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LEARNING OBJECTIVES
Become familiar with terminology and principles associated with RPM performance evaluation Understand that performance analysis approaches will vary between retailers Appreciate the contribution that cost control and shrinkage control can make to financial performance Understand how customers evaluate a retailers product range, including qualitative measures
PRODUCT PROFIT
margin (mark-up)
SALES
Another well established performance measure High sales generates cash flow, but not necessarily high profits High sales means high stock turnover, prevents obsolescence and allows retailer to change ranges according to seasonal demand Price sensitivity should be considered when setting retail prices
PROFITABILITY
GMROI (Gross margin return on investment) allows a retailer to compare the performance of products with different % profit margins and different sales turnover GMROI calculations can be made at SKU, category and department level GMROI does not consider the variation in costs of selling
Illustration of GMROI
Considers the costs associated with stocking a product in order to obtain a more sophisticated measure of product profit
selling
costs (e.g. chilled fixtures, high levels of personal contact) supply chain costs (e.g. transportation, handling) also considers any revenue a product generates, such as promotional allowance
product
seasonal
Mark-down analysis by SKU is a good way to evaluate buying decision-making High total mark down values (deep price cut x number of SKUs) indicate poor buying decisions
PRODUCTIVITY
Sales and profits are often expressed in terms of the productivity of space (e.g. sales per square foot of floor space) Product management decisions may be required in response to productivity performance (see chapter 8)
allocate
better quality space improve profit margin introduce more variation of product in category
SHRINKAGE
The term applied to stock that is removed from outlet without payment Shrinkage control includes:
reducing
mark-downs reducing retail crime better store management (reduction in damages and shop soiling) good stock rotation
COST REDUCTION
Efficiency gains (see ECR chapter 3) can be achieved by reducing costs associated with
product
development undertaking promotional activity poor replenishment having the wrong assortment
NEGOTIATION
Negotiation implies a mutuality of wants, resolved by exchange, not necessarily focused on achieving the lowest possible price
Preparation
Negotiation takes place within the framework of the retailers price positioning strategy (e.g. premium, discount, EDLP see Box 12.3)
AVAILABIITY
Availability performance indicators are growing in importance because they are customer-focused
the
availability of the total (ideal) product assortment to customer stock cover (how long the retailer will remain in stock)
These measures are all multi-attribute evaluations Attributes that are directly under RPM control
Interpreting various performance indicators is a challenge for retail product managers Analytical powers and objectivity are needed to optimise product ranges so that both short- and long-term performance objectives are achieved This supports the argument (see chapter 2) for considerable training period in which experience, knowledge and understanding can be accumulated about the product market and the retailers strategic objectives