Merchandising Philosophy, Buying Organization Format

and Process
1. Merchandising Philosophy

Merchandising philosophy refers to the guiding principles and strategic outlook that a
retailer adopts toward developing, presenting, and managing its product offerings.

Key Aspects

 Customer-Centric Orientation: Merchandise decisions are based on understanding

customer needs, preferences, and buying behaviour.
 Market Positioning: Aligning merchandise with store image and target market (e.g.,
luxury, value-based, trendy).
 Product Assortment Strategy: Deciding the breadth (variety) and depth (assortment)
of products.
 Profitability Focus: Balancing sales growth and profit margins through optimal
pricing, promotions, and stock management.
 Vendor Relationships: Building long-term, collaborative relationships with suppliers
to ensure product quality, delivery, and innovation.

Example:

Zara’s merchandising philosophy revolves around “fast fashion”—offering trendy products

quickly based on real-time consumer feedback and sales data.

2. Buying Organization Format

The buying organization determines how merchandise buying decisions are structured and
who is responsible for them.

Main Formats:

1. Centralized Buying Organization

o Buying decisions made at the head office for all stores.
o Advantages: Consistency, cost efficiency (bulk buying), strong negotiation
power.
o Disadvantages: Less responsiveness to local needs.
o Example: Big Bazaar, Reliance Retail.
2. Decentralized Buying Organization
o Each store or region has its own buyers.
o Advantages: Local flexibility, quick adaptation to market changes.
o Disadvantages: Duplication of efforts, weaker vendor bargaining power.
o Example: Boutique chains, regional department stores.
3. Combination Format (Hybrid)
 o Core merchandise bought centrally; regional/customized products bought
locally.
o Balances standardization and local responsiveness.

Typical Buying Organization Structure:

 Chief Merchandising Officer (CMO)

 Divisional Merchandise Managers (DMM)
 Buyers / Category Managers
 Assistant Buyers / Merchandisers

3. Buying Process

The buying process outlines the steps involved in selecting and purchasing merchandise for
retail sale.

Steps:

Step Description
Analyzing past sales data, forecasting demand, and
1. Merchandise Planning
determining budget allocation.
2. Vendor Identification and Finding suitable suppliers, evaluating terms, quality, and
Selection reliability.
Discussing prices, delivery terms, discounts, credit, and
3. Negotiation
returns.
4. Purchase Order Placement Officially ordering goods through purchase orders (POs).
5. Merchandise Receiving and Checking delivered goods for quantity and quality
Inspection compliance.
6. Allocation and Distributing products to stores and monitoring stock
Replenishment levels.
Reviewing vendor performance and sales results for
7. Performance Evaluation
future decisions.

4. Factors Influencing Buying Decisions

 Customer demand and lifestyle changes

 Seasonality and fashion trends
 Competitor offerings
 Pricing strategies and margin goals
 Store format and image
 Supply chain efficiency

Decathlon India uses a centralized buying system with a data-driven merchandise philosophy. Local
store managers, however, provide input on regional sports preferences—e.g., football gear in
Kerala, cricket gear in North India.
Devising Merchandising Plans

Definition:
Merchandise planning is a systematic process of forecasting, selecting, and managing
merchandise to achieve the retailer’s sales, profit, and inventory turnover objectives.

Objectives:

 Ensure the right merchandise is available

 In the right quantities
 At the right time
 In the right place
 At the right price

Key Steps in Devising Merchandise Plans:

Step Description
Review past sales, customer preferences, market trends, and
1. Situation Analysis
competition.
Predict future sales using historical data, market research, and trend
2. Sales Forecasting
analysis.
Set merchandise budgets – determine total financial allocation for
3. Budgeting
buying inventory.
4. Assortment
Decide on width (variety) and depth (number of items per category).
Planning
5. Inventory
Plan opening stock, purchase quantities, and reorder points.
Planning
6. Pricing Strategy Set price levels considering costs, competition, and perceived value.
7. Promotion Link merchandising decisions with promotional campaigns and
Planning seasons.

Example:

A supermarket like DMart plans its merchandise by forecasting festive-season sales,

allocating higher inventory for FMCG and household essentials during Diwali.

2️⃣ Category Management

Category Management is a retail strategy and process where each product category (like
dairy, beverages, footwear, etc.) is managed as a strategic business unit (SBU) to improve
performance and consumer satisfaction.

Retailers treat each product category as an independent profit centre.

Objectives:
  Optimize product assortment and shelf space.
 Enhance customer satisfaction.
 Strengthen vendor partnerships.
 Improve inventory turnover and profitability.

Roles in Category Management:

Role Responsibility
Category Manager Responsible for sales, profit, and performance of a product category.
Buyer Sources and negotiates with suppliers for specific products.
Merchandiser Ensures stock levels and product display align with sales objectives.

Category Management Process:

1. Define the Category – Decide product boundaries (e.g., “personal care”).

2. Role of the Category – Identify its role: traffic builder, profit generator, or seasonal
driver.
3. Assess the Category – Analyze sales, profit margins, consumer behavior.
4. Set Objectives – Define KPIs (sales growth, margin improvement).
5. Develop Strategy – Determine assortment, pricing, and promotion mix.
6. Implement Plan – Execute display, shelf layout, and supplier collaboration.
7. Review Performance – Track results and revise strategies as needed.

Example:

Big Bazaar treats “Staples” (rice, pulses, oil) as a traffic builder and “Apparel” as a profit
generator, each with distinct merchandising strategies.

3️⃣ Implementing Merchandise Plans

Once the plan is developed, execution ensures that the right merchandise reaches customers
effectively.

Key Implementation Activities:

Activity Description
1. Buying and Placing orders with approved vendors, negotiating delivery and
Procurement credit terms.
2. Allocation and Assigning merchandise to specific stores based on sales potential
Distribution and space.
3. Display and Visual merchandising to create appealing layouts that influence
Presentation purchase.
Monitoring sales, reordering fast-moving items, clearing slow
4. Stock Management
movers.
5. Promotional
Implementing in-store promotions, price-offs, and festival offers.
Execution
Tracking metrics like stock turnover, gross margin return on
6. Performance Review
inventory (GMROI), and sales per square foot.
Performance Metrics:

 Sales per square foot

 Stock turnover ratio
 Gross Margin Return on Inventory (GMROI)
 Sell-through percentage

Challenges in Implementation:

 Delays in vendor supply

 Inaccurate sales forecasts
 Poor store-level execution
 Seasonal demand variations

Example:

Reliance Trends uses centralized data to monitor category performance daily. If women’s
casual wear underperforms, the category manager revises assortment and pricing instantly.

4️⃣ Integration Between Planning and Implementation

Planning Focus Implementation Focus

Forecasting sales Managing inventory
Budgeting and pricing Vendor coordination
Assortment design Store allocation
Category strategy Promotion execution

Example: Decathlon

 Category: Outdoor & Sportswear

 Uses real-time POS data to adjust stock replenishment.
 Each category (cycling, running, swimming) has a category leader responsible for
sales, profit, and vendor collaboration.
 The merchandising plan is updated weekly based on data-driven demand.

IN SHORT :
 Merchandising Plan: Framework for what, when, and how much to buy.
 Category Management: Strategic handling of each product group as a business unit.
 Implementation: Ensures smooth execution through buying, allocation, and
monitoring.

Logistics in Retailing

Definition:
Retail logistics is the management of the flow of goods from manufacturers to the final
consumer through efficient transportation, warehousing, order processing, and
distribution systems.

Objectives:
  Ensure right product, right place, right time, right quantity, right cost.
 Improve customer satisfaction through faster delivery and product availability.
 Minimize costs related to storage, handling, and transportation.

Key Components of Retail Logistics:

Component Description
Order Processing Receiving, verifying, and processing retailer or store orders.
Transportation Movement of goods from suppliers to warehouses and stores.
Warehousing Storing products efficiently before distribution.
Inventory
Balancing stock levels to avoid shortages or overstock.
Management
Material Handling Safe and efficient movement within warehouses/stores.
Real-time tracking of goods through IT systems like ERP, RFID, or
Information Flow
barcodes.

Types of Retail Logistics:

 Inbound Logistics: Movement from suppliers to warehouse.

 Outbound Logistics: Movement from warehouse to stores/customers.
 Reverse Logistics: Handling product returns, recycling, and disposal.

Example:

Amazon India uses AI-driven logistics — central warehouses, local hubs, and last-mile
delivery through “Amazon Flex” to minimize delivery time.

2️⃣ Inventory Management

Inventory Management is the process of maintaining optimal stock levels to meet customer
demand while minimizing holding costs.

Objectives:
 Maintain adequate stock for smooth operations.
 Avoid stockouts and overstocking.
 Reduce capital tied up in inventory.
 Improve turnover and profitability.

Types of Inventory:

 Raw Materials – Used in production.

 Work-in-Progress (WIP) – Goods under process.
 Finished Goods – Ready-to-sell items.
 MRO Inventory – Maintenance, repair, and operating supplies.

Techniques of Inventory Control:

 Technique Explanation
Classifies inventory into A (high value), B (medium), and C (low
ABC Analysis
value) for control focus.
Based on Vital, Essential, Desirable categories — often used in
VED Analysis
healthcare/technical retail.
EOQ (Economic Order
Determines optimal order quantity minimizing total cost.
Quantity)
Reorder Point (ROP) Stock level at which new order must be placed.
Goods arrive exactly when needed, reducing inventory carrying
Just-In-Time (JIT)
cost.
Perpetual Inventory
Continuous updating of stock through POS or ERP systems.
System

Inventory Performance Metrics:

 Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

 Stockout Rate
 Carrying Cost Percentage
 GMROI (Gross Margin Return on Inventory)

Example:

Zara employs Just-In-Time inventory management — production and distribution are

synchronized with current sales data, enabling new styles every few weeks.

3️⃣ External Factors Affecting Retail Price Strategy

Definition:
External factors are environmental forces outside the retailer’s control that influence
pricing decisions.

Major External Factors:

Factor Impact on Pricing Strategy Example

Inflation, interest rates, and
Economic During inflation, retailers raise
purchasing power influence pricing
Conditions prices or shrink pack sizes.
flexibility.
Flipkart may lower prices
Pricing depends on rival retailers’
Competition during Big Billion Days to
prices, promotions, and positioning.
match Amazon.
Laws related to price controls, GST, Price ceiling on essential
Government
import duties, and labeling affect commodities by the
Regulations
final prices. government.
Changes in supplier pricing, raw
Increase in fuel cost raises
Supplier Costs materials, or logistics costs are
product delivery cost.
reflected in retail prices.
Consumer Customers’ value perception, brand Premium brands maintain high
Perception & loyalty, and price sensitivity guide prices for prestige appeal.
 Factor Impact on Pricing Strategy Example
Behavior price levels.
Automation, online price E-commerce platforms adjust
Technological
comparison, and dynamic pricing prices algorithmically in real
Factors
tools influence retail strategy. time.
Currency fluctuations, import/export
Global chip shortage raised
Global Factors policies, and global supply chain
prices of electronics in India.
disruptions.
Seasonality and Seasonal demand affects temporary Discounts during Diwali or
Festivals price variations. Christmas season.

Strategic Responses by Retailers:

 Adopting dynamic pricing and price-matching policies.

 Offering value packs or bundle pricing.
 Using psychological pricing (₹499 instead of ₹500).
 Leveraging loyalty programs for perceived value.

4️⃣ Interlink Between Logistics, Inventory, and Pricing

Function Influence on Pricing

Efficient Logistics Reduces cost per unit → enables competitive pricing.
Better Inventory Control Avoids obsolescence and markdown losses.
Demand Forecasting Supports stable pricing through predictable stock flow.

Example:

DMart achieves low prices by maintaining efficient logistics, high stock turnover, and
direct vendor sourcing, minimizing intermediaries.

Topic Key Idea

Ensures smooth flow of goods through efficient transport and
Logistics
storage.
Inventory Management Balances stock levels to minimize cost and meet demand.
Economic, competitive, and regulatory forces shape pricing
External Factors
strategy.

Developing a Retail Price Strategy

Retail pricing strategy refers to the method and logic used by retailers to set prices that
attract customers, ensure competitiveness, and achieve desired profit margins and sales
volumes.

Steps in Developing a Retail Price Strategy

 Step Description
Define what the retailer wants to achieve — profitability, market
1. Set Pricing Objectives
share, or customer traffic.
2. Analyze External Examine competition, consumer behavior, economic trends, and
Factors regulations.
Understand all cost components — purchase, logistics, storage,
3. Estimate Costs
staffing, and promotions.
Analyze price elasticity — how sensitive customers are to price
4. Determine Demand
changes.
5. Select a Pricing Choose the appropriate method (e.g., penetration, skimming,
Strategy psychological).
6. Implement the Pricing Fix retail price points, markdown rules, and promotional
Policy discounts.
7. Evaluate and Adjust Review sales, margins, and competitor moves periodically.

Types of Retail Pricing Strategies

Strategy Description Example

Add markup to cost to set selling Grocers add 15–20% margin on
Cost-Oriented Pricing
price. staples.
Demand-Oriented Based on customer’s perceived Apple prices high due to brand
Pricing value. value.
Competition-Oriented Prices set according to Amazon and Flipkart price-
Pricing competitors. match during sales.
Set low initial price to gain market
Penetration Pricing Jio entry pricing in telecom.
share.
Smart TV launch prices drop
Price Skimming Start high and reduce over time.
gradually.
Using prices that appear lower Lifestyle stores’ “just-below”
Psychological Pricing
(₹499 vs ₹500). pricing.
Temporary discounts to attract “Buy 1 Get 1” or “Weekend
Promotional Pricing
customers. Sale.”
Price based on perceived benefits, FabIndia’s premium handmade
Value-Based Pricing
not cost. products.
Price varies across regions due to
Geographical Pricing Petrol prices differ by state.
cost differences.

Pricing Policies in Retail

 Everyday Low Pricing (EDLP): Consistently low prices (e.g., DMart, Walmart).
 High-Low Pricing: Alternating between high regular prices and deep discounts (e.g.,
Big Bazaar).
 Loss Leader Pricing: Selling select items below cost to attract customers (e.g.,
supermarket staples).
 Bundle Pricing: Combining products at a single price (e.g., combo meal offers).
Factors Affecting Retail Price Strategy

 Internal: Cost structure, company objectives, product mix, store image.

 External: Competitors, consumers, economy, regulations, and supply chain
efficiency.

Example: DMart India

 Follows EDLP strategy with minimal promotions.

 High inventory turnover allows bulk buying discounts.
 Focuses on cost control and passing savings to customers.

Performance Metrics

 Gross Margin Return on Inventory (GMROI)

 Price Elasticity of Demand
 Sales Volume and Market Share Growth

2️⃣ Promotional Strategy in Retailing

Promotional strategy refers to the communication plan and tools retailers use to inform,
persuade, and remind customers about their products and brand to influence purchase
behavior.

Objectives of Retail Promotion

 Increase store traffic.

 Boost short-term sales.
 Strengthen brand image.
 Clear excess stock.
 Create customer loyalty and awareness.

Elements of Retail Promotion Mix

Element Description Example

Paid, non-personal communication via Print ads, hoardings, TV,
Advertising
media. social media.
Short-term incentives to encourage Discounts, coupons, loyalty
Sales Promotion
purchase. cards.
Face-to-face interaction to influence In-store product
Personal Selling
purchase. demonstrations.
Public Relations Building positive image through
Press releases, sponsorships.
(PR) publicity.
Personalized communication via email,
Direct Marketing Myntra’s personalized offers.
SMS, catalogues.
Online and social media-based Instagram ads, influencer tie-
Digital Marketing
promotion. ups.
Visual Store design and display to attract Window displays, signage,
Merchandising attention. lighting.
Types of Retail Promotions

Type Purpose Example

Price Promotions Attract price-sensitive customers.
End-of-season sales.
Retain customers and increase repeat
Shopper’s Stop First Citizen
Loyalty Programs
purchase. Card.
Event-Based Tie promotions with festivals or
Diwali Sale, Back-to-School
Promotions occasions. Offer.
Domino’s + Coca-Cola
Cross-Promotions Combine with complementary brands.
combo deals.
Product demos or sampling
In-Store Promotions Attract impulse buying.
counters.

Developing a Retail Promotional Plan

Step Action
1. Define Objectives e.g., Increase footfall by 10% or clear old stock.
2. Select Target Audience Identify customer segments.
3. Choose Promotion Tools Select suitable mix (discounts, ads, digital).
4. Determine Budget Allocate resources for each channel.
5. Execute Campaign Implement through stores and online media.
6. Evaluate Results Measure sales lift, traffic, redemption rates.

Example: Reliance Smart

 Combines price promotions (weekly offers) with digital ads and SMS campaigns.
 Uses loyalty programs to drive repeat sales.
 Aligns promotions with festive seasons for maximum impact.

Summary Table

Aspect Pricing Strategy Promotional Strategy

Setting the right price to attract and Communicating offers and building
Focus
retain customers. brand interest.
Goal Profitability and competitiveness. Traffic generation and brand recall.
Time
Long-term (policy-based). Short-term (campaign-based).
Horizon
EDLP, High-Low, Penetration, Advertising, Sales Promotion, PR,
Key Tools
Skimming. Digital Media.
Big Bazaar’s Wednesday Bazaar
Example DMart’s everyday low prices.
campaign.

Elements of Retail Promotional Mix

The Retail Promotional Mix is the combination of communication tools that a retailer uses
to inform, persuade, and influence customers toward buying products and building long-
term relationships.

It integrates both traditional and digital communication methods to create awareness,

stimulate demand, and enhance brand image.

Major Elements of the Retail Promotional Mix

Element Meaning Objective / Focus Example
Print ads, TV
Paid, non-personal To create brand
commercials, social media
1. Advertising communication to a mass awareness and
ads (Reliance Trends,
audience through media. drive store traffic.
Decathlon).
To boost short-
Short-term incentives to Coupons, discounts,
2. Sales term sales, clear
encourage immediate BOGO offers, seasonal
Promotion inventory, attract
purchase. sales (Big Bazaar, DMart).
new customers.
Direct interaction between To provide
In-store assistance,
3. Personal salespeople and customers personalized
demonstrations, upselling
Selling to influence purchase service and build
(Croma, Apple Stores).
decisions. customer trust.
Press releases,
Activities to create and To build goodwill sponsorships, community
4. Public
maintain a positive image and handle public events, CSR activities
Relations (PR)
of the retailer. perception. (Tata Group, Reliance
Foundation).
Personalized promotion To target specific Email, SMS, WhatsApp
5. Direct
through direct customer groups offers, catalogues (Myntra,
Marketing
communication channels. effectively. Nykaa).
To reach tech-
6. Digital / Use of digital platforms Influencer marketing,
savvy customers
Online for interactive SEO, social media
and enable online
Marketing communication. campaigns, paid ads.
engagement.
To enhance store
Use of displays, lighting,
appeal and
7. Visual color, layout, and signage Lifestyle, Shoppers Stop,
influence
Merchandising to attract attention and and Zara window displays.
unplanned
create impulse buying.
purchases.
To increase Reward points,
Reward systems that
8. Loyalty customer retention membership cards
encourage repeat visits
Programs and purchase (Reliance One, Shopper’s
and brand loyalty.
frequency. Stop First Citizen).

Example:
A Reliance Smart campaign might combine:
 Advertising: Newspaper + YouTube ads
 Sales Promotion: “Smart Savings Week” discounts
 Digital Marketing: App push notifications
  Visual Merchandising: Festive displays
→ for maximum impact across customer touchpoints.

🪜 Importance of a Balanced Promotional Mix

Aspect Importance
Brand Building Advertising and PR create long-term image.
Immediate Sales Sales promotions drive quick results.
Customer Engagement Personal selling and direct marketing foster relationships.
Cost Effectiveness Digital media allows measurable ROI.

2️⃣ Planning a Retail Promotional Mix

Planning a retail promotional mix involves deciding how to combine and allocate
resources across different promotional tools to meet marketing and store objectives
efficiently.

Steps in Planning a Retail Promotional Mix

Step Action / Description Example / Tool Used

Identify what the retailer aims to
1. Define Promotional “Increase footfall by 15%
achieve — e.g., brand awareness,
Objectives during festival season.”
footfall, sales boost, loyalty.
Determine the segment to be reached College youth, working
2. Identify Target
(demographics, lifestyle, purchase professionals, homemakers,
Audience
behavior). etc.
% of sales method,
3. Set Promotion Allocate financial resources based on
competitive parity, or
Budget objectives and media cost.
objective-task method.
4. Select Promotional Choose appropriate mix of advertising, Use digital ads + coupons
Tools sales promotion, personal selling, etc. for a youth-focused store.
5. Integrate
Ensure message consistency across all Use same tagline and design
Communication
channels (store, online, print). theme across media.
Channels
Craft an appealing, customer-centered “Smart Savings, Every Day”
6. Design the Message
message. – DMart.
7. Implement the Execute the plan through chosen Launch event, digital rollout,
Campaign media and stores. in-store banners.
8. Monitor and Sales lift, redemption rate,
Measure performance through KPIs.
Evaluate Effectiveness customer feedback, ROI.

Factors Influencing Promotional Mix Decisions

Factor Influence
Specialty goods need more advertising; convenience goods
Type of Product
rely on promotions.
 Factor Influence
Stage of Product Life Cycle New products → heavy advertising; maturity → loyalty
(PLC) programs.
Target Market
Tech-savvy → digital; traditional → print or local events.
Characteristics
Budget Availability Determines intensity and reach.
Competitor Activity Influences choice of media and timing.
Online vs. brick-and-mortar have different promotional
Retail Format
needs.

Example: Big Bazaar – Festival Campaign

Objective Increase sales during Diwali season.

Print & TV ads, WhatsApp coupons, BOGO offers, in-store displays, influencer
Tools Used
tie-ups.
Result 25% increase in footfall, 18% rise in average bill size.

Key Performance Indicators (KPIs)

 Footfall growth
 Conversion rate
 Sales uplift
 Coupon redemption rate
 Return on Promotion Investment (ROPI)
 Social media engagement metrics

Concept Key Points

Retail Promotional
Combination of communication tools used by retailers.
Mix
Advertising, Sales Promotion, PR, Personal Selling, Direct, Digital,
Core Elements
Visual Merchandising, Loyalty Programs.
Define objectives → Identify audience → Budget → Select tools →
Planning Steps
Integrate → Implement → Evaluate.
Goal To build awareness, attract customers, and drive profitable sales.