Merchandising Theory Grace Kunz

Copyright ©2010 Fairchild Books All rights reserved. No part of this presentation covered by the copyright hereon may be reproduced or used in any form or by any means–graphic, electronic, or mechanical, including photocopying, recording, taping, or information storage and retrieval systems–without written permission of the publisher. ISBN: 978-1-56367-983-4 GST R 133004424

Section One Merchandising Theory

Merchandising Concepts Chapter One Merchandising Concepts

©2010 Fairchild Books, A Division of Condé Nast Publications. Learning Objectives Define merchandising Introduce the fundamental components of the merchandising process Examine the role of merchandising according to the Behavioral Theory of the Apparel Firm Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Merchandising Processes Merchandising is integral to every part of the textile and apparel trade: Lines of textile fibers, yarns, and fabrics planned, developed, and presented Lines of findings merchandised for sale to finished-goods manufacturers Manufacturers plan, develop, and present lines to be offered at wholesale markets Retail buyers merchandise selected combination of lines to sell to retail customers Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

©2010 Fairchild Books, A Division of Condé Nast Publications. Merchandising Planning, developing, and presenting product lines for identified target markets Necessary business process for most types of consumer products Automobiles, groceries, restaurants Textiles and apparel industry Model of the merchandising processes Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Merchandising Strategies* Merchandising leaders: Create trends Lead their customers Push the envelope in product development Cold-heartedly kill the dogs (unsalable merchandise) Encourage responsible risk Strive relentlessly Have swagger and bravado *Economist Intelligence Unit Survey, 2007 “Tired” merchandisers: Wait for customers to accept trends Merchandise based on history Rely on line extensions Are risk-averse in product development Focus on the fact that most products fail Carry too many unproductive SKUs Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

©2010 Fairchild Books, A Division of Condé Nast Publications. Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Components of Merchandising Line planning Determining the amount and use of funds Line development Determining the nature of the merchandise Line presentation Determining how the line will be offered at different levels of the trade matrix Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Merchandising as a Business Function Theoretical Foundations Economic theories of the firm emphasize profit maximization traditional, economic theory based Behavioral theories of the firm provide an alternate way of thinking related to how and why business firms operate as they do Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Fundamental Constructs of Behavioral Theories of the Firm* A firm is a coalition of individuals with some common goals Interdependent, internal constituencies correspond to functional divisions of the firm Constituencies negotiate resource exchanges inside and outside the firm Based on Anderson (1982), Cyert & March (1963), and Pfeffer & Salancik (1978) Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Fundamental Constructs of Behavioral Theories of the Firm* Specialization of constituencies causes conflicting goals to develop Negotiation is the primary means of resolving conflicts Most powerful internal constituencies manage the most critical resources The most powerful external coalitions control the most critical resources Based on Anderson (1982), Cyert & March (1963), and Pfeffer & Salancik (1978) Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications. 13

Behavioral Theory of the Apparel Firm Relationships among Internal Constituencies in the Apparel Firm Theory X management style Interactive decision making matrix Theory Y management style Coalitions of employees Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

The Marketing Concept as a Philosophy of the Firm Target market central focus of behavioral model of firm Marketing concept philosophy of the firm as a whole Market-driven company in relation to the firm’s capabilities evaluates opportunities in the market merchandises, produces, and markets accordingly Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Model of Functional Areas of Apparel Firm Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Constituencies of the Firm Executive Constituency Merchandising Constituency Marketing Constituency Operations Constituency Finance Constituency Supply Chain Constituency Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

The Decision-Making Matrix Each constituency interacts with internal constituencies external coalitions (other firms) Multiple environments surround negotiations Economic Social Cultural Political Technological Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Executive Constituency Who? Owner/Manager/CEO/President What? Development of firm’s mission and business plan; selection of target markets; identification of product lines, price range, and quality levels Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Merchandising Constituency The Profit Center of the Company – the main source of income, not a service provider Who? Buyer, designer, merchandise manager, merchandiser, product development manager, product manager What? Plan, develop, present Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Marketing Constituency Strengthen the company’s image through promotions and campaigns Who? Advertising manager, representative, communication manager, PR manager, sales manager? What? Market research; develop marketing strategies; position relative to competition: advertising budget Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Operations Constituency Manages organization’s resources of people and physical property Who? Personnel manager, recruiter, inventory controller, municipality relations, plant/store manager, machine operator What? Manages human resources, inventories, physical facilities, retailing Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

©2010 Fairchild Books, A Division of Condé Nast Publications. Finance Constituency Evaluate profitability and setting goals Who? Accountant, financial analyst, investment manager What? Manages accounts receivables, accounts payables, borrowing, spending, investments Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Supply Chain Constituency Minimizes time and cost between conceptualizing a product and delivering it to retail selling floor Who? Supply chain director or coordinator, EDI (electronic data interchange) director, UPC (universal product code) supervisor What? Cut across all other divisions and seek team support from other areas Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Summary of Relationships Among a Firm’s Internal Constituencies Apparel coalition divided into six major constituencies: upper management, merchandising, marketing, operations, finance, and supply chain Each constituency has goals and responsibilities related to its particular functions within the firm Goals and responsibilities of one constituency contribute to those of the total firm, but are not likely to be the same as goals and responsibilities of other areas Goals and responsibilities of constituencies may conflict with one another Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Summary of Relationships Among a Firm’s Internal Constituencies 5. Conflicts between constituencies are resolved through negotiation 6. Merchandising constituency arbitrates differences among constituencies and provides an integrative function in relation to the product line 7. Power of a constituency related to the value of the resource exchanges it negotiates 8. Business decisions frequently involve a complex matrix of information sources 9. Business decisions impact both internal constituencies and external coalitions Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Fundamental Assumptions of Behavioral Theory of the Apparel Firm Apparel firm consists of manufacturing and distribution functions A firm is a coalition of individuals with common goals The coalition is made up of subcoalitions or constituencies that conform to the firm’s functional areas of specialization Six constituencies can perform all the business functions required for operation of an apparel firm Executive constituency formulates overall goals Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.

Fundamental Assumptions of Behavioral Theory of the Apparel Firm Focus of each coalition: how to satisfy the customer’s needs within limitations of the firm The relationships among constituencies form the firm’s internal decision-making matrix Time-based competition changes the firm’s decision-making priorities and measures of success Agility contributes to the firm satisfying customer wants and needs Partnering among internal and external constituencies provides information to optimize the ability to achieve the firm’s goals Kunz Chapter 1 ©2010 Fairchild Books, A Division of Condé Nast Publications.