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- 1 Basic Principles of Retail Trade
- 2 Store Management
- 3 Retail Market
Basic Principles of Retail Trade
Retail Stores is the end of production chain. Stores Profit is the basis of profit for all enterprises, which take part in production process. Retail Trade is one of the most complicated in management system and unstable activities but the most profitable.
In Virtonomics players have to compete not only with other players but also with local suppliers. These are retail enterprises in a certain city and originally they have been in full control of retail market.
Each retail product in every city has average price and average quality which means that this product is sold at a certain price and with certain quality (if there are no enterprises created by players in the city).
In most cases, to compete with local suppliers successfully you must offer goods of higher quality at lower price. Terms of local suppliers always changes as market of a certain goods grows, local suppliers decrease their price and improve quality, and the competition in this sector becomes more severe.
Preferences of Customers
Wealth Level is the most important factor to define customers preferences. In cities with low wealth level people spend almost all their money on most needed goods, and they have no big interest in luxury goods. They pay special attention to the price as they prefer buying cheaper products instead of famous and high-quality goods.
On the contrary, in cities with higher wealth level people can afford buying household equipment, cars and jewelry. In their opinion, high quality is more important than low price. Wealthy customers first of all require good service.
Customers preferences often change in favor of one or other goods. For example, in a certain city sudden growth in household electronics sale, but one virtual year after this sector can come to complete stagnation, while customers will start to buy furniture and jewelry. These changes can often be unpredictable however marketing research can reveal consumer trends.
Store Location is an important factor which affects store's basic attendance. Stores located in the center of the city have the biggest customers attendance. City center attendance is followed by (in decreasing order): commuter town, outskirt, suburb and fashionable district.
Average Wealth Level in a commuter town corresponds to average level in the city. In suburbs wealth level is a little bit lower. In a fashionable district it is very high, but there are not many customers though.
Talking about markets with strong competition, district is also very important, along with wealth level and attendance value. If most of the stores are located in city center they will suffer from hard competition. But it is very possible that a lonely store in the suburb won't be involved in this commercial wars.
Store Size is connected with attendance. The bigger the store is, the more customers visit it simply from the street — this is a so-called basic attendance. Big stores popularity influences its attendance: if two stores have similar level of popularity, the bigger store will attract more customers than the smaller one (in percents comparing to basic attendance). Considering that basic attendance in a big store is higher, absolute growth of attendance will be significant.
However, it doesn't mean that you have to open big stores everywhere and anytime because big stores require high-skilled staff, high-skilled top manager and sufficient supply volume. The store has a perfect size if its departments are big enough for good service and good efficiency.
In small stores customers demonstrate better reaction to new high-quality goods while in big stores they might probably not notice it at all.
Number of Departments
Number of Departments influences the sales volume: if everything is equal, stores with few departments will have better sales than stores with many departments. Moreover, it is not easy to keep high level of service in stores with lot of departments. The total stores area is divided equally to all departments. Volume of goods in the warehouse and sales efficiency don't matter. We recommend you to remove «dead weight» from the warehouse in proper time by using «Move to warehouse» option in the trade hall and «Liquidate remains».
Efficiency of Store
Efficiency of Store staff shows how good your store employees fulfill their duties. You need more sales assistants to serve many rich customers to provide good efficiency of store staff. Employees qualification must be high as well (rich customers are always very fastidious). Staff efficiency influences total efficiency of your store and its service level.
Store Popularity is the actual attendance of your store comparing to the basic attendance. The higher the index of popularity the more customers visit your store. You can improve your popularity with the help of advertising. Numbers of customers also depends on store's size — big store attracts more people.
Sales volume depends on the number of customers. Number of customers depends on store's popularity. When you open a brand new store its popularity is zero and only some random customers from the street visit it from time to time. But you can use advertising to improve this situation: ad campaign can be quite expensive but growth in sales can surpass these expenses. Sometimes it is very reasonable to make advertising campaign right after the store's opening — this could provide start popularity and make the store profitable.
Efficiency of ad campaign depends on the money spent for it and on advertising type. You can use various resources, like Internet or television. But in any case you must keep the required service level, i.e. size of trading area and number of store employees must comply with increased volume of attracted customers.
Eventually ad campaign loses its efficiency and you need to spend more money to maintain the store's popularity. If you want to keep the popularity on the same level, you must conduct advertising campaigns all the time.
The more customers visit your store the bigger profit it makes. On the other hand, excessive number of customers can affect service level and decrease staff efficiency and in the end all this results in sales drop. Basic attendance (number of customers) depends on: store size and store location. Final attendance considers not only the basic attendance but also the effect of advertising and random factor (±20%).
Wealth Level (wealth index) indicates the level of customers prosperity. It depends on the level of city development. Wealth level doesn't show how much money customer is ready to spend in your store it only expresses his attitude on shopping and ideology. To evaluate prices you should check marketing reports: see the average prices and prices set by local sellers.
Here are 4 basic rules of wealth index influence:
- the higher wealth level is, the more advanced elite goods market is. In other words, diamonds are sold better in fashionable districts of a wealthy city
- the higher wealth level is, the harder it is to maintain 100% staff efficiency and good service
- the higher wealth level is, the less important price is — customers opinion on quality is more important than the price
- the higher wealth level is, the more sensitive service level drop is for the overall sales volume
Service Level - is also a very important parameter which influences sales volume since it determines customers attitude to your store. This parameter is particularly important for wealthy customers. For example, opinion of people from fashionable districts service level might be even more important than goods price. Service level consists of two components: sufficiency of trade areas and coordination of store staff work. It depends on the number of customers since 5 customers will feel comfortable in a small trade hall but 500 customers will not. Service level depends on the number of departments in your store.
Service level depends on how much attention your staff can pay to the customers. In situation when you have many customers and few sales assistance the attention won't be enough for good service. Qualification of employees is also a significant factor: the higher the skills are the better it is for the customers. Sometimes even a few employees with high qualification can provide better service than a hundred assistants with poor skills.
However you should never forget that if you hire too many employees and/or make their qualification too high the total efficiency of your store may drop due to insufficient qualification of top-manager.
One more important thing: it is not easy to provide elite service in a huge supermarket located in a big city. So a massive advertising campaign will bring more damage than benefit - by a disastrous drop in service level.
You should also pay attention to efficiency of store employees: it influences store service level. However, service level estimation does not consider store size and number of trade sections.
Efficiency — is the key parameter to determine profitability of your store. Low efficiency decreases sales volume, independently from goods assortment and service level.
Efficiency depends on three parameters:
- employees efficiency
- manager's commercial qualification
- main office efficiency
Low efficiency means that not all your customers managed to buy what they wanted. In case if store efficiency decreases by 30%, your sales volume may reduce by 50%.
Trade Hall represents the situation in your store. You can see all the goods including those which have been ordered and those which are not for sale any more. In «sales volume» column you can see the sales amount last week or you can use link to see sales statistics for the last 52 weeks.
Other columns contain information about current supply of this particular goods, information about the stock, about your segment in the city market and average city statistics (including local sellers and other players).
To start selling goods you must have it in your Trade hall and must set price and type of sale. Default sale type is «Regular sale»: store operates in a regular mode and goods are sold at the price which was set by the manager. Please note, if you don't specify the price (leave 0.00) this will be considered to be «not for sale» type which means there will be no sales of this product.
«Bargain sale» mode means that the system will automatically select price to maximize sales. In this case price is not related to prime cost of goods and to the price set by manager.
There is a «Quick add supplier» form under the window of sale type selection along with a block of special operations which can liquidate the remaining goods. If you want to close the department you need to mark ALL goods and click on «Liquidate remaining goods». Warning: there will be no compensation and all assortment will be completely removed. This function won't cancel your orders so you must cancel supply if you really want to close this department.
In «Supply» section you can see all your contracts for purchasing goods for the store. You can edit old contracts or make new one.
Purchase amount will be calculated for the previous update along with preliminary amount for the current prices (according to the stated and available quantity). This option will help you to plan your budget for the current turn.
Commercial offers, Trademarks and Franchises Sale
The attractiveness of a certain product is calculated on basis of 3 main characteristics: price, quality and brand. The following factors are also important for evaluation of store's attractiveness: number of customers, service level and store's location.
Sale of franchise, non-franchise and TM-products is based on principle of diminishing returns. It is considered that commercial offer is united (for example, all the sorts of cars are one offer, which is a Car), but in case if there are franchise or TM-products in the store, then overall sales volume will be increased by 25%.
If your company has several stores with similar goods, you should use sales modifier, which is related to the uniqueness of the stores. It means that customers would prefer stores with unique assortment of goods.
Competition and Markets Saturation
There are two kinds of retail markets in Virtonomics: saturated and unsaturated. Segment of local sellers in saturated markets is always zero.
In unsaturated market all sales are determined by the attractiveness of supply (combination of price, quality and brand).
Redistribution of sales in saturated markets has two stages: competitive and proportional. During the competitive stage sales volume depends on attractiveness of the offer, and during the proportional stage all stores are equal. Percent of each stage depends on the city and on the goods: for high-developed cities (and for luxury goods) competition is more significant.
There are three basic stages of market saturation:
First stage (saturation): minimal competition, fixed market volume, «excessive» sales are removed (smooth proportional bringing the specific number of purchases (see Trade in saturated markets) to the standards of saturated market).
Second stage (stretching): all stores work with restrictions, market volume is smoothly increasing.
Third stage (over-saturation): market volume is unstable (it can drop down to the basic volume, but in general it tends to the maximum stretching), competitive and proportional penalties for «excessive» sales, including district competition.
Trade in Saturated Markets
Stores will compete with each other depending on their location. It means that stores located in a district with high concentration of stores will have bigger penalty. The system will calculate how much goods would have been sold by all these stores and after this sales volume for certain stores will be decreased. The most considerable is not the number of stores but their total sales volume.
This parameter is valid for only one company and in only one city. It expresses the conformity of your goods. Stores of your competitors and your own stores in one city don't influence the uniqueness of stores in other city.
Two parameters are important in defining the uniqueness: variety of goods and conformity of assortment. Manufacturer of goods in one store will be compared to the manufacturer of goods in another store and in case if they are the same — you will have to pay a penalty for non-uniqueness. For instance, 3 stores with identical assortment produced by similar manufacturer will have 50% uniqueness. Penalty is to be paid only for the third store: it is possible to have two identical stores in one city but if you have more than two their uniqueness will go down.
Please also consider:
- There is no division for separate enterprises. For example, a company produces goods at the enterprises E1 and E2. Goods from E1 goes to Store 1 and goods from E2 goes to Store 2. As result, these two stores won't be unique.
- Agent companies won't influence the manufacturer of the goods. For example, Company A produces goods. Company B buys it. After this company C buys it from the warehouse of company B and supplies it to its own store. As result, company C will sell goods, produced by company A.
- Assortment. If the products in different stores are not completely identical (one store sells cars, second store sells cars and motorcycles, third store sells cars and tires) this will produce positive effect on the uniqueness, and the penalty will be not so big. Sales volume is not important, only goods availability is significant. If you want to add new goods to improve the uniqueness, don't forget that stores with one single department have better sales.
- Products of similar quality and brand produced by different manufacturers are considered to be unique (no penalty). If you sell mixed goods from two manufacturers their uniqueness will be evaluated separately.
One customer of a unique store with one goods section can buy. For example, clothes:
- 100 m. | 50 pcs.
- 500 m. | 10 pcs.
- 1000 m. | 4 pcs.
- 10 000 m. | 1-2 pcs.
- 100 000 m. | ~0.6 pcs.
These are approximate values only for your reference. 50 pcs. refers to the goods of highest quality and brand sold in the store with the best service level. In this situation the store plays a role of a super-popular boutique which has few very rich customers. In case with unsaturated markets this value can be much higher especially for big stores.