Dear friends,

Now the RTM End Term exam pattern has been changed, now the
question related to exam will be set by Prof. Govind Rajan so please read
the notes provide by Prof. K.V. Ramana it will be now CLOSED BOOK
Exam. Come to class at 03:00 Pm. tomorrow there might be Quiz on it or
might not be. And End Term Examwill be at 03:30 P.m.
All the Best.

Retail Management
By Prof.Govind Rajan 26-07-10 / 2:00 to 3:30

What is Retailing?
Retailing is an exchange mechanism.
• There is a buyer & seller
• Who meets in market place.

B2 B – Organisation to organization – Some for re-sales

B2 C – Business to customers / consumers – Only retailing.

Market place is a place or virtual place where buyers and sellers congregates.
Eg. Stock Exchange, vendors

Integrated Marketing communication is the new name of Advertising.

Ex. of Retailers:
 Grocery & Food
 Garments
 Cosmetics or personal care
 Home Appliances
 Sports stores
 Services
 Consumer durables
 Medicines
 Utilities
 Petrol/Diesel
 Banking & Insurance
 Airlines/Trains
 Tours & Travels
 Amusement Park
 Cinema Halls
 Foot wear
 Book stores

A consumer buys for satisfying needs and wants.

A hermit does not have needs and wants.
We are born with needs like food & shelter, sometimes imposed by society ( like you want
to reach in time – so watch is a need)
Want Ex. I wear a Rs. 5,000/- watch, not born need, neither imposed by society.

Marketing Myopia :- ( short sightedness)

You are focusing too much on product, not on the needs of the customers.

Need v/s Want

Train: Invest in train
Invest in Railways
RPG: Food & Groceries
Specialty Retailers
Share of wallet: On an Avg. 43% of expenditure goes on retailing items like food and
groceries.

House hold spending ( By Euromonitor.com)

1. Food & Groceries - 42%
2. Transport - 5%
3. Health - 3%
4. Housing - 10% non recurring
5. Eating out - 3%
6. Personal care - 4%
7. Books & stationeries - 1%
8. Clothes & footwear - 3%
9. Movies / Entertainment - 1%
10. Vacation - 4%
11. Savings & Investments - 8%
12. Home Appliances - 3%
13. Education - 9%
14. Miscellaneous - 4% charity, hundi, tobacco, liquor etc.

Lay out of store:

- Food & Groceries are kept at the end of store.
- Impulse purchase items should be kept near entrance of food items. Like ice
creams, chocolates, soft toys.

SALES LAW : Supply creates demand

ABV : Average Bill Value, should be higher

Layout should be made in such a way.

Transport & Food

o Have 2 things in common
o They are need – when to restock or purchase we know.

Eating out & Movie:

o Things in common
o Easy on spending, they go hand in hand
o Price elasticity – done for pleasure
Home Appliances:
o Not recurring, not familiar
o Grappling for unknown , search for information
o Sales person should be good.

Clothes :
o More customization, more varieties
o Display is very important
o Margins of customers need to be high
o Risk of fashion i.e, not clearing or risk of non sales.
In Food & Groceries the margin could be hardly 6% where as in clothing it is 35%.

Retail Management
By Prof. Govind Rajan 26-07-10 / 3:45 to 5:15

• Retailing started when civilization i.e ‘BARTER’ system started

• BARTER system could not value the products at a standardized way.
• “Monetization” brought ‘Market place’ existing
o ‘BANKING’ came out of monetization
o ‘TRADE ROUTES’ – Imports / Exports ( Silk route/spice route)
o ‘PHOENICIANS’
o ‘ASSORTISM’
o ‘FOREX’
Indian Retail:
- 15 Million outlets < 4% are > 500 sqft.
- FDI ? 51 % allowed with ‘Single Brand’
- 100% allowed with ‘cash and carry’ – whole saler
 Ex. Metro cash & carry Kolkata /Hyderabad
 Bharti Airtel
 Only license holder ( RC) or other retailer can buy from these.
China population is 20% more than India. But Retail outlets are only 7 million in China.
Retail outlets in India are so huge i.e, 15 million because they are the last resorts for the
people who are not through with any job. i.e why left parties are against the FDI, because
they might directly impact the unemployment.
Why Modern Retail?
- Range / Variety
- Price They buy in bulk and sell in pieces
o Quantity purchase
o Supply chain
E- Choupal was only a supply chain integration. ( Not the CSR – CSR is only for label)
ITC products are 95% based on farmer products. Wallmart directly links with the farmers in
which ever the country they enter and purchase from them.
Aluminum manufacturing company requires continuous power about 37% cost content is
power
Ex. NALCO, SAIL. ( ‘Backward Integration’)
Forward Integration is some thing they owns Raw material and they owns the Distribution
outlets as well.
Ex.: “ The world of TITAN”

India has allowed 100% FDI for cash & carry; just because they will only sell to retailers and
in turn retailers will be benefited by quality / price / range
In the top highest per capita income countries the top most FMCG is P&G. First world class
countries like Denmark, Switzerland, Most of the western Europe/ America
In the second world class countries like Asian, Latin American the top FMCG is ‘UL’.
P & G : Strong Brand : Head & Shoulders
No extensions
HUL : Distribution CLINIC
CLINIC PLUS
CLINIC ACTIVE

Traditional Retail Modern Retial

Food & Groceries / Personal Products 96% 4%
Growth rate 6% 30%
Retailer Advocacy is more is less

“Test Market” is already having data.

“Limited Launching” is launching without existing data.

Retail business performance is calculated on the basis of profit (EBITDA) making or returns
on SFT / month (Trading area or the area used for buying and selling).
If the total area is of 1000 SFT; then the trade area would be about 700-800 SFT.

‘Bentington’ is the Head Quarter of Wallmart; and is in Arkansas – USA.

40% of P&G –USA products were purchased by only one customer, i.e, Wallmart.
HUL has 60 stockists in Orissa whereas P&G has only one.

Retail Management
By Prof. Govind Rajan 27-07-10 / 9:30 to 11:00
Variables Affecting Distribution and Retailing
DISTRIBUTION
1. Transportation & Logistics
2. Channel Design
3. Channel Member Management – Retailers
4. Field force Management
Channel members are on contact where as field force on their rolls. Field force - their
employees.
Variables:
1. No of consumers
2. Geographic dispersion of consumers
• Higher the dispersion the more no. of intermediaries are required,
hence the transportation is required in a higher vol.
Ex.: Marico – Parachute – More Retailers
 Appollo tyres – Volvo – 1 company
3. Higher frequency of purchase.
Ex.: The mean time between two purchases, if it is less than 90 days is called FMCG.
Consumer Durables > 90 days
If the frequency of purchase is higher the chance of getting out of stock is higher.
The higher the frequency of purchase the more is the transportation intensity.
4. Tendency to postpone purchase
- Depends upon the ‘Felt Need’
- Insurance is the classic ex.
- Addictions like cigarette, gutka are not post poned.
Others are medicines, water, electricity….
Impact :
- Regular Reinforcement
- Field force become critical
- Attempt by marketer to use “ EXPERTS” as field force-like Bancassurance, Network
Marketing.

5. Level of familiarity / knowledge about the product (of the buyer)

Impact :
The higher the familiarity, the lower the importance of field force and
higher the importance of the channel.
o PURE IT : HUL’s all other polts does not require much field force but it has a
special set of field force to sell “ Pure it”
- KAYA SKIN CLINIC : Marico established special field force to market this concept

6. Degree of Brand Loyalty:

- Symptoms: Premium price: More efforts to purchase
Impact:
- Brand loyalty higher retailer margin less.
5% margin colgate dental cream – it is only retail space rent.
25% Anchor Dental cream
5% Retail space rent and 20% consultancy

“EYE – LEVEL- BUY-LEVEL”

Is not more important in case of more banded products.
Impact:
- Margins to channel member / field force
- Importance of point of sale merchandising

7. Purchased on Impulse
- Impulse items are placed where they can be easily seen.
Impact:
-Importance of availability
8. Level of involvement (which is a function of cost of the product)
-How much information search a buyer going to do before making up the
mind.
Impact:
- Higher the LOI, the lower the importance of availability
- Supply of information becomes important as consumer goes through elaborate
information search.
 9. Purchased as “Basket of Goods”
- “ Basket of Goods” for FMCG is a monthly / weekly chit.
- “BOG” from a h/w shop is construction material for a home or maintenance
material for a home.
Impact:
- We have to be available where ever the other elements of the basket are
available.
10. Speed and complexity of Decision Making process.

Impact:
o Lower the speed and higher the complexity of decision making process,
greater the importance of the field force.
11. Presence of expert influencer in the decision making process
Impact:
- Roles of field force vary. Hence some have two sets of field force.
- Ex.: Medical Representatives.
o In products where there is a tendency to postpone purchase. The marketer
tries to insert experts as field force. Ex. Bancassurance
- In Russia the minimum education qualification for a medical representative is
MBBS

12. Element of crisis purchase exists.

Impact:
- Availability becomes critical
FMCG Outlets:
- Super markets
- Departmental / Variety/ General
- Kirana /Grocery
- Chemist
- Pan shops – About 6 million in India
- HTS ( Hot Tea Shops)
13. Element of Risk Aversion exists
Impact:
- Channel member can “UNSELL” a brand

14. Perishability
Impact:
-The dimension of “SPEED” in the transportation & logistics network assumes great
importance.

15. Time band associated with the purchase of the product.

- Seasonal pdts like winter clothing/umbrellas…
- First 9 days of month most of the FMCG pdts like soaps, oil, rice, atta were
purchased.
- 6am – 9am like eggs, news papers, milk, veg…..
Impact:
- Very high transportation and infrastructure requirements needed for the last mile.
- Possibility of idle capacity usage exists.

16. Fungibility
- Visible shape does not matter
 - If we deposit some money in Bank with some denomination, they might
repay you with a different “Fungibility”
Impact:
- Channel member can be replaced by “IT” as a channel.

17. Importance of Search costs

18. Degree of customization possible
- Demographic – “DEMOS” – Income , Age
- Psychographic – Values, Lifestyles, Activities
- Geographic – Same Region may have same taste
- Benefit
• Assumptions are made when there is no data
• ‘RADAC’ was the first mass customized bicycle in Japan
• CRM is the convergence of both IT & Marketing
Inpact:
- Field force becomes critical
- Beyond a point, IT may replace the channel

19. Negative or Positive reinforcing:

- Negative reinforcing products are used to remove
Ex. Mosquito repellants, shoe polish, detergents, medicines..
- Positive reinforcing products helps to satisfy one of the five sensory elements
Ex. Consumer durables, chocolates, perfumes, Jewellery …..
Impact
-Shopping “ EXPERIENCE” becomes important. (Ambience etc.)

20. Value / Volume ratio of the product

- Products with low value/volume ratio, they are more transportation cost sensitive
- Retailer would be tempted to stock less space occupied products.

Retail Management
By Prof. Govind Rajan 13-08-10 / 9:30 to 11:00 & 11:30 to 1:00

Revenue Costs
Sales + Discount stock + transportation
In store salable salable
Advertisement
Rent
Location is the major aspect in retail.
1. Location
2. Location
3. Location
If we have 200 outlets;
Our EBITDA considers: (Tax, rent, interest, depreciation, central expenses of HO & RO)

Retail business is very close to real estate business, therefore we calculate the returns per
SFT area.

Trading Area
Store EBITDA
Super Built up Area. The whole building or campus area including corridor, toilets, parking,
children playing area, walls area…
Trading Area: Is the area when we generate revenue.
Super Built up Area - Common Area = Trading Area.
In a mall super built up area and trading area will have a huge difference, where as for a
pan shop both are same.
Rents will be charged on super built up area.
When ever we calculate EBITDA, we need to calculate on the super built up area.
Let us take 500 SFT super built are, shop
Food & Groceries
- Sales = NOB x ABV NOB-No. of Bills ABV- Avg. Bill value
NOB = F/F X Conversion F/F-Foot falls
Conversion depends on – Quality of sales person
-Visual merchandising
- Layout ( design of store)
- Ambience
Average bill value depends on
– Quality of sales person
- Cross selling
-Up selling
-store layout (to make encouraging the impulse purchase).