Quiz 6: Financial Strategy

Business

Retailer refers to a business through which the end customers purchase goods. Retailers purchase goods from the wholesalers or manufacturers in bulk quantities and sell them to the end customers in smaller quantities. The retailer might be the manufacturer itself or it can might be another firm. Retailers are the final link in the supply chain which delivers goods to the end customers. Depending on the level of organization is a factor in the performance measures. It is important for retailers to use multiple performances so they can see why goals are not being achieved. There are 3 types of objectives they may have to address: • Financial, were they measure the profits. • Societal are a little harder to measure, but goals can be set such as using renewable sources or supporting nonprofit organizations • then last is Personal objectives

Setting objectives in large retail organizations entails a combination of the top-down and bottom-up approaches to planning. Top-down planning means that goals are set at the top of the organization and filter down through the operating levels.  ?In a retailing organization, top-down planning involves corporate officers developing an overall retail strategy and assessing broad economic, competitive, and consumer trends. Armed with this information, they develop performance objectives for the corporation.  These overall objectives are then broken down into specific objectives for each merchandise category and each geographic region. ?The overall strategy determines the merchandise variety, assortment, and service level and the size, location, and level of customer service provided in the stores.  Then the merchandise vice-presidents decide on which types of merchandise sales are expected to grow, stay the same, or shrink.  Then performance goals are established for each buyer. ?The director of stores works on the performance objectives with each of the regional store managers.  Then, these regional managers develop objectives with their store managers. The process then trickles-down to department managers in the stores. ?This top-down planning is complemented by a bottom-up planning approach.  Buyers and store managers are also estimating what they can achieve.  Their estimates are transmitted up the organization to the corporate planners.  Frequently there are disagreements between the goals that have trickled down from the top and those set by employees at lower levels of the organization.  For example, a store manager may not be able to achieve the 10% sales growth set for the region because a major employer in the area has announced plans to layoff 2,000 employees.  ?When these differences in bottom-up versus top-down plans arise, they must be resolved through a negotiation process involving the corporate planners and operating managers.  If the operating managers are not involved in the objective setting process, they will not accept the objective and thus will be less motivated to achieve it.

Customer behavior in retailing is nothing but the customer's desire of searching, finding, buying the product or service that meets their needs or desire. Normally, the customer behavior in retailing is calculated on the basis of gross profit margin (in percentage). There are three types of profit margin and they are as follows. Gross margin is the profit which the retail store gets after deducting the cost of the good sold by the retail store. Operating profit margin is the profit that derives after deducting the operating expenses from the gross profit. Operating expenses are the selling expense, general expense, Misc. expenses, and overhead costs. Finally, there are net profit margins. This is the profit that is actually owned by the retailer. It is calculated by deducting, other expenses or income along with interests and taxes. The reason why gross margin is taken into account than operating or net profit margin in defining the customer behaviors is due to the following reason. Primarily, the customer is not linked with operating or other expenses like interest or taxes which retailer has to pay off. So, these factors cannot be considered while assessing customer behavior in the retail system. Secondly, customer involvement is identified by the number of items being sold and the revenue received from the sales. And the gross margin is the best option as it doesn't take any other cost other than the cost of goods sold. Finally, gross margin gives the exact profit that the retailer gets from the customer. This helps them to forecast future demand and customer buying behavior. The operating and net profit margins take the factors which never play a role in customer behaviors. These are the reason why only the gross profit margin is being considered.