in their assortment, but also the merchandise objectives.

Retailers should understand the customer profile, climatic conditions and the age group to decide on the pricing factor (customer profile), kind of merchandise for the season (climatic seasons) and sizes (age group) to be kept in the store. This is most crucial part of planning for merchandise meeting the local demand, says Mr Anil Lakhani, MD, Gini & Jony.

Customer in metro cities is different from that in the tier II and III cities. Exposed customers have limited time to shop and demands quick service for the product. Stores have to be adept in stock, presentation and services.

Right product mixes as per the store category and cliental is the most important factor for getting the business. Mr Harkirat Singh, MD Woodland explains, Exclusive WOODS showroom in Vasant Kunj with exclusive high end formal range only caters to the premium consumer segment and is generating good profits for the company with minimum and right quantity of stocks.

Providing the entire product range to store is not possible due to factors such as selective cliental, high end customer, limited stock space. Detailed survey is vital to match to the demands of the customer. This increases full price sales and product availability, and ultimately lowers markdown spend. We decide according to the customer base in the local area. High price range trousers, we keep in the south Mumbai stores would not be kept in the stores which on S V road, Mr Lakhani further adds.

Keeping SKUs on the shelves is just not enough

Effective visual merchandising provides memorable and lasting experience to the customer, e.g. the newly renovated store of Woodland at South Extension has improved sales significantly. Similarly assortment planning which determines what and how much should be carried in a merchandise category, has become an important part of retail business. This trade-off between the breadth and depth of products that a retailer wishes to carry has to be decided by the team of merchandise experts.We keep at least 2 pieces of each size on the display shelves to meet the demand at the same time. It is more important to pay attention on the depth more than keeping variety and no stock available in time of sale, opines Mr Lakhani of Gini & Jony. If you are not doing this, you are creating both markdowns and lost sales. Retailers need to keep this flexibility and continuously monitor the profitability and contribution of each product.

Retailers need to have a hawk eye to identify the fast moving stock and slow moving stock of the particular category to manage the fresh stock for sales. It avoids the situation of lost opportunity and increases sales. Experts in this field keep the track of the SKUs which allow each store to reveal its own patterns and tell the retailer how to best align their SKUs with local demand. In case of slow moving category, before the season is out, quick decision to put the category under schemes or markdown prices prevents taking the stock to the factory outlets. Front runners of the store cannot give a detailed analysis to understand the weak areas. Inter-store transfers, replenishment and monitoring of product performance, forecasting etc are some of the functions of the merchandise experts. According to Mr Harkirat Singh, MD, Woodland-- The key points that should be considered by a retailer in a store management are:

Visual Merchandising: Right placement of the product

Stock replenishment: Right product mix

Regular customer feed back

To follow up with latest and upcoming market trends

Inventory Management

Visual Merchandise: An important part in displaying a merchandise.

Consumer behavior studies done by our VM team experts have confirmed that after color, the focal points set up with the mannequins display is something that immediately hits the customers after walking inside the store. Color being the most dominating element attracts the customers and impels them to walk toward them. When the mood and theme of such color oriented displays change at regular intervals, it makes certain that the store remains top of mind and fashionably updated.

"Graphics play an immense role in building a brand image and differentiating it from its competitors. One of the latest strategies in the VM industry is supporting the graphics by the props which are the imitation of imaginary or non-saleable products. Following the trend, leading players in the industry are playing around with 3 Dimensional windows to give them a more realistic look" says VM expert from Ritu Wears.

The faade changes are based on the season, events and the festivals whereas the in-stores changes are done fortnightly. The impact of any display or strategy is measured by reviewing and comparing the walk-ins and the conversions before and after any strategy.

Challenges

The major problem that may arise is slow movement of inventory at the right location due to shortage of fast moving sizes and stock outs at certain levels which may at times leave a customer unsatisfied or compel one make a compromise. Effective co- ordination across the value chain right from manufacturers to the customer i.e right stock at right time and in right quantity can help in improving the process. In order to improve merchandise management the following steps can be adopted:

Setting up of inventory management model at store level- setting up Stock turnover ratio product wise, stock wise and Store wise

 Ascertaining the individual profitability of different products and the contribution margins of the individual products category and price wise

Determining the projected sales plan and what product mix to be adopted so as to maximize the profitability and which product lines should be discontinued so as to minimize the losses Product performance: Monthly comparative analysis of sales

Schemes or inter transfer of slow moving products and excess stocks on regular basis.

Tools for Merchandise Management Generally, if a store is to be successful, sales and inventory should be reviewed periodically to:

See how many units of an item should be stocked and how much space should be given to them Determine what should be done about slow moving items in inventory, and Lay plans for sales, promotions and selection of new merchandise.

Two basic tools of merchandise management, which can help to determine how much of an item should be carried in stock, use gross profit as a basis for the calculations. They are:

Gross profit per square foot (or, profit/sq. ft.), and Gross profit on investment (or, profit/investment)

Both of these tools help determine the average inventory which will bring the highest profit for each item. Once you understand them thoroughly, you can use a simpler tool, called stockturn. When applied properly, it can often replace the more cumbersome calculations.

Gross Profit Since the two basic tools are built on gross profit, you need a clear view of the meaning of gross profit. In a retail store, gross profit is the difference between what you pay for merchandise and what you sell it for. There are two ways of calculating gross profit.

1. The simplest way is to take the selling price and subtract the cost. Selling Price (-) Cost (=) Gross Profit 2. In a retail store, customers often return merchandise, some of which then has to be sold at less than full price. There are also frequent sales. Accountants and many retailers therefore prefer to calculate gross profit by subtracting the cost of merchandise from net sales. Net sales means total sales (as rung up on the register) less returns. Cost of merchandise, again, is what the store paid for the units which were sold but not returned. Gross profit can be calculated as shown: Total Sales (-) Return (-) Cost of Merchandise (=) Gross Profit Example: Gross Profit A retailer buys merchandise for $10 and sells that merchandise for $20. If the retailer sells 1,000 units but accepts 100 units in returns, what is her or his gross profit? Using the formula above, gross profit can be calculated as follows: $20,000 Total Sales (-) $ 2,000 For 100 Returns (-) $ 9,000 Cost of Net Merchandise Sold (=) $ 9,000 Gross Profit The same answer can also be obtained using the simpler formula: Since the gross profit on each unit is $10 ($20 selling price$10 cost), and 900 units were sold (and not returned), the gross profit on the merchandise is ($10 x 900 units) or $9,000 - the same as above. In reality, this second calculation may not be as simple because there may have been a special price sale and therefore a different selling price for some of the units. Please note that expenses such as rent on your store, utilities, cost of labor, and other operating costs are paid out of gross profit. The amount remaining after such expenses are paid is your net profit. Obviously, the higher your gross profit the higher your net profit will be. This is because most of a retail store's operating expenses are fixed and do not increase significantly with greater sales. Also note that gross profit is arrived at by using the cost of the specific merchandise which was actually sold - not your purchases for the same period. Profit per Square Foot Profit per square foot provides an indication of how much profit an item of merchandise brings from each square foot of selling space it occupies. It therefore helps to determine how much space should be allocated to each item. Since floor and shelf space in a store is limited, profit/sq. ft. can be used to help you make the best use of your space. As the term suggests, profit/sq. ft. is calculated by dividing the gross profit of an item by the area of selling space for that item. The formula is shown below:

Gross Profit Profit per Square Foot = ___________________ Sq. ft. of selling space Example: Profit per Square Foot Assume a retailer's business made $4,000 in gross profit last year on a particular line "x". The selling area for the line was 200 square feet of shelf and floor space. What is the profit per square foot on line 'x'? Using the formula above, the profit per square foot on line "x" can be figured as follows: $4,000 gross profit on line "x" Profit per Sq. Ft. = _______________________________ = $20 200 sq. ft. of selling area for item "x" Allocation of Space Based on Profit per Square Foot To get the highest profit from your available selling space, you must study each of your lines and items to determine which give you the highest, as well as the lowest, profit per square foot. To do this, calculate the profit/sq. ft. on some of your best moving items, and on some you consider least profitable. This will provide you with your profitability range and, using that range you can decide on the amount of gross profit you want each square foot in the store to bring you. You can then increase overall profitability by taking action on low profit items. This can be done by:

Promoting them more effectively Reducing space allotted to them, or Replacing them

If all items, even the poorest, are yielding a sufficiently high profit/sq. ft. but you would like to increase profitability further, you can achieve that by:

Increasing promotion and merchandising efforts on items Expanding the store, or Both

This raises the question: "What is the lowest gross profit/sq. ft. that the poorest items should bring?" This is not easy to answer. Every retail business has to carry some items which customers expect to find in the store, even if they are not profitable at all. That is why many retailers talk about "loss leaders". These low profit items, some of which may have to be sold at a net loss at certain times, should not be considered in the same manner as regular merchandise.

Every item of regular merchandise must bring a net profit (after all expenses have been paid). To determine what net profit an item or line will bring, you can calculate your expenses per square foot of selling space and subtract them from the gross profit per square foot to obtain the net profit per square foot for that item or line. Gross profit per square foot (-) expenses per square foot (=) net profit per square foot Expenses include salaries for employees, rent, insurance, packing materials, cleaning services, interest on loans, utilities, and other similar expenses as well as a fair salary for you. The sum of these costs are referred to as expenses per square foot. For example, if all your expenses add up to $48,000 per year and you have 4000 square feet of selling space, then your expenses per square foot are $12.00, Any item or line which brings an annual gross profit per square foot (profit/sq. ft.) of less than $12.00 is not bringing you any net profit at all. In fact it is not paying its way and you should either promote it more effectively, or seriously consider replacing it with more profitable merchandise. ON-THE-JOB ACTIVITY 1 This activity consists of two parts. In Part A you will calculate your costs per square foot and in Part B you will determine your gross and net profits per square foot for several items. Part A To gain some direct use in the topics discussed, calculate your expenses per square foot of selling space. This will require you to: 1. Either add up all your expenses from the previous year (or from several months, and calculate the annual costs), or ask your accountant to give you this figure.. 2. Measure all your usable selling space where merchandise is kept - the shelves, the floor space underneath racks, the floor space where merchandise is displayed, etc. Do not include storage space in the back room - only space on the selling floor. 3. Divide the square feet of selling space into the annual expenses to give you the expenses per square foot.

Part B Select several items which you believe bring you a nice profit and two or three which you feel are not very profitable. Calculate both gross profit per square foot and net profit per square foot. If possible, discuss the results of your work with a person knowledgeable in this area; pursue any ideas which may arise as a result of this discussion. Gross Profit on Investment

In most cases profit/sq. ft. (gross profit per square foot) is adequate to determine how much space to allow to an item or line. However, there is one group of items or lines where looking at profit/ sq. ft. may not be adequate to decide whether the item or line is profitable. This is the case with relatively small, or average sized merchandise in which cost per unit is much higher than for most other merchandise. For this type of merchandise you also have to look at gross profit per dollar of investment (profit/ investment). This means that for these items you should allocate space as with other items on the basis of profit/sq. ft., but you also must keep your inventory as low as possible to assure best profit/investment. If all your merchandise is fairly similar in cost per unit, and the units are all of fairly similar size then you do not have to be concerned with profit/investment. If, however, you have some small or average sized items or lines where the cost is high in comparison to your other merchandise, then it may be worthwhile to pay special attention to them. Gross profit on investment (profit/investment) is the gross profit made on every dollar invested in average inventory of a merchandise item or line. It therefore provides a way of determining how many units to keep in inventory. Profit/investment is found by dividing the annual gross profit brought by an item, by the dollar amount invested in the average inventory of that item. Gross Profit Profit / investment = ____________________________ $ Investment in average inventory Investment in average inventory is determined by multiplying the number of units of average inventory, by the cost of a unit. Average inventory is the midpoint between the highest inventory, which occurs right after a new shipment is received, and the lowest inventory, which usually exists just before the new shipment arrives. Example: Gross Profit on Investment (Profit / Investment) Assume that a retailer sells $16,000 of a line of desk lamps each year The retailer purchases 100 units about once every 3 months for $20, each, and prices them at $40. If there are usually about 10 lamps left over when the new shipment arrives, then the retailer has $2200 invested in desk lamps, at the peak. When inventory is at its lowest about $200 are invested in these lamps. What is the retailer's annual gross profit and profit/investment? Gross profit can easily be found from the formula:

Total Sales = $16,000 (-) Returns 0 (-) Cost of Merchandise sold and not returned (100 units x $20/unit x 4 times a year) $8,000 _________

Annual Gross Profit from desk lamps: $8,000 The retailer's investment in average inventory is the midpoint between $2200 (peak period) and $200 (low period). The midpoint is then obtained by adding the high and low figures and dividing by 2. In this example the midpoint is $1200; that is: $2200 + $200 $2400 ____________ = ______ = $1200 2 2 Average inventory investment in desk lamps = $1200 The profit/investment can then be calculated from the formula, shown before, as follows: $8000 gross profit on lamps Profit / investment = ________________________________ $6.66 $1200 Invested in average inventory This means that an annual gross profit of $6.66 is made on every dollar invested in average inventory of this line of desk lamps. Determining Inventory on Basis of Gross Profit on Investment profit / investment To reiterate, items or merchandise lines which are small or average size and have high cost per unit should be given selling space the same way as other items - based on the profit/sq. ft. However, with this type, inventory must be carefully watched to bring the profit/investment as close as possible to that of other merchandise. Probably the easiest way to do this is to calculate profit/investment (using the formula shown above) for several of the regular merchandise items; i.e., some with average profit/sq. ft. and some with high profit/sq. ft. This provides you with a range of desirable profit/investment figures. This range can then become the goal for the high investment (high cost per unit) items. Simple actions to improve profitability of this type of merchandise are:

Promote more effectively. Reduce average inventory by buying smaller quantities more frequently (if possible without increasing unit cost). Obtain longer credit terms from the supplier (pay later so your investment is reduced by sales made from the time you received the shipment to the date when you pay for it). If the profit/investment is very poor, replace the item or line with a more profitable one.

To decide when the profit/investment is so low that an item should be replaced you can:

Determine whether the money now invested in average inventory of an item elsewhere can be more profitably utilized within your business. Ask your accountant to determine your total expenses (including your salary) per dollar invested in the entire inventory. If you subtract that

number from the gross profit on investment (profit/investment) you obtain net profit per dollar investment. This net profit on investment should be at least equal to the cents per dollar you pay your bank for a loan. If it is not, you should seriously consider whether the item or line should be replaced.

ON-THE-JOB ACTIVITY 2 To see how profit/investment can be useful in your business: a. Select a few items that are small or average sized and have high cost compared to other merchandise in your store. Then calculate the profit on investment for these items, using the formula shown above. b. Select one or two very profitable items and one or two items of average profit/sq. ft. from the other merchandise. Calculate the profit/investment for these items. c. Compare profit/investment of the high cost items with the profit/investment you obtain from the other items and, if the difference is very great, calculate the net profit on investment (as discussed above) for the least profitable of the high cost items. d. Decide what to do about any low profit/investment items.
MODEL STOCK PLAN

Assortment Planning After developing a merchandise plan, retail buyers must make decisions about which items to display in their stores. A merchandise assortment is a collection of various quantities of styles, colors, sizes, and prices of related merchandise, usually grouped under one classification within a department (Clodfelter, 1993). The assortment is called different names: buying plan (Frings, 1994), product mix arrangement (Atkinson, 1995), and model stock plan (Bohdanowicz & Clamp, 1994; Poindexter, 1991). The words illustrate the factors of type, quantity, size, and price of merchandise that a retail buyer expects to purchase within a specific period of time. The purpose of assortment planning is to maintain a balanced assortment of merchandise that meets the needs of as many customers as possible (Clodfelter, 1993). Assortment planning can also affect display plans of stores based on the floor or shelf space available for the merchandise. The final report of an assortment plan states the budget for each item followed by sales goals and a merchandise plan for a specific period. Rabolt and Miler (1997) sorted these activities into two aspects of assortment planning: unit plans and dollar plans. A unit plan refers most often to qualitative decisions or types of merchandise bought. A dollar plan is the quantitative result of the assortment planning or volume of merchandise bought. By adopting Rabolt and Milers perspective, the assortment plan can be differentiated with two phases: qualitative decision-making process within product-specific factors and quantitative decision-making within store sales goals and policies. The two phases may affect each other both consciously and unconsciously in a real-life situation. To clarify the retail buyers logic in buying decision-making, the two phases, for this study, are separately considered in a new buying process model. Actual Buying and Rearrangement Plans with Vendors After the assortment planning steps, clothing retail buyers look around the market and meet vendors to view the merchandise available for the next season. At this point in the overall process, vendor selection criteria are an important consideration. In the decision-making

process in the market, clothing retail buyers will evaluate vendor performance based on vendor selection criteria including quality of goods, good delivery, product fashion-ability, fair price, styling, reputation, selling history, and steady source of supply (Arbuthnot, Sisler, & Slama, 1993 a; Francis & Brown, 1985-86; Wagner, Ettenson, & Parrish, 1989). For clothing retail buyers, the vendors can be manufacturers or agents. Retail buyers look for new products from both key resources and new ones. Key resources are vendors who have maintained a reputation for dependability and whose merchandise sells-through because of appropriate styling, quality, and price. The clothing retail buyer regularly purchases a major portion of these manufacturers lines. The retail buyer must also be on the lookout for new resources and new talent in buying (Frings, 1994). After making a contract with vendors, retail buyers reevaluate the merchandise plan and the assortment plan, which is already developed through previous stages. The rearrangement should be considered within their previously fixed budget. In this research, the final buying process was not considered; therefore, the decision-making for vendor selection criteria for the actual buying process was not further discussed. Decision-making discussed in this research concentrateed on decisions made during the assortment-planning process. By summarizing several buying process theories, a new buying process is drawn as the research framework (see Figure 1). The new clothing buying process includes five stages: (a) planning sales goal, (b) planning stock, (c) planning inventory schedule, (d) assortment planning,and (e) actual buying and rearrangement plans with vendors. In the new clothing buying process model, the assortment plan is separated into two stages to clarify the qualitative aspects and quantitative aspects of the assortment plan. In this research, the qualitative decision-making process is discussed as background information to understand an assortment-planning process. The review of the qualitative decision-making process examines why a retail buyer selects specific womens dresses as their products. Planning Sales Goal: Target Market Positioning Planning Stock Planning Inventory Control Assortment Planning Actual Buying & Rearrangement of Plans with Vendors

Reference 1. www.wikipedia.com 2. http://www.blueminegroup.com/articles/1_strategic_product_management_ 080128.php 3. http://scholar.lib.vt.edu/theses/available/etd-041699144941/unrestricted/chap1to4.PDF 4. http://books.google.co.in/books? id=G4eQybE28qwC&pg=PA198&lpg=PA198&dq=model+stock+plan&sourc e=bl&ots=RO5IMY1Bmw&sig=SaULCCG4CvJdQD27clgsQCj374I&hl=en&sa =X&ei=H803T8XrBo6zrAekqpHWBQ&ved=0CD4Q6AEwAg#v=onepage&q= model%20stock%20plan&f=false