Merchandise Planning Meaning and Process

14th November 2021 0 By indiafreenotes

Merchandising is defined as offering right kind of product at right place and in right price. A retailer has to plan to have in his store the product that is desired by the customer. Success of any retail organisation depends on its merchandise planning.

Merchandise planning is defined as “Planning and control of merchandise inventory of the retail firm, in a manner, which balances between the expectation of target customer and strategy of firm”.

Components:

Following are important components of merchandise planning:

(1) Product:

Product or merchandise is the basic component of marketing mix. Retailer has to cater to the products that are expected by his segments. He has to maintain adequate inventory of product category expected by his customer.

Products may be broadly classified into:

  1. Staple: Like food and clothing that have regular demand. Adequate stock of that is to be maintained.
  2. Seasonal products: that are in demand during the season. Adequate inventory of that is to be augmented before the season and the stock is to be maintained to sustain the season.
  3. Fashions: Goods that are in demand until the fashion prevails. Retailer has to estimate the quantum of demand to last the fashion trend.
  4. Fads: the kind of products that have limited period of demand. Retailer has to be careful to estimate the demand and buy the fad products.

(2) Price:

Another important component of marketing mix. Price is an important variable in a country like India, where people are price sensitive. Retailer has to determine his segment and the price range to which they belong. Broadly it can be classified as low, Medium and premium range.

Retailer has to offer the product that meets price range of his target customers. Apart from this retailer has to adopt different price strategies like Price Skimming, Mark down price, discounts price and offers like buy one and get one depending on demand for the goods and extent of stock. The planning should be to offer an attractive price package that can result in regular sale, stock clearance and assure adequate profits.

(3) Range:

Range refers to width, breadth and depth of products offered for sale. Customers should have opportunity to make choice or selection depending on the type of retail store i.e.-

Specially store specialises in limited width i.e., particular category (Bata, Raymond’s) But it must have depth i.e., different designs, number, color, price-range etc., so that customer can make choice. Departmental store which deals in long category of products must not only have width, but also must have breadth (different brands) and depth.

A wide range of product demands more investment in merchandise. Retailer has to evaluate that there is adequate return on investment made. Apart from this he has to ensure that merchandise is acceptable and saleable. Buy and store that range of merchandise that can be sold.

(4) Assortment:

It refers to combination of products made available to customer at retail outlet. Merchandise is assorted and presented category wise and department wise.

E.g. Cosmetics, Toiletries, Electronics, Staples, Vegetable, Furniture etc., each category further will have different products or different brands at different size and price level.

E.g. Toothpaste, Shampoo, Soaps, etc., are presented in one category of different brands companies and brands.

Retailer must make systematic assortment or classification. Goods of similar category must be made available at one place. Items of electronics should not be placed along with vegetables.

Apart from this retailer must keep adequate SKU (Stock Keeping Unit) of each item of products. He has to regularly monitor that enough number of merchandise is available for customer’s choice. He has to ensure that such assortment of merchandise is convenient for customers to select, and enough variety is available to choose from.

At the same time, he has to ensure that assortment stock is moving and there is better turnover. He has to ensure that each line of product is contributing towards profit. The product line that is not popular may be replaced with a new and more popular line.

(5) Space:

Products should visible to visiting customer. Retailer have limited floor space, he should provide adequate space for display of each product. Available space for display of each product is utilized to showcase and presents goods, through different types of fixtures, hangers, gondolas, mannequins, fridge depending on the nature, size, dimension of goods.

Retailer will also decide merchandise hierarchy as to how space is to be created for various category of products. E.g. Products may be classified as new arrivals, fads, fashions staples, vegetable, electronics, furniture’s, kids etc.

Retailer has to priorities the place for different products:

  1. He has to ensure that the products are visible.
  2. Customers have convenience and comfort in picking the products.

Merchandise planning is planning of product price, range and assortment.

It has following implications:

  • Finance:

Finance large amount is invested in merchandise the planning regarding price, product, range etc., must ensure adequate return on investment.

  • Marketing:

Retailer has to undertake, marketing measures like advertising sales promotion etc., to ensure that the merchandise is sold.

  • Warehousing and Logistics:

This department has responsibility of receiving, taking account of stock, stock keeping and dispatching the goods, to stores to departments and stores.

  • Store Operations:

Each store of department is to be informed regarding merchandise bought. The store has to initiate measures to clear the sale and to clear stock.

Merchandise planning buying right kind of product, fixing a right kind of price providing adequate range of products through an appropriate assortment, and ensure adequate space to showcase and sell the product.

Process of Merchandise Planning:

Success of any retail organisation depends on presenting the merchandise that is needed by the customer. Firms have to make meticulous planning regarding type of merchandise to be bought, its presentation, pricing etc., planning process has to be detailed and elaborate. It must cover every angle of merchandise management.

Success of organisation depends on buying what the customers wants and selling it to him in the manner desired by him.

Merchandise planning has to be:

  • Time Based:

It must make annual budget of merchandise required. Budget has to be further broken into quarterly, weekly and daily on requirements.

  • Location Based:

Merchandise for entire organisation covering each store under the company’s umbrella. It should be broken into demand for each individual store.

  • Store Based:

Demand of store or each department, category wise, product wise etc.

Micro and macro estimation of merchandise needed that has to be acquired in right time, right quantity so that it can be sold in right time when demanded by customer. Planning should ensure optimum stock of each product, because shortage of stock is lost opportunity of sale. Excess stock is a burden on finance and cost.

Process of merchandise planning is as follows:

  • Forecast of Sales:

Merchandise plan or budget is dependent on estimated sales. Forecast of sales for entire organisation, department and product wise is to be made. Further new products to be added, or deletion of product is to be considered. Estimate is made based on past records, present scenario, impact of fashion economic trend etc., Firm also has to determine pricing strategy in the sale of product.

  • Merchandise Budget:

Estimate of merchandise required is made based on expected sales. Estimate is made at head office level that determines merchandise required for each store or department. Merchandise required for each department and likewise for each store and for entire organisation.

Along with this firm also makes financial implication of investment in merchandise. Plan ensures that investment on merchandise assures expected gross profit or return. Plan has to assure that each store and departments is given adequate stock support to avoid scarcity. At the same time it has to ensure that there is turn-over of merchandise, if not to adopt strategy like markdown sales to replenish the stock.

  • Merchandise Control:

Retailer has to balance between purchase and sale of merchandise. It is necessary to avoid either over or under stocking of merchandise. Daily and weekly stock reports are taken to monitor the movement of stock. Fresh order of purchase is made before the stock reaches danger level.

Firms will have their own policy of maintaining stock levels. Control over inventory can be ensured by monitoring movement of merchandise from the godown to the store and from there to the department. Adequate control can minimise the problem of stock clearance, or discount or mark down sale.

  • Assortment Planning:

Assortment is arrangement of products category wise. It is presentation of entire products range classified under categories, department or section. E.g. Food section, cosmetics, Garments etc., merchandiser has to ensure that there is proper assortment i.e., each assortment or section must have relevant or related items, every category must have adequate SKU (Stock keeping units) no shelf , rack, should be empty. At the same time it should be ensured no department or product category is overloaded.

Assorted merchandise need to be presented making optimum use of space and positioning the products in racks, hangers etc., so that it is visible, and comfortable for customer to select.