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PPT 14-1
5th Edition
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PPT 14-2
Chapter 14
Buying Merchandise
McGraw-Hill/IrwinLevy/Weitz: Retailing Management, 5/e Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
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PPT 14-3
Merchandise Management
BuyingSystems
PlanningMerchandiseAssortments
BuyingMerchandise
Pricing
RetailCommunication
Mix
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PPT 14-4
Merchandise Branding Strategies
Manufacturer (National) Brands
Designed, produced, andmarketed by a vendor andsold by many retailers
Private-Label (Store) Brands
Developed by retailer andonly sold in retailers outlets
Licensed Brand
Developed by licensee andright sold to either
manufacturer or retailer
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PPT 14-5
Spectrum ofNational vs. Private Label
The Gap
Limited
Marks &
Spencer
IKEA
Wal-Mart
Home Depot
% Store
Brands
National
Brands
Macys
Target
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PPT 14-6
Relative Advantages ofManufacturer versus Private Brands
Type of Vendor
Impact on Store Manufacturer Private-Label
Brands Brands
Store loyalty ? +Store image + +
Traffic flow + +
Selling and promotional + -
expenses
Restrictions - +
Differential advantages - +
Margins ? ?
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Private Labels
Advantages
Unique merchandise not
available at competitiveoutlets
Difficult for customers to
compare price withcompetitors
Higher margins
Disadvantages
Need to develop
expertise in developingand promoting brand
Unable to sell excess
merchandise
Typically less desirable
for customers
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Manufacturer (National) Labels
Advantages
More desired by
customers
Resell excessive
merchandise
Dont need skills and
people to develop and
promote merchandise
Disadvantages
Lower margins
Vulnerable to competitive
pressures
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Most Recognized Appareland Accessory Manufacturer Brands
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Most Recognized Appareland Accessory Private Label Brands
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Examples ofPrivate-Label Brands
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Examples ofPrivate-Label Brands
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PPT 14-13
Examples ofPrivate-Label Brands
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PPT 14-14
Examples ofPrivate-Label Brands
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PPT 14-15
Private Label Options
Bargain Branding
no-frills product at a discount price.
Copycat Branding
imitates the manufacturer brand in appearance and trade dress
Premium Branding
private label at a comparable manufacturer-brand quality.
Parallel Branding private labels that closely imitate the trade dress and product
attributes of leading manufacturer brands.
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PPT 14-16
Issues in International Sourcing ofPrivate Label Merchandise
Country of Origin Effects Costs
Foreign Currency Fluctuations
Tariffs
Supply Chain Efficiency and InventoryCarrying Costs
Transportation costs
Quality Control
R l ti Aff ti th
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PPT 14-17
Regulations Affecting theCosts of Importing Goods
World Trade Organization
NAFTAMaquiladores
Free Trade Zones
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PPT 14-18
Managing International Sources
Quality Control
More difficult to maintain quality
standards
Human Right Issues
Need to Build Strategic Partnerships
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PPT 14-19
Domestic vs. International Sourcing
Domestic Higher cost of
merchandise
Shorter lead timeseasier to use quickresponse systems
Easier to control human
rights issues and qualitycontrol
Customer preferencesfor domestic
manufactured products
International
Lower cost
Longer lead times
More control problems
C ti ith V d
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PPT 14-20
Connecting with VendorsGoing to Market
Internet Exchanges
Wholesale Market Centers
Trade Shows
Resident Buying Offices
Meeting Vendors at Your Company
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PPT 14-21
Functions Provided by Internet Exchanges
Product Directories
Use of Reverse Auctions
Collaboration in Planning CPRFSoftware
General Information about Trends
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PPT 14-22
Types of Exchanges
Consortium Exchanges
Transora
Worldwide Retail Exchange
GobalNetXchange
Private Exchanges
Independent Exchanges
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PPT 14-23
Online Reverse Auctions
Auction A market institution with an explicit set of rules determining
resource allocation and prices on the basis of bids from market
participants.
Why reverse?
Vendors bid for buyers business
Price falls
One buyer, multiple vendors
Sealed vs. open bid auctions
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PPT 14-24
B
S
S
S
Reverse Auction
S
B
B
B
Traditional Auction
Reverse Auctions
R A ti
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PPT 14-25
Reverse Auctionsin Retail Buying
Online vs. physical differences
Reduced contact cost
Instant feedback
Bidder anonymity
The retailers goals
Gain competitive pricing
Open vendor base
Improve negotiation process
Maintain valuable relationships
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PPT 14-26
Price Path on Open-Bid Auction
I i U i R A ti
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PPT 14-27
Issues in Using Reverse Auctionsto Buy Products
Private vs. Collaborative Auctions/Exchanges
Fixed Cost High for Software
Standardized Software Less Need for Collaborative
Exchanges
Collusion
Consideration of Quality Differences from Bidders
Impact on Supplier Relationships
Used Primarily for Non-Resale Products Carpet, Fixtures
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PPT 14-28
Negotiating with Vendors
Two-waycommunication
designed to reachan agreement whentwo parties haveboth shared andconflicting interests.
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PPT 14-29
Planning Negotiations
Consider prior history
Assess current situation
General market conditions
Vendors position
Power of vendor
Set goals
Be aware of vendors goals
Number of people involved
Select an advantageous place
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PPT 14-30
Issues to Negotiation
Markup opportunities from excess from vendors excess
merchandise
Purchase terms
Transportation costs
Delivery times
Exclusivity
Advertising allowances
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PPT 14-31
Types of Negotiations
Win
Lose
Win Lose
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PPT 14-32
Win - Lose Negotiation
Can be good in the short run andbad in the long-run
Short-term solution-- person youare negotiating with cant lose allthe time
Might degenerate into LOSE -LOSE
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PPT 14-33
Lose - Lose Negotiation
Wastes time and energy
No relationships established
Objectives not met
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PPT 14-34
Win - Win Negotiation
Collaboration
Long-term relationship
Doesnt mean giving-inEnhances vendor trustCooperation
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PPT 14-35
Guidelines for Negotiations
Separate people from problem
Insist on objective criteria to evaluateperformance
Invent options for mutual gain
Let the other party do the talking
Know how far to go
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PPT 14-36
Negotiating Tips
Be aware of time
Location -- comfortable
Keep negotiating participants even
Be patient
Let him/her mention a figure
Dont be afraid to say no
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PPT 14-37
Negotiating Tips
Dont over negotiate
Dont assume
Visualize the negotiation
Timing is everything
Always leave the door open
Maintain self-esteem
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PPT 14-38
SUMMARY
Planning is critical
Knowledge is power
A person will only do what is right forhim/her
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PPT 14-39
Strategic (Partnering) Relationships
Retailer and vendor committed to maintainingrelationships over the long-term and investing inmutually beneficial opportunities
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PPT 14-40
Strategic Relationships
Win Win --Concerned about expanding thepie, not how to divide the pie
vs.Retailer Vendor
Building Blocks for
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PPT 14-41
Building Blocks forStrategic Partnerships
Mutual Trust
Open Communications Common Goals
Credible Commitments
Developing Trust:
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PPT 14-42
Developing Trust:Capability or Competence
Stages in
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PPT 14-43
Stages inBuilding Strategic Relationships
Awareness
Exploration
Expansion
Commitment
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PPT 14-44
Legal and Ethical Issues
Contractual Disputes Chargebacks
Commercial Bribery
Slotting Allowances
Buybacks
Counterfeit Merchandise
Gray Markets andDivertedMerchandise
Exclusive Territories Exclusive Dealing
Refusal to Deal
Tying Contracts
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PPT 14-45
Chargebacks
A practice used by retailers in which they deductmoney from the amount they owe a vendor.
Two Reasons:
merchandise isnt selling
vendor mistakes
Can be a profit center
one senior executive at a large departmentstore chain was told to collect $50 million onchargebacks
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PPT 14-46
Commercial Bribery
A vendor or its agent offers to give or pay aretail buyer something of value to influence
purchasing decisions.
A fine line between the social courtesy of a freelunch and an elaborate free vacation.
Rule of thumb - accept only limited
entertainment or token gifts.
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PPT 14-47
Slotting Allowances
Fees paid by a vendor for space in a retailstore.
Currently arent legal.
Retailers argue that they are a reasonablemethod for ensuring that their valuable spaceis used efficiently.
Manufacturers view them as extortion. $9 billion or 16% of all new product
introduction costs in grocery industry.
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PPT 14-48
Buybacks
Used to get products into retail stores.
Two scenarios:
Retailer allows a vendor to create space for itsgoods by buying back a competitors inventory andremoving it from a retailers system.
Retailer forces a vendor to buyback slow-moving
merchandise.
C f
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PPT 14-49
Counterfeit Merchandise
Goods made and sold without the permission ofthe owner of a trademark, a copyright, or apatented invention that is legally protected in
the country where it is marketed. Major problem is counterfeiting intellectual
property.
Wh d Ab C f i
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PPT 14-50
What to do About Counterfeiters
Trademark,copyright, and/or patent products inthe countries in which theyre sold.
US government is engaged in bilateral and
multicultural negotiations and education to limitcounterfeiting. (WTO)
Take steps to protect yourself.
Gray-Market and
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PPT 14-51
Gray Market andDiverted Merchandise
Gray- MarketMerchandise possesses a validU.S. registered trademark and is made by aforeign manufacturer but is imported into theUnited States without permission of the U.S.
trademark owner.
Not Counterfeit.
Is legal.
Diverted Merchandise is similar to gray-market merchandise except there need not bedistribution across international boundaries.
Gray-market and Diverted
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PPT 14-52
Gray market and DivertedMerchandise: Taking Sides
Discount stores argue customers benefitbecause it lowers prices.
Traditional retailers claim important service
after sale will be unavailable May hurt the trademarks image.
Avoiding the
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PPT 14-53
Avoiding theGray-Market Problem
Require customers tosign a contractstipulating that they will
not engage in graymarketing.
Produce differentversions of products for
different markets.
E l i T i i
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PPT 14-54
Exclusive Territories
Granted to retailers so no other retailer in theterritory can sell a particular brand.
Benefits vendors by assuring them that quality
retailers represent their products.
Assure retailers adequate supply.
Grants retailers a monopoly.
Illegal when they restrict competition.
E l i D li A t
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PPT 14-55
Exclusive Dealing Agreements
Occur when a manufacturer or wholesalerrestricts a retailer into carrying only itsproducts and nothing from competing
vendors. Illegal when they restrict competition.
T i C t t
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PPT 14-56
Tying Contracts
An agreement that requires the retailer totake a product it doesnt necessarily desire to
ensure that it can buy a product it doesdesire.
Illegal when they lessen competition.
Ok to protect goodwill and quality reputation
of vendor.
R f l t D l
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PPT 14-57
Refusals to Deal
Suppliers and retailers have the right to dealor refuse to deal with anyone they choose.
Except when it lessens competition.
T f P h
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PPT 14-58
Terms of Purchase
Discounts
Trade (Functional) Discounts
Chain Discounts
Quantity Discounts
Seasonal discounts
Cash discounts
ROG and EOM dating
Anticipation discounts
Shipping Terms and Conditions
A S l P i Li t
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PPT 14-59
A Sample Price List
Price to Wholesaler Price to Retailer
Quantity
per Order Discount Price Discount Price
1 - 10 40 - 5% $57* 30% $70
11 - 25 50 - 10 45 40 60
26 + 50-10-5 42.75 40-10 54
* Based on a $100 suggested retail price.
Example of a Cash Discount
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PPT 14-60
Example of a Cash Discount
1/30, n/60
Nov 1 Dec 1 Jan 1Date of Invoice 30 days 60 days
1% discount Full amountDue
E l f ROG D ti
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PPT 14-61
Example of ROG Dating
ROG Dating
Nov 1 Nov 15 Dec 15 Jan 15
Date of Merchandise 30 days ROG 60 days ROGinvoice arrives 1% discount Full amountdue
Example of EOM Dating
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PPT 14-62
Example of EOM Dating
EOM Dating
Nov 1 Dec 1 Jan 1 Feb 1
Date of 30-day discount 30 days EOM 60 days EOMinvoice period begins 1% discount Full amount
due
Example of EOM Dating,
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PPT 14-63
p g,Grace Period
EOM Dating, Grace Period
Oct 25 Nov 1 Dec 1 Jan 1 Feb 1
Date of 30-day 30 days EOM 60 days EOM
invoice discount 1% discount Full amountperiod due
begins
Example of Extra Dating
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PPT 14-64
Example of Extra Dating
Extra Dating
Nov 1 Dec 1 Jan 1 Feb 1 Mar 1 Apr 1
Date of 30-day 60-day 60 days Full
invoice discount Extra Extra amount
period discount 1% discount duebegins period
begins
Alternative Shipping
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pp gTerms and Conditions
Owns Merchandise
Pays Freight in Transit and
Charges Files Claims (If Any)
F.O.B. origin, freight collect Retailer Retailer
F.O.B. origin, freight prepaid Supplier Retailer
F.O.B. destination, freight collect Retailer Supplier
F.O.B. destination, freight prepaid Supplier Supplier