Page 132 - DMGT554_RETAIL_BUYING

Unit 9: Buying Decisions

Self Assessment Notes

Fill in the blanks:
7. The .................... of the consumer buying habit refers to the trading area from which the
retailer attracts its customers.

8. The .................... refers to the types of merchandise these potential customers want to buy
and, therefore, want the retailer to stock.
9. The merchandise plan is usually a .................... month plan.

10. .................... refers to the lowering of retail value of your inventory and is caused by
planned markdowns, shrinkage and discounts to employees or other special groups.
11. The number of items in all stock plans is .................... by the price line to arrive at the dollar
value of the planned inventory.
12. .................... enables the retailer to examine the inventory visually to determine if additional
inventory is required.
13. .................... relay to the computer the information of the item sold.

9.4 Deciding What and How Much to Buy

When are my customers going to purchase and how much are they going to spend on their
purchase are two important questions that any retailer would like to answer. These questions
gain added importance in the case of an online retailer/delivery service where the pick, pack
and delivery costs are substantial, in some cases more than half of the operating costs.

Did u know? Traditional retailers generally are less concerned with the separate when and
how many effects, mostly focusing on total sales.

Online retailers/delivery service, however, have a very different cost structure from that of
traditional retailers. Because delivery costs are substantial, the online retailer cannot simply
focus on total sales but must be concerned with purchase frequency and purchase quantity. For
example, promotions that induce frequent small quantity purchases may actually reduce profits
at an online grocer while increasing profits at a traditional brick-and-mortar grocer.
Knowledge of a household’s timing and amount of purchase decisions will help the online store
to actively target these individual households and customize its offerings either to induce them
to shop more frequently or in some cases less frequently. The ‘when’ and ‘how much’ decisions
of the household also have important implications for the pricing structure for the delivery
occasion and delivery volume. Typically, these vary from pay-per-use to fixed monthly amounts
with a variety of combinations of these two.

Due to the large quantity of data on grocery purchases that have been available, a large number
of sales models have been developed in the marketing literature. Such models have been utilized
to set price, promotion and advertising policies and much of their intended contribution has
been to give practitioners better tools for understanding their markets.

Example: Boatwright, McCulloch & Rossi (1999) use their model to aid manufacturers
allocating large trade promotion budgets across retailers.

Due to the cost structure of traditional retailers, most of the existing models focus exclusively on
retailer profits as a function of total sales, i.e. the models are developed to predict sales.

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