Retail Management and Distribution

Final– Total marks 40

Asma Nasim
10100
Note: There is NO choice in paper. You have to attempt all questions.
Q1: short answers (2 marks each)
1. Why is pricing important? What considerations to be accounted for while setting retail
prices?
Answer: Price is important because customers have many other things to choose and customers
are always seeking for good value and quality so they can shift for alternative.
 Value = perceived benefits/ price

Retailers should increase value and stimulate by increasing benefits or reduce price.

2. What is breakeven price point? Explain by sharing examples.

Answer: The Implication of Fixed and Variable Cost is break even price point. Which
means this is the point where your target price is sold now you are gaining profit.

 Break-even quantity =Fixed cost/Actual unit sales price – Unit variable cost
Example: You are selling 50pieces wall papers worth 500rs, but you are selling them in 1000 per
piece which means when you sold 25pieces you are at break even point now on other 25 pieces
you will gain profit.

3. Define the techniques of price adjustment. Why retailers take markdowns?

Answer: Retailers maximize their profits by setting prices based on the price sensitivity of
customers and the cost of merchandise and considering the prices being charged by competitor.
Price adjustment technique are:
 Leader Pricing
 Price Lining
 Odd Pricing
Retailers take Markdowns :
Clearance Markdowns
 To get rid of slow-moving merchandise
Promotional Markdowns
 To increase sales and promote merchandise
 To Increase traffic flow and sale of products.
 To generate cash to buy additional merchandise

4. Explain the terms: leader, lining an odd prices

Answer: Leader: Those items are priced lower than normal to increase customers to purchase
frequently. Example: bread, milk, disposable diapers, eggs, oil.
Lining Price: These are limited number of predetermined pricing points, eliminates confusion of
many price and also there is flexibility for buyers.
Odd Prices: price that ends in an odd number .9

5. What are the objectives of communication? Share examples.

Answer:

Long term

 Build Brand Image

 Create Customer Loyalty
Short term
 Increase Traffic
 Increase Sales

6. Why is it important to allocate promotion budget? Also explain high essay principle.
 7. What are the types of merchandizing system? How to forecast in major types of
merchandizing system?
Answer:
Staple Merchandise
 Predictable Demand
 Relatively Accurate Forecasts
 Continuous Replenishment
Fashion Merchandise
 Unpredictable Demand
 Difficult to Forecast Sales
 Merchandise Budget Plan
 Open-to-Buy
For forecasting
For Staple Merchandise
 Historical Sale
 Adjustment for Controllable Factors
For Fashion Merchandise
 Previous Sales Data
 Market Research
 Fashion and Trend Services

8. Explain basic stock. What are the key factors that determine backup stocks?
Answer: the desired inventory level for each sku
 Higher product availability of service
 Greater the fluctuation in demand
 Longer lead time from the vendor
 More fluctuations in lead time

Q2: long answers (5 marks each)

 1. Define negotiation tactics. What are the key ingredients of negotiation tactics? Explain
with example.
Answer:
Its about assertive, Non assertive, Aggressive, And responsive that how we communicate
our words, tone and body language matter.

 Talk fair and reasonable price

 Give timely Performance
 Meet essential needs of the organization
 Get over how the contract is performed
 Keep good relations with suppliers
Negotiation tactics ingredients:
Create your agenda
Introduction
Talk about the history/ relationship
Create a cordial atmosphere
Written Agenda
Then talk about issues, the major ones first
Don’t knit pick
Use questions wisely
Listen aggressively
Start building a case – data
Be on the front foot
Watch his body language
Don’t be afraid of saying NO

2. Explain type of needs. Share examples. Also explain sources of information.

Answer:
Utilitarian needs : Satisfying when purchases accomplish a specific task. Shopping needs to
be easy, and effortless like Sam’s or a grocery store. Example: when you buy daily use products
for your basic need like bread, eggs
Hedonic needs: satisfying when purchases accomplish a need for entertainment, emotional, and
recreational experience as in department stores or specialty stores. Example: need that you want
to feel good, you put extra efforts for your luxurious.

Source of information:

Internal:

Based on past experiences and memory.

External:
Based on consumer word of mouth, reports and advertising.

Q3: Case study

1. What is a real core competence of Ikea? Explain how ikea concept has played a role in
its success- 3 marks

Ikea is the worlds largest in expensive furniture retailer, provides well designed , functional
home furnishings at low prices that it is possible for everyone one to buy for better living
experience, this is how Ikea got success.
2. Why Ikea is a family friendly place? How they are making it possible?- 2 marks
Ikea is the family friendly place because of the ambiance they have decorated attract customers
to go with family to select how to set home with clear ideas ,spacing , colors.
3. Define localization in ikea. How it has impacted revenue of ikea?- 3 marks

According to IKEA, the company’s target market was the global middle class which shared
buying habits. IKEA’s Billy bookcase, Lack side table and Ivar storage system were best-sellers
worldwide. The customer spending pattern was also similar across countries. Despite these
similarities, IKEA realized that to strengthen its presence in the global market, it was necessary
to localize.

4. Explain ikea’s expansion strategy in view of case. Do you agree with its vision?- 3 marks
IKEA stuck with the vision, articulated by founder Kamprad that the company should sell a basic
product range that is “typically Swedish” wherever it ventures across the world. Yes I agree
because it’s a unique venture that no one is providing with .so they will grow.
5. Is Ikea India a successful experiment? Share your thoughts.- 3 marks
Ikea India is a successful experiment that its growing

Here is case study on IKEA which is one of the largest home furnishing retail store across the
world.

Introduction to IKEA:
The IKEA concept is based on offering a wide range of well designed, functional home furnishing
products at prices so low that a large number of people will be able to afford them. Rather than
selling expensive home furnishings that only a few can buy, the IKEA concept makes it possible
to serve the many by providing low-priced products that contribute to helping more people live
a better life at home.

The IKEA concept guides the way IKEA products are designed, manufactured, transported, sold
and assembled. All of these factors contribute to transforming the IKEA Concept into a reality.

Today, the IKEA trademark represents the leading home furnishings brand in the world with
more than 235 stores in more than 30 countries and 1,10,000 co-workers. IKEA was ranked 42
by Business Week magazine in its list of top 100 global brands for the year 2007. In January
2007, IKEA was placed third in Brand Channel’s fourth annual Reader’s Choice Awards for the
global brand with the most impact in 2006.

According to the Brand Channel rankings, IKEA was the top brand in Europe and Africa. IKEA is
the world’s largest furniture retailer that specializes in stylish but inexpensive Scandinavian
designed furniture. IKEA’s success was attributed to its vast experience in the furniture retail
market, its product differentiation and cost leadership.

IKEA held a market share of not more than 10% in the markets in which it operated. In spite of
this, it had been successful in almost all countries, because of public awareness of the IKEA
brand. IKEA targeted middle class customers worldwide. It made shopping easy for customers.
ADVERTISEMENTS:

For example, right at the entrance of the store, customers could drop their kids at the playroom
which had many types of safe play equipment, and then shop on their own at leisure. The
stores were constructed in the form of a circle, to allow shoppers to view all sections of the
store.
IKEA’s Initial Global
Expansion Strategy:
IKEA’s Global Expansion Strategy was originally established in the 1940s in Sweden by Ingvar
Kamprad. IKEA has grown rapidly in the recent years to become one of the world’s largest
retailers of home furnishing. IKEA stuck with the vision, articulated by founder Kamprad that
the company should sell a basic product range that is “typically Swedish” wherever it ventures
across the world.

The company also remained primarily production oriented, that is, the Swedish management
and design group decided what it was going to sell and then presented it to the worldwide
public—often with very little research as to what the public actually wanted. Moreover, the
company emphasized its Swedish roots in its international advertising, even going as far to
insist on a “Swedish” blue and while color scheme for its stores.

IKEA had same culture all across its stores. It chose to maintain some level of standardization as
it wanted to give its consumers a Swedish experience and it believed that excessive localization
would not allow it to maintain its exclusivity and would become just one of several such stores
in the country where it operated.

As the world’s most competitive retail market, the US has a well-deserved reputation — a
graveyard for foreign retailers and especially for Europe’s non-food retailers. Even Britain’s
Marks and Spencer had struggled to make a success of its acquisition of Brooks Brothers.

But Swedish firm made a grand success by entering in America succ Its secret seemed to be a
classic example of the difficult art of “Change management.” IKEA draped itself in the start and
stripes by adapting but not destroying its original formula.ess in America.

Localization in Global Markets of IKEA:

According to IKEA, the company’s target market was the global middle class which shared
buying habits. IKEA’s Billy bookcase, Lack side table and Ivar storage system were best-sellers
worldwide. The customer spending pattern was also similar across countries. Despite these
similarities, IKEA realized that to strengthen its presence in the global market, it was necessary
to localize.

IKEA’s advertising campaigns were based on unique marketing conditions and cultural
sensibilities of each country, which varied significantly across markets. For example, European
advertisements, especially in the UK, were more straight-forward than those in North America,
which were generally more witty.
IKEA was present in some countries such as Canada, Austria and Germany for over 25 years
while in countries such as the US, Britain and Italy, it had been around for only a little more
than a decade. Due to different cultures among different countries, IKEA has to face some
additional challenges, such as social culture, various demands, and different taste, etc. For
instance, the Americans like to sink into a large, soft sofa whereas Europeans prefer to sit on
the edge.

Major Players in Home Furnishing Products Stores:

The country’s leading organized retailers in this segment are optimistic of achieving a consistent
20% per annum growth in sales turnover in the next four years. On an average, they nearly
doubled the number of their retail outlets in 2006 as compared to the previous year and all of
these outlets are gigantic in size as is evident from the fact that retail space has increased five-
folds in one year.

This sector has been a witness to the entry of major retail players launching or planning to
launch home fashion chains, such as the Dubai-based Landmark Group’s Home Centre, Future
Group’s Home Town (yet to be launched), Textile major S Kumars’ Carmichael House, Godrej
Lifespace and Godrej Interio from Godrej & Boyce Mfg. Co Ltd, @ Home from Nilkamal Ltd and
K Raheja Group’s HomeStop to name a few.

The Bangalore based branded mattress major, Kurlon Ltd, has also launched its exclusive brand
stores — Kurlon Nests — in major cities and is expanding its range by venturing into soft
furnishings and home linen too.

In recent times there have been quite a few players emerging with innovative retail formats
within this segment. The first stainless steel home accessories brand outlet, Magppie, the Tata
Group’s Steeljunction, Hindalco’s Aluminium Gallery and Jindal Steel’s artd inox brand outlets
are cases in point.

Godrej and Boyce Mfg Co Ltd runs two home retail chains in India — Godrej Interio and Godrej
Life-space. Godrej Interio is an interior solution for homes, offices and special projects, and has
125 stores across India, and plans to have 150 stores by the end of this financial year. Turnover
from this retail venture was to the tune of Rs. 600 crore in 2005-06 targeting a growth of 33 per
cent, with plans of hitting Rs. 1,500 crore by 2010.

The challenge to home improvement retail business is the extent to which organized retailers
succeed in reaching lower down the income scale to reach potential consumers towards the
bottom of the consumer pyramid. However, distribution continues to improve, though it still
remains a major inefficiency.

Poor quality of infrastructure, coupled with poor quality of the distribution sector, results in
logistics costs that are very high as a proportion of total cost and inventories, which have to be
maintained at an unusually high level. This coupled with disparity in taxes across states make
movement of goods across the country difficult. Import of products in this category has high
tariffs — making availability of affordable merchandise a constraint.

Mall management is also a big challenge to the Indian retail industry. Home improvement
retailing requires large space at an affordable retail cost. The current rentals defy this. Also,
these products are typically purchased with proper planning and expense requirement.

This calls for focused retail space availability for home improvement products. This scene is
similar in the international retail industry. Further small shops in this category are given the last
priority for space selection in malls, giving lower benefit from the footfalls of its target group in
a mall. Marketing is a huge cost in Indian consumer market.

IKEA in India:
Realty major DLF is in talks with the world’s largest home furnishings retailer, Ikea, in a bid to
bring the Swedish brand into India. The developer is looking at a joint venture with Ikea on a
sharing ratio that is yet to be finalized. The proposed tie-up is in line with the Delhi-based
builder’s ambitious plans to bring in a number of foreign retail brands into India, especially in
the luxury sector like Armani, Versace, Gucci, Salvatore Ferragamo, D&G etc.

Their entry into India will be in the form of a joint venture and not a franchisee model. This
means that Ikea stores will be set up in any space across India and not just in DLF’s malls. Once
finalized, Ikea is expected to give tough competition to Home-Town, home improvement stores
launched by the Future Group last year.

Changing lifestyle aspirations of Indians have seen a sizeable increase in demand for branded
furniture and furnishings and organised players have been quick at anticipating the same. As a
result, the organised segment in furniture and furnishings has registered 20.6% year-on- year
growth in the last two years.

Its share in the organised retail stands at seven per cent while it accounts for only three per
cent of the overall retail market in India. Almost all large organised players have set up separate
retail divisions for home and office furniture and furnishings. Even the unorganised retailers are
now seen to be aggressively promoting their outlets and renovating their stores to attract the
customers.