Answer Key Forinternal Assessment Test 2

USN
/ PESIT Bangalore South Campus
Hosur road, 1km before Electronic City, Bengaluru -100
Department of MBA

ANSWER KEY FORINTERNAL ASSESSMENT TEST –2

Date: 31/10/2017 Max Marks: 40marks

Subject & Code:Retail Management(16MBAMM302) Section : Mktg.

Name of faculty:Ravi Urs/ Sanjay Upadhyay Time : 1:30 PM – 3:00PM

Note: Answer all questions

1(a) / What are private labels?
Private-label products are typically those manufactured by a company and being offered under a retailer's brand. They are often positioned as lower-cost alternatives to regional, national or international brands. It has the advantage of control over product or service pricing, marketing independence, a personalized image and higher customer loyalty, higher control of production, marketing, distribution and profits, catering to changing customer preferences / (2 marks)
(b) / Elucidate the promotional strategies of a retailer.

Price-off pack

The product is sold at a reduced price from its normal selling price
This is in the form of discount
Usually, it is mentioned on the pack that a certain amount is ‘off’
E.g. Rs 25/- off for purchase of 500gms of washing power

Premiums

These are in the form of small gifts that a customer gets on purchasing a product
The gifts are usually attached to the pack or inside the pack
E.g. Giving 100ml of hair oil free with purchase 0f 500 ml of oil

Self-liquidating premiums

Here, the customer has to write to the supplier for the gift, enclosing empty packets, bottle crowns, etc. of the product plus some money
E.g. 5 bottle crowns +Rs 25 = One cap

Competitions

The information about the competition is usually printed on the packs
The customer needs to follow the instructions and apply
E.g. "Britannia Khao, World Cup Jao" from Britannia

Sampling

The customers are given product samples for free
Sometimes a demonstration may also be present to explain the product
These are for inducing trial of the product
Suitable when the products are new to the market

Coupons

Price-off coupons are printed on he pack and the customers can use them to save substantial amounts on their next purchase
The store should not allow the coupon to be redeemed for other products called ‘malredemption’

Buy one get one free

The customer can get two units of the product at the price of one
This may fail when the customer is expected to return the empty packets for getting their free products

Multi-packs

Here two or more packs are attached and sold for a better and attractive price than the price of the items singly
It is economical for the customer to buy three products for the price of two

/ (6 marks)
(c) / Explain the pricing strategies adopted by retailers.
Every Day Low Pricing (EDLP)

This strategy entails continuity of retail prices below the MRP mentioned on the goods
The pricing is somewhere between the regular price at which the goods are sold and deep discount price offered when a sale is held
For EDLP to be successful, volumes are necessary so that the store can negotiate with the manufacturers for bargain prices
They depend less on price reduction to compete, advertising cost is less, customer service is better and inventory management is efficient
E.g. Wal-Mart

High-Low pricing

Here the retailers offer prices that are sometimes above their competitor’s EDLP
However, they also sell at a less price sometimes and they use advertisements to promote frequent sales
It has the advantage of that the same merchandise can be used to target different segments, there is enthusiasm created among customers during low priced sales, an image of quality is created as customer uses the original highest price as the reference
E.g. Big Bazaar

Loss Leader Pricing

In this pricing a retailer will price fast moving products at a lower price to attract customers to the store
Once the customers are in the store, they can be persuaded to buy more profitable products
Other products likely to be bought by the customer is priced slightly higher
E.g. A retailer can sell eggs cheaper than other competing stores so that customer consider the store while buying groceries

Skimming pricing

In this pricing strategy the retailer sets a relatively high price for a product or service at first, then lowers the price over time
It allows the firm to recover its sunk cost quickly before competition steps in and lowers the market price

Penetration pricing

Here the retailer sets a relatively low initial entry price, a price that is often lower than the eventual market price
The expectation is that the initial low price will secure market acceptance by breaking existing brand loyalties and help in increasing market share

Price Lining

It refers to the offering of merchandise at a number of specific but predetermined prices
Once set, the prices may be held constant over a period of time and changes in market conditions are adapted to by changing the quality of the merchandise

Psychological Pricing

It is a method of setting prices intended to have special appeal to consumers
The different types of psychological pricing are:
Prestige pricing: It uses high pricing to convey a distinct and exclusive image for the product. It refers to charging a high price for a product or service where it is judged that this in itself will give it prestige and make it much sought after
Reference pricing: It uses consumers’ frame-of-reference that is established through previous experience of purchasing the product or through high levels of information search
Odd-even pricing: It is setting prices at odd numbers (E.g. Rs 99.95) to denote a lower price or a ‘good deal’ or setting prices at even numbers (E.g. Rs 100) to imply higher quality
Traditional pricing: It uses historical or long standing prices for a product to determine the pricing

Multiple Unit Pricing

It is used to encourage additional sales and to increase profits
The gross margin that is sacrificed in a multiple unit sale is more than off-set by the savings that occur from reduced selling and handling expenses

Bundled Pricing

It is the practice of offering two or more different products or services at one price
It is used to increase both unit and rupee sales by bringing traffic into the store
It can also be used to sell less desirable merchandise by including it in a package with a product of great demand

Pre-emptive pricing

It is a strategy which involves setting low prices in order to discourage or deter potential new entrants to the retailer’s market
It is suited for markets in which the retailer does not enjoy any market privilege and entry to the market is relatively easy

Extinction pricing

It has the overall objective of eliminating competition
It involves strategy of setting very low prices in the short term in order to ‘under-cut’ competition

Perceived value pricing

In this method the seller attempts to set the price at the level that the intended buyers value the product
If the perceived value is high, the retailer can charge a premium price

Demand-oriented pricing

In this method the seller attempts to set price at a level that the intended buyers are willing to pay
It is also called value-in-use or value-oriented pricing

Fixed and variable pricing

In a fixed price policy, the retailer examines the situation, determines an appropriate price, and leaves the price fixed at that amount until the situation changes
The above process is repeated when the situation changes

/ (8 marks)
2(a) / What is visual merchandizing?
Visual merchandizing is defined as the activity of promoting the sale of goods, especially by their presentation in retail outlets. It is the orderly, systematic, logical and intelligent way of putting stock on the floor. It involves SKU planning, store windows and floor displays, signs, space design, fixtures and hardware, props and mannequins. A good visual merchandise is a selling space that is neat, easy to see, follow and shop. Visual merchandise influences the amount of time spent shopping and the evaluation of merchandise. / (2 marks)
(b) / Explain the presentation techniques in store management.
1)Color dominance

It is the simplest and most direct method of presenting merchandise
Here the merchandise is primarily displayed by color
Within the color display, the products may be displayed by size and style

2)Coordinated presentation

Here a variety of merchandise are presented in a combined fashion
It is suitable for garments, home fashions, bed & bath linens and even kitchen requisites

3)Presentation by price

Here the merchandise are arranged based on their price
All he products having similar price are presented together
Here the inexpensive, bargain or sale merchandise are displayed first

4)Presentation by seasons

Here the merchandise display is based on seasonal requirements
E.g. winter wears, summer wears

5)Presentation by special occasions

Here the merchandise display is based on special occasions
E.g. the greeting card Archie’s arranges its cards based on occasion

6)Presentation by trends and activities

Here the display is based on new trends and activities in the particular product range

7)Presentation by events of community

Here the display is based on events of community

/ (6 marks)
(c) / What is store layout? Explain the types of store layout.
Store layout refers to the arrangement of merchandise within the store. It should enable the customer to easily find what she is looking for. An attractive store layout helps to get more footfalls into the store. A store layout is chosen on the basis of target customer to be served or the general image and look the retailer wishes to create for the store.
Grid Layout

It is most commonly used in supermarkets and discount stores
While one area of display is along the walls of the store, the other merchandise is displayed in a parallel manner
It allows movement with the area and uses space effectively
It is therefore, a preferred layout in many retail stores that adopts self-service
It is good for shopping trips in which customers need to move throughout the entire store and easily locate products they want to buy
It is very cost-efficient
There’s less wasted space as the aisles are of same width and designed to be just wide enough to accommodate shoppers and their carts
Space productivity is enhanced

The racetrack layout/Loop layout

The display is in the form of a racetrack or a loop with a major aisle running through the store
The aisle provides access to various shop-in-shops or departments within the store
This layout is popularly found in department stores
Secondary aisles within each section may link individual merchandise sections within the department
It helps in overcoming the problem of grid design where customers are not exposed to all the merchandise in the store
It encourages impulse purchasing
The important departments are placed towards the end of the shop to make customers go through other departments

Freeform Layout

In this form, merchandise is arranged in an asymmetrical manner
It allows free movement and is often used in department stores to encourage people to browse and shop
It is suitable for speciality stores
It provides a relaxed environment which facilitates leisure shopping and browsing
It is expensive
This type of layout may not allow for maximum utilization of the retail space available
Personal selling is very important

Boutique layout

Here the sales floor is segregated in terms of various areas, with each area focusing on a particular theme
The entire store may bear a resemblance to a shop-in-shop
Retailers may adopt variations of boutique layout.

Spine layout

It is based on a single main aisle running from the front o the back of the store
The customers shop on either side of the aisle
Merchandise departments are on either side of the aisle
Within these departments either a free-flow or grid layout can be used
It is used by medium sized specialty stores
In fashion stores the aisle is set-off by a change in floor colouring or surface

/ (8 marks)
3 / Case Study
(a)
(b)
(c) / Providing 'Value for Money' was the strategy of the once renowned Indian discount retailer Subhiksha. Launched as a discount store in 1997, Subhiksha was an instant success. Started by an Indian Institute of Technology and Indian Institute of Management alumnus, Subramanian, in Chennai, Subhiksha expanded quickly to other geographical areas in India through establishing chain of outlets in major towns in north and south India. As part of its marketing strategy, Subhiksha adopted Wal-Mart’s popular EDLP pricing strategy. Though Subhiksha did not aspire to compete with the conventional retailers like Nilgiri’s or Spencer’s Daily; it hoped to create a niche market with its discount model. Subhiksha relied heavily on organized retailing and economies of scale.
By the end of 2008, Subhiksha, one of the most popular retail brands of India, was on the verge of bankruptcy. Analysts blamed Subhiksha for its rapid store expansion strategy for which it had hired many sales personnel. This had resulted in huge cash outflows. Although the company was able to increase its turnover, its expansion was completely funded by debt. Subramanian, CEO of Subhiksha, was looking for means of reviving the retail chain. Subhiksha landed in trouble, after failing to pay its employees, suppliers and landlords for many months in 2008. Adding to its woes, its biggest investors, I-venture (Venture Capital arm of ICICI, India's largest private bank) and Zash Investment (AzimPremji's investment company Zash Investment Pvt.Ltd., has invested INR 230 crore in Subhiksha to acquire 10% stake from I-Venture's 33% pie) did not extend any help to the ailing discount store chain. On January 31, 2009, Subhiksha admitted in media that it was facing a major financial crisis. The condition of the company was well-manifested by the pillage of around 600 Subhiksha stores in February 2009, as security personnel did not attend duties due to lack of payment. The perpetrators could be, Subramanian told, "disgruntled vendors, employees or anti-social elements taking advantage of the situation". Crumbled by the credit crunch, Subhiksha's operations came to a standstill with bare shelves and closed shops.
Questions:
Explain the strategy followed by Subhiksha.
Subhiksha used the strategy of expanding quickly to many geographical areas in India through establishing chain of outlets in major towns in north and south India
As part of its marketing strategy, Subhiksha adopted Wal-Mart’s popular EDLP pricing strategy, which also met its ‘Value for Money’ objective
Subhiksha relied heavily on organized retailing and economies of scale
What went wrong with Subhiksha?
Subhiksha, for its rapid store expansion strategy, hired many sales personnel, which had resulted in huge cash outflows
Although the company was able to increase its turnover, its expansion was completely funded by debt
Subhiksha landed in trouble, after failing to pay its employees, suppliers and landlords for many months in 2008
Adding to its woes, its biggest investors, I-venture (Venture Capital arm of ICICI, India's largest private bank) and Zash Investment (AzimPremji's investment company Zash Investment Pvt.Ltd., has invested INR 230 crore in Subhiksha to acquire 10% stake from I-Venture's 33% pie) did not extend any help to the ailing discount store chain
On January 31, 2009, Subhiksha admitted in media that it was facing a major financial crisis
What strategy you would have advised Subramaniam, if he had approached you?
Students are expected to come up with innovative solutions. / (2marks)
(2 marks)
(4 marks)

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