Appunti competi High-end Luxury Industry Management

 DEMAND DATA FILTERING AND TIMESERIES UPDATING

Insert new actual demand data every period

Filter outliers,managing the trade-off between data accuracy and control cost (normally outliers are

filtered manually,not automatically by the system)

 FORECAST ACCURACY MONITORING  overstock and out of stock cost you money and energy, so

forecasting is really important to avoid them, margins in the sector are very important→ you need to

spent time and energy on the demand forecasting function → thatʼs why companies are investing in

turns, thatʼs why they get resources to be more accurate.

The best forecast is the one optimizing the trade-off between the cost of the forecast and the cost

of the error (graph).Sometimes it is not worth to invest in forecasting software. If you are wrong by

one unit, how much money do you lose?

Forecasting error

Forecasting error for period t is defined as the difference between Actual and Forecast:

= −

E A F

t t t

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SKU: stock keeping units → important to compare how well you produced and how well youʼve sold the

items

Need to be agile to keep forecasting

Yet, we could have more than one forecast referring to the same Actual Demand value We therefore

have n different error measures… which one should we choose to measure forecasting accuracy?

Keep update the forecast frequency → every three months is a good period due to climate change,

scandals happens

Which forecast should we consider for production? F11, F8, F5, F2?

F2 is too soon, lead time is 4 months

The right approach would be F5, the most recent before the lead time.

Forecasting accuracy

ME Mean Error):

Generally, always around 0  it gives us an error but not accurate in turbulent situations

Indicates the presence of BIAS

MAD Mean Absolute Deviation):

→ measure how relevant errors are in absolute terms

→ doesnʼt show correlation among errors

→ no compensation between positive/negative errors

SDE Standard Deviation of Errors):

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→ the measure to see how dispersed are your data in relation to mean error

→ formula refers to a sample of n data

→ in case of normally distributed errors: 1 MAD circa 0.8 SDE

how goods are performing, never compare years

It is more useful to compare store across SKUs or SKUs across stores rather than over year

CVE Coefficient of Variation):

→ relates errorʼs standard deviation to the average demand

Focus on your demand based on previous data, and we have different methods to do this

3% MAPE is good. Generally, up to 5% is good

MSE equal to 9% is not that good → need to pay attention, the numbers should be aligned

Lecture 8 Luxury Distribution Channel Eugenia Di

Muzio)

The level of service we want to give to our clients and with the possibility of having one single

stock located in multiple locations that depending on the customer geographical proximity and that

is gonna be the selected touch point in order to fulfill the order of the client

Single channel approach: customer experiences a single type of touch-point

Multi channel: there is a single customer and different channels, but all separate

There is been a revolution ⇒ omni-channel approach → possibility to serve my client faster and

better in terms of the concept of geographical proximity

multiple interaction

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the communication and the interactions are both linked

centrality

Digital platform and social media → alternative to shop ⇒ brand value construction ⇒ brand

awareness

A retail sale occurs when a business sells a product or service to an individual customer for his or

her own use → the brand sells directly to the final customer. The transaction itself can occur

through a number of different sales channels, such as online, in brick-and-mortar storefront,

through direct sales, or direct mail. The aspect of the sale that quantifies it as a retail transaction is

that the end user is the buyer.

Wholesaling: the act of buying goods in bulk from a manufacturer at a discounted price and selling

to a retailer for a higher price, for them to repackage and in turn resell in smaller quantities at an

even higher price to consumers. The retailer sells at a price that reflects the overall cost of doing

business.

Travel retail: the business mainly revolving around airports, airplanes, cruise ships, and downtown

duty free stores. “Travel retailˮ products are sold in a travel environment where taxes and duties are

payable, even if the buyer is leaving the country. Proof of travel is required to buy goods on a travel

retail basis.

Duty free Products sold duty free are exempt from local taxes or duties, usually because the buyer

will take them out of the country. Airports account for most of the sales, but duty free goods can

also be bought at border stores,on cruise and ferry ships in international waters, on international

flights and at some railway stations. Absence of VAT taxes that you would pay in the moment the

product is → important saving

in the past a lot of duty free in watches

E-commerce → refers to the buying and selling of goods and services using the internet, and the

transfer of money and data to execute these transactions. E-commerce is often used to refer to the

sale of physical products online, but it can also describe any kind of commercial transactions that is

facilitated through the internet.

Itʼs similar to a retailer operation

It is BTC operation: when a business sells a good or service to an individual consumer

Consumer goes on brandʼs website and can buy products

if the e-commerce is a website, an operation done by brand, that fulfills orders that owns stock

and makes transactions

A marketplace is a platform where vendors can come together to sell their products or services to

a curated customer base. The role of a marketplace owner is to bring together the right vendors

and the right customers to drive sales through an exceptional multi-vendor platform. An online

store on the other hand, is a single store selling its own products online. All marketing and

operations are managed by the company that owns the website and products → marketplace is a

pure platform and get connected with traffic, it doesnʼt have stock because pure platform doesnʼt

require any stock,so marketplace owners do not own the inventory their platform sells, unlike the

online store

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Outlet store (or faculty store or factory store): is a brick and mortar or online store in which

manufactures sell their stocks directly to the public → last chance for products to be sold. In

modern usage, outlet stores are typically manufacturer-branded stores grouped together in outlet

malls.

As a luxury brand, I have two ways to operate a channel→ it depends by the lever of control that

the brand can have on the operation:

Direct DOS direct operation fully managed by the brand → control means how my product

and my brand gets perceived by the client in the way I want vs in the way someone else wants

In the middle there is a halfway solution: the company and the brand continues having a strong

control, but there is also someone else, a third party involved that itʼs my business partner →

Joint Venture and Franchising

Indirect (wholesale)

From the distribution plan, companies define:

Strategies

Priorities

Focus on markets with higher opportunities

and define those markets who can be approached with a direct and indirect model

Business model:

DOS Direct Operated Store) → brand investment and brand control is in first row

Itʼs gonna be a mono-brand!

Geographic established market with existing sales volume vs totally new market

Strengths: margins (→ full share of the margins), price control, I can guarantee a brand

consistency

Weaknesses: structure needed, team set-up, company set-up, high structure of cost, local

know how → you need to have offices, structure

Key features: if I donʼt sell, I have a high level of stock and I donʼt know how to do with my

working capital and the business can be difficult

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Hybrid → Joint Venture:

The brand is in Europe for the most of the time, locally situated in the territory where the

business is gonna happen

Strengths: the two companies share the investments, brand consistency

Weaknesses: the two companies share also margin, they have a lower control, critical

negotiations

Pros: shared accountability and commitment, helpful for shared expenses, combines

resources & expertises, saves money on advertising, flexibility to operate

Cons: could cause or be a problem in event of a breakup, unequal contributions, requires

strong trust & communication

Dealbreaking points: business valorization and share buyback, business operational control

Indirect → Franchising

differently from joint venture, here there is a third part completely independent → managed

and operated by franchisee ⇒ the franchisor gives the right to operate the brand to the

frachisee ⇒ the franchisor sells the product to the franchisee which operates the store

interdependently ⇒ franchisor supports the partner with its know-how, guidelines, allowing

to use the trademark and providing central support on marketing and communication point

of view

the brand sells and gives operational rights to a third party that operates the brand under the

brand logo, the brand name with a mono brand operation

Itʼs gonna be a monobrand, but itʼs not my priority

Medium potential turnover

Legal entry barriers to limit the access of foreign companies

Local structure to support day by day operations of a DOS

Technicalities and local complexity

Geography: every market of medium interest for a brand → you may have a robust volume of

sales

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Strengths: limited investment, brand consistency, local know how

Weaknesses: lower margins, limited control, entry barriers for foreign companies

Master franchising is extremely popular in Middle East

Wholesale:

Geography: market or geography of medium to low interest for a brand

Strengths: no direct investment, no stock, local know how

Weaknesses: lower margins, limited control and visibility over the business, limited

assortments selected by third parties, no price control (total absence of price control due to

there is a third party operation)

Wholesaler: facilitator in specific territory, especially in Europe

Distributor: intermediate between company and wholesaler, that sells and distributes the

product in the territory

sometimes operates with geographical exclusivity

sometimes linked to entry barriers

it purchases stock from the brand, goes back into a defined territory which is the object

of his distribution agreement, and he sales the stock to multiple wholesalers in the

territory with a margin