When you hear that successful brands such as Toys R’ Us, Forever21, and Bebe are closing their retail stores, you can’t help but wonder: where did they go wrong? At some point, these were beloved and popular brands. Why are they closing their stores? Can the growing power of e-commerce and technology take all the blame? ‘Place’ is one of the four P’s of the marketing mix. Unfortunately, with all the attention going to the other two P’s (price and promotion), ‘place’ is often the last thing that comes to mind. In this article, you’ll find out how to build a successful retail strategy, whether you own a brand or whether you’re a retailer. You’ll also understand how the demands of consumers are different now than they were twenty years ago and how to incorporate that into your retail strategy. Let’s dive in!
What is a Retail Strategy?
A retail strategy is a holistic marketing plan for a product or a service to reach and influence consumers.
This strategy covers everything from what retail channels a product/service will be available in, to what prices or sales incentives should be given, and how to display your product on the shelf.
Any product undergoes a long journey before it lands in a consumer’s hand.
There are often different parties involved in the journey of delivering the product from the factory to the end user. These are known as distribution channels.
A distribution channel is a chain of businesses or intermediaries through which a good or service passes until it reaches the final buyer/end consumer.
Distribution channels can include wholesalers, retailers, distributors and even the Internet.
It’s a rare case when a manufacturer sells their own products to the end user directly. Therefore, companies usually devise their distribution channels to make products and services available to customers in different ways.
What Are the Components of a Retail Strategy?
A retail strategy is a complex scheme that deals with many aspects that make products and services easier to reach by consumers, as well as making the whole purchasing experience more appealing.
One aspect that a retail strategy deals with is logistics. Logistics covers warehousing, inventory management, transportation and information management.
These are all factors that influence the delivery and availability of the product/service to the consumer.
For instance, the cost of transportation has a huge effect on the price of a product. Therefore, manufacturers and distributors do their best to optimise the logistics of the business.
Other aspects are channel management, category management and trade marketing.
You’ll understand what these terms refer to shortly!
Channel Management in a Retail Strategy
Channel management is a marketing management activity that involves handling the different streams employed by a company to sell its products or services.
It can be defined as the set of strategies utilised by a company to administrate its different distribution channels.
The goal is to increase consumer loyalty through optimising the operation of different channels; by avoiding conflict and cannibalization and maintaining a fast moving, seamless chain.
Three Types of Distribution Strategies
Selecting a distribution strategy is based on many factors such as the brand awareness, target audience, the nature of the product, etc.
The trick is to identify the type of distribution you will need to achieve your growth goals.
To be everywhere, in as many outlets as possible. The goal of intensive distribution is to penetrate as much of the market as the product possibly can.
This strategy fits fast moving consumer goods, functional products and most products that speak to the basic needs in Maslow’s Hierarchy of Needs.
Select outlets in specific locations based on the consumer’s presence.
Doing this allows manufacturers to pick a price point that targets a specific market of consumer, therefore providing a more customised shopping experience.
Selective distribution caps the number of locations in a particular area.
This strategy works best for relatively new brands that cannot afford to be present in every outlet. They must optimise their resources and select their outlets to be closest to their most important consumers.
Very limited outlets. Luxury brands, such as Chanel and Ferrari, often select this strategy to give their customers a sense of exclusivity. That appeals to their need to feel exceptional, which most luxury brands target.
In addition, this strategy also helps maintain the brand’s image.
What Are Channel Levels in a Retail Strategy?
A channel level is each layer of marketing intermediaries that perform some work, bringing the products and the ownership closer to the final buyer.
The number of intermediary labels indicate the length of a channel. Depending on the length, channels can be short or long and direct or indirect.
Levels of Distribution Channels
A zero level channel is a channel where the manufacturer is selling directly to the final customer. For example, the internet, manufacturers’ own shops, mail orders, TV, selling door-to-door and specialized sales force.
A one-level channel contains only one selling intermediary. A typical example is a retailer. In a two level channel, it contains two. For example, the wholesaler and the retailer.
Of course, channel levels could be longer. In Japan, their food distribution may include as many channels as six channels. Generally speaking, most companies use a mix of various channels simultaneously.
Companies regulate their channel levels based on different factors such as the nature of the client, the complexity of the product, the complexity of the selling process itself and the maturity of the consumer.
The more complex the client or the client, the shorter the channel should be.
Complex products, such as real estate properties or airplanes usually require a zero level channel.
Similarly, selling PCs to a large governmental agency with complex bureaucratic procedures is different than selling pieces to individual consumers.
On the other hand, the maturity of the client refers to how far they are engaged with your brand. Your channel levels may differ according to the loyalty and awareness of your brand.
So, you have to optimise your channels according to the nature of your business and clients.
Channel Conflict, Cooperation, and Competition
No matter how well channels are designed and managed, the interests of independent business entities do not always coincide. So, conflicts among channels emerge as a logical consequence of a company’s growth and maturity.
The first phase of distribution for any business is growth. In that phase, the company’s goal is to achieve maximum market coverage through sales force; stores, subsidiaries, acquisition, etc.
This phase continues to occur until overlapping among different channels appears and conflicts begin to arise.
This is when an era of rationalisation starts. Companies start managing channels by setting out rules and policies that define clear objectives for each channel.
At this stage, it’s very important to set boundaries that avoid conflicts between channels and get rid of channels that do not perform well and waste resources.
Types of Channel Conflict
Horizontal Channel Conflict
Horizontal conflicts are those that arise between two players at the same level in the distribution channel. Meaning, a conflict between two distributors or a conflict between two retailers is known as horizontal channel conflict.
This is a common situation and it happens for various reasons.
It could be a territorial clash. In other words, one retailer stealing consumers from another retailer’s territory to his own.
Or, if one pizza store is complaining about others, cheating with ingredients or that they are not providing a good service.
The reason behind such conflicts is usually just human nature. Therefore, the manufacturing company may or may not interfere depending on the severity of the issue.
However, it’s a must for any company to set regulations that control the distribution of its goods in the market.
Vertical Channel Conflict
While the horizontal channel conflict exists between players within the same level of the distribution channel, the vertical channel conflict happens at different levels of the distribution channel.
A typical conflict might be between the retailer and the distributor. Sometimes it’s between the distributor and the company itself.
The competition between different retailers makes it difficult for the company to come up with promotions.
Let’s say that a specific area isn’t performing so well. So, in order to motivate sales, the company decides to offer this area a promotion or an incentive.
Once the word spreads around, retailers from other areas will start to revolt and complain that the company isn’t being fair. They don’t understand that sales in those other regions are already high and margins are low for the company.
In such cases, the manufacturing company must interfere and decide which side it will take to resolve the conflict.
Multiple Channel Conflict
When the concept of modern retail, represented in hypermarkets and malls, came to life, it disrupted the relationship between small retailers and businessmen and the manufacturer.
Due to their bulk buying power, these hypermarkets were given huge discounts and were making huge sales as well.
Back then, many small retailers and businesses boycotted companies because they felt left out, and they wanted to prove that they, too, have a weight in the market.
That’s why manufacturing companies were forced to maintain the price across multiple channels.
This is a clear example of multiple channel conflict.
Today, with e-commerce being a strong, new player in the equation, a new multiple channel conflict rose.
The problem with e-commerce is that it costs way less than any other channel.
There’s no store to be leased, no rent to be paid, not a pound to be spent but only material to be bought and shipped. The lower the price of buying, the lower the selling price.
The introduction of e-commerce had even pushed hypermarkets to lease huge spaces for which they were paying sky high rents.
Today, all three channels are fighting each other to gain the biggest share of sales.
How to Solve Conflicts Among Channels
So, although one cannot eliminate conflicts altogether, there are still some mechanisms one can use to manage the conflicts.
One technique would be the strategic justification. You justify why to serve different segments, so that you may even develop different or exclusive products.
Or dual compensation: the company pays the existing channel for the sales made through the new channel.
You can also come up with creative ways to use giveaways, bundles, and kits to make all retailers, wholesalers, and consumers happy.
There are also precautions that you should consider to avoid conflicts. First, have a realistic assessment of risks and opportunities associated with your decision.
Do not make impulsive decisions or follow market trends without studying them.
Next, be upfront with your existing distribution outlets and also be ready to accept criticism. Distributors will probably complain regardless if the channel conflict is real or only perceived.
Have a script in place to tackle common objections, and ease their concerns.
Other precautions include not favoring one channel over the others and pricing your products fairly across all channels.
In addition, you should assign geographical exclusivity for your brand. Having well defined territorial boundaries for brand representation will certainly eliminate channel conflict among brick and mortar distribution.
Why Is a Retail Strategy Important?
The objectives of a retail strategy are many and they are clear enough to explain why a retail strategy is important.
Objectives of a Retail Strategy
- To look for channel balance, especially geographically
- To look for new channels to improve turnover on point of sale
- To impulse and accelerate sales by planning and coordinating promotions
- To develop point of sale merchandising and sales activations (coupons, rebates, sampling, etc.)
- To build traffic in stores
- To gain loyalty from consumers through each channel
- Defining a commercial policy
- Develop a plan for brand goals per channel
- To define pricing policy by channel, identify margins, etc.
- Defining assortment policy per channel and optimising it
- Internal and external information analysis with support from sales team
- Handling the logistics part
Trade Marketing, Supply Chain, and Category Management
Understanding these three concepts is crucial for developing a successful retail strategy. Without them, you won’t have a full picture on how the retail environment operates today; whether digital retail or traditional.
Trade Marketing Definition
Trademarking is a discipline in marketing that relates to the increasing demand in the distributor level rather than at the consumer level. So, it deals with distributors, not consumers.
Trade marketing focuses on the intermediary sale; not the final sale.
The concept was born in the 80’s when corporations such as Procter & Gamble and Colgate realised the potential of coordinating their sales activities with distributors.
Soon enough, there was a shift of power that showed how influential distribution channels are.
Today, the retailer is ultimately in the position of power (and every party knows it).
So, one could define trade marketing, again, as an alliance; a strategic alliance between manufacturers on one side and distributors on the other side.
Both sides are ready to develop joint activities of advertising, promotion and merchandising in the point of sales with the final objective of increasing the demand from the end user.
Supply Chain Definition
There are two sides for the selling process: supply and demand.
Supply chain is concerned with all the phases that the product goes through before it reaches the retailer’s shelf.
The chain has an impact on the price and the availability of the product in the market.
Therefore, in a perfect world, companies look for chain rationalisation; stock reduction, time and cost improvements, in-order management, handling, warehousing, and logistics.
The best practices in this supply side will be the engineering of the supply chain and the continually replenishment processes.
Category Management Definition
Category Management is the collaborative process of organising categories as independent business units, aimed at producing business results by focusing on delivering value to a customer.
To do so, products are grouped into categories according to how they are used, consumed or purchased.
The idea behind category management is pretty simple. The goal is to manage each product category in a way that enables maximum consumer appeal.
How to Implement a Category Management Plan?
A specific category management plan has to be carried out in order to develop the best possible customer proposition by implementing data-driven assortment planning, having prices that are competitive, promotions that are attractive and visually appealing planograms.
#1: How to Define a Category?
Real Life Example on the Retail Experience
Let’s look at this real life example.
A middle-aged father steps into a supermarket and wants to buy some grocery for breakfast.
First, he will need to go to the dairy aisle to buy some cheese and milk. Then, he will go to the poultry section to buy some eggs.
His next stop would be the hot beverages aisle to get some tea or coffee. He may pass by the bakery to get some bread and pastry. Finally, he would visit the cereals category to buy some corn flakes for his children.
What do you think of that shopping experience? How many categories did the man visit and how long did his supermarket visit last? Is it convenient?
Would this father rather have it any differently?
These are all questions that retailers should ask when thinking of category management.
Category Segmentation and Consumer Decision Tree
The category definition generally asks what ‘consumer need’ will you satisfy? The category fulfils the ‘need’ and the specific product fulfils the consumer ‘want’.
There are endless ways to define different categories.
It all comes down to the strategy you have for your brand or retail store. Moreover, it depends on the behaviour of consumers.
That brings you to segmentation, hierarchy and the consumer decision tree, also known as CDT.
Consumer behaviour isn’t one thing. You must classify your customers into different segments according to the nature of your business.
A consumer decision tree is the various factors that influence the buying decision based on cultural, personal, physiological and social factors that exist within a consumer base.
Some shoppers may be price sensitive; meaning price is the number one factor that affects their buying decision. On the other hand, others may be visual shoppers; they appreciate the brand, design, and packaging more than the price.
Another type is convenience shoppers. They value functionalities such as the ability to reseal an opened product or the material of what they buy.
CDTs are complex as a price sensitive shopper in one category may be a visual shopper in a different category.
That’s why you need to categorise from different perspectives.
The bigger your retail space or product offering gets, the more you’d need to create a category hierarchy.
A category hierarchy is the grouping of categories and subcategories into super groups.
The hierarchy goes like this. You assign a product to a sub-category, a category, Super Group B, and finally a Super Group A.
This leads to better placement and better consumer understanding from a retailer and supplier level. Your hierarchy is informed by the consumer decision tree.
#2: Consumer-Based Category Role Allocation
The second step of a category management plan is defining category roles.
Category roles are micro strategies that retailers use to help make their stores more shopper friendly. They also help drive category sales growth by the way they define how the category meets individual shopper’s needs.
These roles can be used for different purposes such as increasing shopper traffic, increasing the volume of sales or increasing the value of each consumer’s shopping trolley.
They may also support specific shopping needs, feature special occasions or make target categories more shopper friendly,
Retailers should work closely with brand category managers to assign different roles to the categories within their stores depending on the customers they want to attract.
1. Destination Category Role
This is a category with which the retailer wants to profile himself towards his target consumers and differentiate himself from competition. It aims to offer superior value to consumers and define the retailer as store of choice.
For example, a store might want to be known as the preferred destination for healthy grab-and-go meal solutions. Key categories would then feature products that specifically meet that objective.
The destination category draws the consumers into the store and focuses on specific solutions to improve their shopping experience.
2. Routine Category Role
It is designed to assist in building the target consumer’s image of the retailer.
This would include most of the “routine” items consumers typically put on their shopping list including staples like milk, butter, bread, etc.
A routine category aims to provide consistent and competitive value for the consumer’s everyday needs.
3. Seasonal Category Role
This category refers to products which are not purchased on a regular basis but occasionally.
Seasonal categories play a secondary role in delivering profit but can be used by a retailer to differentiate himself from competition during a certain period of the year.
For instance, retailers typically place a great deal of emphasis on the candy and floral department on Valentine’s Day by increasing their selection, inventory and gift ideas.
A brand or retailer may differentiate themselves as the best go-to place for a specific season such as Summer, Halloween, or Valentine’s.
4. Convenience Category Role
A convenience category completes the retailer’s assortment with products that are not usually found on a routine shopping list. This category aims to guarantee a one-stop-shopping and plays an important role in margin enhancement.
5. Complementary Category Role
A complementary category is one that helps support the sales in other categories. For example, several stores sell pots, pans, and cooking accessories that help support meal preparation.
#3: Insight Generation
If category management is an art, insight generation is the science behind the art.
There are different types of data that you can generate insights from: market data, consumer data and category strategy.
Market data is the data you collect from external sources; either by looking at competitors or how a product/category is performing generally.
External data gives you insights on the general demand of categories and a chance to differentiate your brand/retail space against the market offering.
Moving to consumer data, there are many sources of collecting consumer data.
Sales data are the breadcrumbs that customers leave behind. Following these data crumbs gives you direction about how your customers truly behave.
For instance, loyalty analysis, which measures purchase frequency or penetration among high-priority consumer segments, allows you to understand product categories from a consumer perspective.
Meanwhile, in using market basket analysis, you can identify key value items by consumer segment. That answers questions such as: what are the must-haves on a specific customer profile?
You can thus set prices based on consumer demand and competitor moves. You can also tailor offers and promotions to consumers based on their past behaviour, thereby increasing total basket profitability and loyalty.
One of the best ways to develop successful promotions is to tailor them to customers upon purchase.
Moreover, by measuring consumer “switching” behaviour, you can also identify which SKUs play a unique role and which are redundant.
#4: Strategic and Tactical Planning
This is where you get down to business. The previous three steps are about coming up with concept, strategy, and market research. A phase that you can call ‘the rationale’ behind your category strategy.
Now this is the part where you have to make decisions and follow on-ground tactics.
Let’s move to making real retail decisions!
Assortment planning is the process of selecting the collection of products which will be on display in particular areas.
By “areas” one may refer to a shelf, a store, an online page, or even in a country (localization).
Assortment planning entails the evaluation of individual product attributes including: Brand, Size, Style, Colour, Function, Price and Stock Keeping Unit (SKU) performance during selection to address the preferences and needs of your customers.
It also considers the financial objectives and seasonality of the product selection.
The assortment plan defines the products that make up your categories, sub-categories, segments, and sub-segments.
Consumer-Based Assortment Planning
Consumers make the ultimate decision as to what goes into the trolley or basket. They are the ones navigating the shelf and selecting from the range presented.
Therefore, it makes more sense, from a shelf planner point of view to consider a consumer decision tree when deciding on a shelf-layout.
These two elaborations are what goes through the shopper’s brain before purchasing a cold drink and cereals.
By studying these examples, you’d understand that there are endless ways to assort products. You may assort them by price, if your core differentiation is pricing.
Or, you may choose to be a shopper’s best friend and assort products according to end user: gender-based, children, family, etc.
You may also assort products according to their own nature. Healthy or not. Cooked or raw. Athletic or home wear.
Endless options. It all comes down to strategy.
Furthermore, to create an attractive assortment, you need some rules. Rules may include sales of a product, units sold, time on shelf, external sales rank, house brand, top brands, colour or flavour, and profitability.
Based on these factors, you’d be able to assort products in a way that consumers can understand and navigate easily.
2. Floor Space Planning and Space Allocation and Management
Space is a primary game changer in category management tactics.
Imagine if there’s a ‘store guide’ assigned to every customer entering your retail space: wouldn’t you train these store guides to take the customers to the most important spaces? The ‘must-see’ spots?
Retailers cannot afford hiring a guide for every customer. Besides, it’s a nuisance.
However, remember this, space planning is the ‘invisible’ store guide that allows your consumer to shuffle through your store.
Have you ever walked into a store and felt like some unseen force was guiding you in a specific direction? Perhaps you went in wanting only to buy a packet of bananas, but the store’s flow guided you past the ice-cream aisle, and suddenly a banana split seemed like a great idea.
How did that happen? Floor space planning.
The Drill to Efficient Floor Space Planning
Any store, even an online store, has some attraction places: places that every customer will pass by, and less visible ones.
A homepage, let’s say, is a place that every visitor will pass by. Homepage is the equivalent of the entrance, or the decompression zone, in the physical store.
What are the most important products that you want every customer to see? The latest discounts? The daily grocery needs? Your differentiator-products? And also, how should it make a customer feel?
A floor plan consists of a collection of planograms set out in a logical order, for a store to maximise the utility of the available floor space.
Floor planners also use specialised floor planning software to create heat-mapped floor plans. This helps you to optimise shopper traffic and to reduce congestion during peak hours.
Let’s find out some basic tips and tricks that you can use to have efficient floor planning.
The Decompression Zone
The first space you step into when you enter the store is designed to open your mind to the shopping experience, inviting you to browse and explore. This space should never be cluttered or a narrow corridor; a common mistake.
The decompression zone should make customers feel safe and help them focus on their shopping quest.
Another common mistake is having cashiers in the entrance. It’s always better if you have an entrance and an exit. If that’s not possible, then at least have your cashier sitting away from this zone.
The best idea is to have this place allowing entrance to into the store with an overview of the merchandise.
Moreover, make your entrance visually appealing. Colourful and decorative displays at the entrance usually entice customers to come inside.
Nordstrom, an upscale fashion retailer, rolls out a long red carpet from their decompression zone, guiding customers to their merchandise. This is an example of how floor space planning is the invisible escort to your customers.
Clockwise vs Counter-clockwise
Retail stores opt for space planning that goes counter-clockwise, from right to left, because most of the population is right-handed and will instinctively turn to the right.
Although it’s not a rule, it’s somehow a habit that people move to the right side.
What matters most is having your space floor planning guide your visitors to where their shopping trip should start without confusion.
Another floor space planning trick. Retailers want visitors to spend the longest time possible inside their shop, as long as they end up leaving with many shopping bags.
The longer they stay, the higher the chance of filling up their basket with more items. If they don’t like anything, they’re leaving as soon as possible.
That’s not the case with fast food restaurants, for instance – they want visitors to buy and eat their food as fast as possible.
Many retailers create little visual breaks, known as speed bumps, to give shoppers the opportunity to make seasonal or impulse buys. “Speed Bumps” are created using signage, specials or placing popular items halfway along a section, so people have to walk all along the aisle looking for them.
Another “slow down” technique is when retailers stock the items shoppers buy most frequently (staple items) at the back of the store, to maximise the amount time you spend inside the store, increasing basket size and impulse buying opportunities.
This makes it difficult for shoppers to resist grabbing other items when making a quick trip to the grocery store.
Some retailers also have ‘windowless’ stores to disconnect visitors from the outside world. Without knowing that time is passing and it’s becoming night, they can stay a little longer.
The king of cross merchandising is IKEA. Cross merchandising is a tactic that category managers use to drive additional in-store sales.
It is a Transaction Building strategy that focuses on increasing the size of the average basket, by encouraging your consumers to purchase complementary products.
Ikea pairs products together all the time.
You’d never find a cupboard without creative organising boxes and hangers. You’ll always find a bed with quilts, pillows, bed covers and linen. That encourages consumers to buy the whole set to have the same look at their homes.
There are many pricing strategies out there. That subject could take up a whole article on its own.
Pricing your products is never easy. You need to consider your objectives, your customer’s profile, the cost of the product, competition, and the nature of the product.
There are many pricing strategies: Retail Formula, Manufacturer Suggested Retail Price, Keystone Pricing, Psychological pricing, Competitive pricing, Premium pricing, Anchor Pricing, and many more.
We won’t go through all of them, just those that need explanation.
Retail formula is an easy equation that you can use to determine the price of a product if you know the profit percentage you want to achieve.
Retail price = Retail Price = [(Cost of item) ÷ (100 – markup percentage)] x 100
For example, you want to price a product that costs you $15 at a 45% markup instead of the usual 50%. Here’s how you would calculate your retail price:
Retail Price = [(15) ÷ (100 – 45)] x 100
Retail Price = [(15 ÷ 55)] x 100 = $27
Moving to Keystone pricing where retailers would simply double the price which they got the product for.
Sometimes this is a very high margin. Therefore, some experts recommend that retailers use this strategy only for premium products which target affluent customers.
As you can see, pricing your products is a very individual process, it varies according to many different things.
Moreover, the complexity of pricing stems from the fact that it’s not all about doing the math. The art of pricing requires you to also calculate how much human behaviour impacts the way we perceive price.
In theory, everyone wants a cheaper price. However, when the price is too low, sometimes that makes customers doubt the quality of the product. So, psychological factors also interfere.
In the same way, psychological pricing is a technique of setting prices at a certain level where the consumer perceives the price to be fair, a bargain, or a sale price.
The most common method is odd-pricing, which uses figures that end in 5, 7 or 9, such as $15.97. It is believed that consumers tend to round down a price of $9.95 to $9, rather than $10.
4. Merchandising Strategy
Merchandising is the arrangement of products in a physical or online store. The goal of a merchandising strategy is to optimise display efficiency.
Good merchandising frees up time, makes the selling process simpler, enhances the buying experience for consumers and drives sales growth.
Merchandising is sometimes called plan-o-grams, shelf space plans, space plans, schematics or POG’s.
Some of the merchandising decisions need to be driven by data, such as shelf space allocation.
By taking into account the number of days it takes for a particular product to sell out, you can balance the space on the shelf to the sales of each product. This will help you to maximise your sales per square metre.
If the product takes longer to run out, give it less space and allocate that space to a product that sells out faster. In this way you can increase your sales and profits.
Other decisions need to made based on observation of customer behaviour. Here are some common tactics that successful retailers do based on common consumer behaviour:
- Eye-level positioning of profit generators; eye level is buy level
- Below eye-level is perfect for children products
- Positioning of retail house brands next to the brand leader
- Packing products from smallest to biggest
- Placing products on the shelves by price point, for example premium to economy
- Placing products by latest technology
- Packing big or heavy items on the bottom shelves for easy access and convenience
- Making use of gondola ends for in-store promotions
- Emphasising best sellers by attributing more facings
- Creating incentives to trade-up higher margin products
- Using brand blocking, colour blocking and vertical merchandising.
Brand blocking is the practice of lining multiple facings of your products on one or more shelves to create a visual “block” of your product/brand for the shopper.
Furthermore, try incorporating colour blocking into the shelf. With colours, you can create an emotional and personal connection with your shoppers, attracting them to your brand.
5. Inventory Management
An effective merchandising strategy has a lot to do with inventory management. In fact, inventory management is part of your merchandising strategy.
Having too little inventory is a detriment to your business. What customers can’t find at your store or on your website, they’ll find somewhere else. This runs the risk that those frustrated consumers may never return.
On the other hand, some retailers overstock ‘just in case’. While this guarantees that you have plenty of supplies, it hurts your business financially. Not only does excess inventory tie up valuable cash flow, but it also costs more to store and track.
Therefore, the key to managing your inventory is achieving balance.
Balance can be achieved by prioritising your inventory. As a general rule, 80 percent of your profits come from 20 percent of your stock. Make inventory management of these items a priority.
Understand the sales life-cycle of these items fully; including how many you sell in a week or a month, and closely monitor them. These are the items that make you the most money; don’t fall short in managing them.
Who’s Responsible for the Merchandising Strategy?
Both manufacturers and retailers are partners in setting the merchandising strategy.
The end goal of a planogram for you as a retailer is to better respond to customer expectations through optimised assortments and logical product flows; increase stock control; improve shelf displays and visual impact; and increase the profitability and financial performance of their stores.
Meanwhile, if you’re on the brand’s side, your goals are numerous. And it’s an important part of your trade marketing strategy.
In that case, you define your brand and category vision inside the retailer’s space.
They use planograms to give recommended layouts to retailers, to create consistency for their categories and ensure the right flow of products for their brands according to their own strategy and vision.
In addition, manufacturers can use planograms backed with data to ensure fair space allocations are being attributed between their own brands and competing brands.
Usually, a retailer assigns a brand leader or “Category Captain” for each category to help them determine the flow of the category, what products are complimentary, and what space to allocate to each brand. This step involves data sharing between the retailer and category captain.
Promotions play a major role in your category management strategy, either as a brand or a retailer.
They act as catalysts to your best-selling items, your slow-moving products and even encourage consumers to try new entries. You’ll later find great tips on how retailers and brand managers can improve the efficiency of promotions.
#5: Initiative Development and Implementation
The final step in category management planning is the actual development and execution of the previous four steps.
The previous four steps are intricate. They include many aspects of learning and decisions to be made.
So, during the development phase you need to assess the cost against the benefit of the plan before prioritising the next steps for implementation.
Basically, the “project” starts here as you start defining a schedule and a list of responsibilities. You determine what specific tasks need to be done, when to do, where to do, and who will do it.
Remember that your category management plan is not static. It should be reviewed on a quarterly basis at least. You need to continuously measure its results and re-define your priorities according to the market flow.
How Can Trade Marketing Enhance Your Retail Strategy?
Successful companies no longer deal with their distributors as clients; they deal with them as partners. It goes without saying that partners enjoy a special treatment that ensures loyalty.
When it comes to trade marketing, retailer loyalty is the number one goal to any manufacturer.
Retailers, wholesalers, and distributors have shelves with limited space to place their products on. The only thing that guarantees any brand’s place on a shelf is the retailer’s loyalty.
Even if the retailer has huge shelves, like Carrefour or Walmart, there are millions of products in the market to choose from. There will always be “shelf shortage”.
Therefore, there are some trade marketing techniques that companies use to guarantee their place on the shelves.
#1: Sales Data
Sales data is used as evidence to your trade partners that your products are in demand. A stagnant product warming up a retailer’s shelf is the last thing they want.
Therefore, build up their trust by giving them evidence that they are minimising this risk by buying your product.
It’s about accumulating data and using the information to craft persuasive messages that will convince sales chain partners to keep buying the product in question.
Sales figures can be used for marketing purposes.
If a retailer sees another retailer making loads of money out of a product, it won’t want to miss out, so this data can be very persuasive and manufacturers can play shops off against each other.
#2: Market Research
The majority of market research is directed towards consumer behaviour. However, trade partners are often the best source of information for a market overview.
Not only will they give you valuable insights on how your consumers behave, but also they’d give secrets about your competitors.
That’s because retailers never deal with one brand, they deal with many. There’s a high chance that they may be dealing with your direct competitor.
If you direct some of your research efforts to listening to what your trade partners have to say, you’ll definitely gain valuable information on all levels.
#3: Trade Promotions
Trade promotions are imperative. What’s the difference between trade promotions and consumer promotions? Major difference!
Trade promotions are exclusive to trade partners and they don’t oblige traders to sell at a lower price.
Meaning, retailers get the product for a lower price from the manufacturer and sell it with the same high price to the consumers. Two words that all retailers are in love with; higher margin.
There’s an upcoming section of this article dedicated to making promotions effective, whether they are consumer promotions or trade promotions.
Branding is a pull strategy. A pull strategy is where consumers are the ones who request your products from the retailer; giving them no choice but to deal with you.
Of course, consumers won’t request your product by name unless you have a strong brand; one that they know and trust.
In today’s highly competitive market, it’s painful to create a need for products with no brand.
#5: Trade Events and Shows
Trade shows, exhibitions, and EXPOs are ideal for networking and forging good business relationships. They regularly take place all over the world.
Plus, if a manufacturer needs retailers, wholesalers and distributors to hear about their products, they’re also the perfect environments for improving brand awareness.
Trade events are those that celebrate traders as partners. They are usually done when there is a new product launch or a great achievement for the manufacturer at the end of the year.
They are a good chance to show your partners that you value their contribution to their success. These events typically include dinner, entertainment and a trophy or a token of gratitude to be given to traders.
#6: Trade Content
When companies create their content strategy, the main focus is the end consumer. They often forget that traders are also businessmen that look for content that guides them in improving their life.
PR is a strong tool to build trust and set yourself as a thought leader. Be present with good content and persuasive messages wherever your trade partners are present, whether it’s magazines, websites or outdoor campaigns.
#7: Strategic Partnership
Strategic partners is one of the most powerful tools of trade marketing. It comes in second place after promotions.
A strategic partnership is a mutually beneficial arrangement between two separate companies that do not directly compete with one another.
The aim of trade marketing is to create a win-win situation by achieving shared objectives. “Partnership” means sharing the same goals and concerns.
Manufacturers could partner with retailers, distributors, wholesalers and more importantly, other manufacturers.
That could mean aligning shipping and inventory management systems to generate shared savings.
Or, sharing market research so that all parties can better understand consumer behaviour. Partnership also occurs during advertising campaigns and sharing marketing collateral.
Examples of supply chain partnerships are many. For instance, Intel makes processors for many computer manufacturers. Toyota makes engines for Lotus sports cars. Texas Instruments makes chips for everything you can think of.
#8: Digital Marketing
Business to business marketers forget that their target audience are human beings at the end of the day. Retailers, distributors, and wholesalers are out there on digital channels, social media, and they’re watching videos and Instagram stories.
You can have a separate content strategy for trade partners or you can include all under one channel.
There are also very important digital tools that you must incorporate in your digital trade marketing strategy: email marketing, SEO and lead generation.
Is Brick and Mortar Retail Dying?
So, the popular opinion is that digital is going to take over everything and that brick and mortar stores are closing off.
To make matters worse, several examples of big names closing off their retail stores support this theory. A few to mention would be Bebe, Toys R Us, Payless, and Forever 21.
So, what’s really happening? Should e-commerce take the blame for these retailers shutting down their physical stores?
Let’s find the truth.
Even in today’s digital world, never underestimate the power of your shopper physically interacting with the product. Fifty six percent of shoppers say they visit stores to see, touch, and feel products before purchasing them either online or in the store, and that number jumps to 70 percent for shoppers over age 65.
So, even if the sale is closed online, your physical store still has significance to consumers.
Shoppers want the confidence of the physical store and the convenience of the digital one. No compromise.
Therefore, it’s not all doom and gloom for traditional retailers. However, they need to adapt to the changing needs of the market.
That brings us to the concept of the omni-channel retail strategy.
How Can the Retail Industry Survive the Digital Age?
Bricks and Clicks
A great proof of the fact that brick and mortar is not dead is Amazon’s opening of Amazon Go in multiple locations. If physical stores are no longer relevant, why would the biggest online store in the world care about having physical stores?
The truth is, customers are looking for more than dull grocery shopping. They’re looking for an all-inclusive, go to place where they can fulfill all their needs; whether online or offline.
Accordingly, to survive the digital age, physical stores must give more convenience, value, and exclusive perks that the online shopping experience can’t offer.
But it’s not enough to only have a successful online business. It’s a complimentary existence where you have to be where customers need you to be. Consumers don’t live on their phones the whole time.
For this reason, brick and mortar stores are developing an online existence, and digital stores are transforming to real places that consumers can visit.
That’s the idea behind “Bricks and Clicks”.
The Omni-channel Strategy
What is an omni-channel retail strategy?
An Omni-channel retail strategy is an approach to sales and marketing that provides customers with a fully-integrated shopping experience by uniting user experiences from brick-and-mortar to mobile-browsing and everything in between.
Organisations and corporations are becoming like a unity of one department with the customer being the focus of the business.
Customers don’t deal with brands as set of different departments, they evaluate the whole brand experience.
So, for example, it makes perfect sense from a customer point of view to go to a physical store and expect that it caters for his/her online order.
When you announce a new collection online and one customer sees it and decides to pay a visit to your store, it’s abominable if they go there and don’t find it.
Your inventory management team, customer service and sales people must be aligned with your digital marketing activities and all the company has to be acting as one.
That “synchronisation” is one of the main tools of the surviving kit for retailers in the digital age. And to achieve that synchronisation, brands need to change their internal structure and the fragmented mentality of running a business.
Marketers, sales force, finance, HR, and all departments should all work on the same front.
Brand Consistency in Retail
A part of the omni-channel strategy is having all your channels provide consistent touchpoints. Things like your brand values, colours, and unique selling points should be the same everywhere.
A customer visiting your small shop in a mall should get the same feeling when he/she visits your e-commerce platform.
The fragmentation of the retail experience is the enemy of a retailer aiming to survive the digital age.
Responsive merchandising means enhancing the experience inside your stores. Think of, how can you offer your visitors a benefit that they can’t attain online?
For instance, customers say that they like to “see” what they’re buying before making a purchase.
So, why not use technologies, like virtual reality and/or augmented reality, to offer an experience that allows visitors to not only “see” but actually “experience” your products.
Your in-store experience should be high-touch and include informative displays. Those could include simple, traditional signage, or more modernized displays with tablet displays, demo videos, etc.
If you have a big store and hundreds of products, why not help your customers easily find out the availability and location of your products inside the store by searching for it on an app.
So instead of skimming shelves or asking the store assistant, you can empower visitors to help themselves.
That gives them more convenience and facilitates their shopping experience.
Ikea is also a leader in responsive merchandising. Through using augmented reality, Ikea has created an app where customers can take a picture of a product and see how it would fit in their own house. Talk about responsive merchandising.
Many fashion brands have also followed this trend to create a virtual experience where ladies can see how a piece looks like on her. It’s like a virtual fitting room.
Responsive merchandising isn’t also all about fancy technology. It’s about enhancing the real shopping experience.
When Victoria’s Secret found out that many women do not get the standards of the right bra fitting, they offered a free bra fitting at all their stores.
This gives more confidence to every woman making a purchase in the store – something that their online store can’t offer.
A Digital Retail Strategy
So, you’re opening a new e-commerce website, or you’re a brick and mortar store trying to penetrate the digital world. What should your digital retail strategy look like?
First of all, all the basic concepts apply. You still need customer profiling, research and data analysis, trade marketing, category management, assortment planning and all the marketing basics.
The only difference is how you apply these concepts to e-commerce.
Web design is the equivalent of floor space planning. If your website is cluttered, ugly, slow, or if it’s so hard to find what you’re looking for, potential buyers will leave instantly.
Remember that it’s much easier and faster for a customer to leave an e-store than to leave a physical store. Every second someone spends on your e-commerce platform is valuable.
That’s why, your website must be responsive and fast; that also helps with its SEO.
Don’t distract users and guide them while shopping.
Make your visitors’ navigation a breeze. For example, menu bars allow users to easily navigate the pages of your website to find what they are looking for.
A search box with filters is also a great way to make it easier to find products.
Of course, your category management plan will reflect on how you design your website.
Your home page is your decompression zone. Make it clear, aesthetically pleasing and catchy.
Online retailers usually include best sellers, discounted prices, last pieces, etc.
Keep in mind the natural flow of the eye when designing your home page.
Studies and heat maps have shown that people tend to view websites in an E or F formation, starting at the top-left corner and working their way horizontally across the page, then down the left side, horizontally again, so on and so forth.
Your goal is to direct your visitor to a different page where they can officially ‘add a product to cart’ and make a purchase.
Grid Layouts and Product Showcasing
Grid style layouts tend to be the best for e-commerce sites and for most sites in general. When users are browsing products, it’s best to keep them in organised rows and columns.
Just be careful not to cram too many different products in one row. Experts recommend only having three or four products per row to make your product catalogue pages visually appealing.
When it comes to e-commerce, imagery is a deal breaker. This is the only chance where customers get to know what the product will look like.
Having high-resolution photos is an absolute must. Any blurriness or “pixilation” can turn would-be customers away, thinking your product is cheap.
A popular feature is a pop-up box where people can zoom in on a particular image and see fine details.
If possible, use lifestyle images of people actually using or interacting with your products. Some products are easier to sell when you can show them in video as well.
Providing live assistance for your customers where they can ask if anything isn’t clear to them is also of great importance. It also boosts your customers’ confidence when they deal with a human.
Be honest about pricing whether for delivery, taxes or your products themselves. Hidden charges are just a no-no.
Another great confidence booster is to include reviews and testimonials. 61% of online shoppers report reading customer reviews before deciding to purchase a product.
You can use this helpful statistic to your advantage by including reviews and testimonials right on your website. Moreover, encourage your buyers to review the products by offering a promotion to those who make a positive review. That way you also build up a base of loyal buyers.
One last tip here is to add “Thank You” pages after making a purchase. Thank you pages should also include your contact information.
In case there’s anything wrong with the order, the customer won’t have to panic. They know they can always reach you easily.
See Also: Guide to E-commerce Web Development
How Retailers Can Improve Promotion Effectiveness
“Brick-and-mortar retailers—including supermarkets, discounters, drugstores, and mass merchandisers—rely heavily on promotions, which typically account for 10 to 45 percent of their total revenues.
The Boston Consulting Group’s research indicates that 20 to 50 percent of promotions generate no noticeable lift in sales—or, worse, have a negative impact. Another 20 to 30 percent dilute margins in that they don’t generate an increase in sales sufficient to offset promotion costs.
Several pitfalls typically hinder the success of promotions. Let’s find out what the causes are and their solutions.
#1: Failing to Create a Promotion Strategy; a Mess of Promotions that Have No Real Route
Retailers and brands apply random promotions with a vague goal of “increasing sales”. Frankly, increasing sales isn’t a goal because it’s too vague.
Many retailers lack a clear goal for their promotions; management does not consider whether it is trying to improve margins, traffic, customer loyalty or some other metric. As a result, a promotion plan is often based on what was done last year.
Repeating promotions is an easy and safe approach to planning, but it limits the ability to evolve promotions and improve their performance over time.
Therefore, retailers and manufacturers should craft a winning promotion strategy to guide category-level decisions.
Define a specific goal. Your objectives should be one of those: purring traffic, increasing basket size, improving price perception among customers, raising profits, boosting customer loyalty, or enhancing brand awareness.
Next, determine the role that each product category will play in that strategy, along with the investment required.
For example, consider a supermarket that determines that the fruit-and-vegetable category can generate incremental sales.
The retailer needs to quantify the promotion investment required for each pound of additional sales in that category and then determine the level of investment for each product category.
Finally, there are different ways to implement.
You may adopt a strategy of having low prices consistently and eliminate promotions, or have higher prices that get marked down during promotions.
The right approach likely depends on the product category.
#2: Having Little Understanding of True Performance
There’s a problem with data.
One issue is data quality—retailers’ sales data is often incomplete, inaccurate or flawed in some other way that makes it difficult to analyse.
That’s why retailers can’t specify the true performance of specific promotions—or the value they create. Therefore, they have a hard time coming up with effective promotions.
Even when some retailers have access to accurate and complete data. They still struggle to gain insight that drive decisions from these reports.
A retailer should first determine the baseline sales that it would have realised without running the promotion. Then, identify the incremental sales that were generated during the promotion.
The analysis then requires factoring in the discounts, supplier funding, cannibalisation, the boost in sales from complementary products, “stock-ups” (the loss of future sales at full price because customers bought a product in volume at a discount), advertising costs, supply chain expenses and store costs.
#3: Having Insufficient Organizational Capabilities
A central challenge for many retailers is that they don’t have the right organisational structure to support promotions.
Most retailers don’t have the capabilities and a dedicated team in place to effectively oversee promotions from start to finish.
As a result, the rest of the organisation does not receive the training necessary to execute promotions and never builds the foundation required to improve promotion performance.
A typical training program mostly focuses on educating the IT department on an updated IT platform, training a small team of analysts to develop promotion recommendations.
In addition, training also concentrates on showing category managers how to develop category-specific recommendations and improve promotion planning and selection.
The training process usually takes two to four months of training.
The investment retailers put in that training will empower their teams to make the decisions that would drive higher profit.
Final Thoughts on Retail Strategy
A retail strategy is one of the core success factors for a brand. On the retailer’s side, things can also be overwhelming sometimes, especially in the age of Amazon.
Retail business is a wide industry and it overlaps with so many other industries.
Product and packaging design is also an essential step towards retail success. Fortunately, we have some pointers on the best product packaging design companies.
Whether you’re a brand manager or a retailer, we surely hope you’ve gathered some valuable insights from this article. Good luck!
See Also: Marketing Strategy, Strategic Marketing Planning Process