Merchandising is generally understood as managing the customer's purchase process at a retail outlet to encourage them to buy as many products as possible. In a narrower sense, merchandising is the management of the display of the product range on store shelves. The whole process is usually limited to the sales floor, and the administration is primarily the retailer's responsibility.
But is this restriction fair? Or does merchandising start much earlier, at the production stage? Today, we will discuss the importance of merchandising for manufacturers and determine what they should pay attention to when developing and implementing their merchandising strategy.
Intelligent merchandising is the key to the consumer
To begin with, a manufacturer always has at least two types of consumers: the end user – the buyer of the goods – and the retailer (supply chain, sales channel). And any conscious manufacturer will naturally be interested in and concerned about the further development of their products after they leave the factory and start their journey to the buyer.
And no matter what anyone says, it is the end consumer who is more critical for the business as a whole because the main goal of a company is to make a profit by selling the goods to the buyer. However, if the retailer does not allocate enough space on the shelves for your product, the end consumer may not notice it and, accordingly, not buy it even if your product is the best in the market.
You can rely on wholesale deliveries of your products. Still, without your vision of merchandising, you will be unable to effectively influence and control the retailer for the quality of your products displayed in retail outlets.
In practice, there is often a real struggle for space on store shelves when sales representatives of another manufacturer want to remove your goods to get more space on the shelf and, for example, receive additional bonuses. Retailers may also violate agreements for their own reasons.
A smart merchandising concept helps the manufacturer have closer contact with the consumer. It also helps to effectively influence and control retailers to comply with merchandising standards to ensure the appropriate level of product representation on the shelves.
For small businesses that don't have the production volumes large retailers are interested in, or sufficient funds for promotion and hiring a large staff, merchandising is, perhaps, the most effective tool for sales and communication with consumers. They need to identify and maintain their individuality, which will be the foundation of customer preference.
In general, merchandising helps the manufacturer to solve the following tasks:
- to present the range of its products on the market, drawing the attention of potential buyers to the necessary SKUs, novelties and its special offers, and informing them of the product's qualities and advantages;
- to stand out among competitors by using both the unique features of its products and various presentation techniques;
- build and maintain loyalty to their brands, draw attention and gain new customers;
- train and consult supply chain and point-of-sale personnel;
- and ultimately, to influence the customer's decision to choose the product, and thus increase brand sales and awareness.
Despite such ambitious goals, many manufacturers consider merchandising to be a secondary business process that is ancillary to their core business and underestimate its importance. However, with an established merchandising strategy and standards, it is much easier to outsource this function. Modern software allows you to effectively control the display of goods on the shelves even remotely, offering ready-made solutions based on algorithms.
Therefore, as a manufacturer, you should pay attention to merchandising as a separate branch and business process.
Manufacturer's merchandising: What to focus on
Working with existing and potential clients on merchandising issues in their companies, we at LEAFIO have identified a number of problems that manufacturers, regardless of industry, face when trying to improve the presentation of their brand/assortment to the buyer:
- non-standardized display and/or inefficiently selected assortment for different types/formats of outlets;
- lack of a quality process of collecting and structuring data for their further use in creating planograms or analyzing and optimizing existing ones;
- various difficulties when working directly with planograms: from the speed of their creation and automation to control of their effective implementation; and thus, with making the necessary decisions, both operational and strategic;
- inconsistency of the recommended planogram with the actual layout due to the retailer's failure to fulfill the supplier's requirements and the lack of modern communication and control mechanisms.
A carefully planned display and assortment, based on analytics and communication with the retailer, can ensure an increase in the category's share of sales without additional costs.
We also have recommendations from our own experience on how best to handle the above issues.
1. Start with standards.
Create rules and standards for everything related to the display and product presentation for the end customer:
- rules for displaying goods in retail outlets, priority tools for presenting goods, minimal stock;
- standards for the placement of POS marketing materials;
- rules for conducting promotional activities in retail outlets;
- standards for collecting, storing and exchanging information;
- rules for working with retail outlet employees and their behavior, as well as tools for motivating them.
The result of your work should be an approved Merchandising Standard, also called a Merchandising Book. It has three key components: the mandatory assortment (number of SKUs), the mandatory number of facings, and the order of displaying different SKUs on the shelves for different types of stores.
The merchandising book should not conflict with other company standards, take into account the company's previous experience and traditions in retail sales, and be aimed at improving it.
The standard unifies the work with displays in retail outlets of different sizes, establishes traditions and spheres of responsibility, facilitates communication, and trains new staff. As a result, it reduces the influence of the human factor on business processes, cuts costs and, forgive me for being sentimental, reduces the stress of the business owner.
Having standards makes it easier and faster to use software solutions in your work, such as LEAFIO Shelf Efficiency, a smart shelf space management system.
2. Cooperate with retailers
If your sales channel is not just your online or branded stores, but also includes third-party retailers, be sure to cooperate with them, as they are your direct link to the end consumer. Analysts from RSR (Retail Systems Research, an American company that specializes in researching the impact of technology on the retail industry) note in their reports that retailers and suppliers can achieve maximum sales, turnover and profit only if they consult with each other, make compromises, and find mutually acceptable solutions to merchandising issues.
From our point of view, the ideal model of cooperation between a retailer and a manufacturer looks like this:
- both you and the retailer's employees use a single or compatible software solution. In this case, sales representatives can also control the display;
- he retailer provides the manufacturer with access to a planogram (realogram) of its products in its stores with periodic reporting (for example, photo reports according to an agreed schedule);
- the manufacturer also gets access to the analytics of sales and stocks of its products in the retailer's outlets and other necessary/useful data as agreed.
This kind of cooperation is mutually beneficial and will help:
- Establish the operational analysis of sales and stocks required by both parties. You, as a manufacturer, will be able to quickly respond to the lack of goods and plan production. The retailer, in turn, will not have a shortage of popular items and will make optimal use of warehouse space. According to our analytics, without the use of digital solutions, supply chain gaps can last up to a month.
- Optimize the costs of sales representatives, and possibly redistribute them to the retailer's benefit. After all, photo reports can be sent strictly on schedule and much more often than a sales representative can do. Digitizing this with a simple process will help you to become less reliant on an army of sales agents, improve control and minimize the human factor.
- Plan and execute promotions at points of sale more efficiently through prompt communication. For example, the supplier can draw the way the display should be arranged and provide recommendations or suggestions to the sales floor employee in real time.
“It sounds like a fantasy!" you may say.
No, with LEAFIO Shelf Efficiency, all of the above is possible, and more.
Our solution will allow you to manage the levels of access to certain data for certain personnel, hide the surrounding display of other manufacturers, quickly create and provide the retailer with a ready-made planogram, or modify an existing one.
At the beginning, we emphasized that if the retailer does not allocate enough space for your products on store shelves, the customer may simply pass them by and not buy them. Therefore, you have to work as a team. And the standardization of processes and information flows mentioned above will help to establish such cooperation faster, make it much easier and more efficient, and you will be able to monitor the implementation of plans and agreements.
Recent McKinsey research based on the Commercial Excellence Benchmarking survey of businesses shows that manufacturers who have deepened and expanded their collaboration with retail partners to form a "powerful analytics-driven partnership" are winning in their product categories.
For instance, pay attention to the elasticity of the layout – the dependence of sales volume on the number of facings on the shelf – and make appropriate adjustments to the planograms. It is known that a product becomes noticeable to the buyer and, accordingly, starts selling only if there is a minimum display (number of faces). Further, up to a certain limit of this number, the rule "the more displays, the more sales" applies. After a certain rubicon, increasing the number of displays not only does not increase sales, but can also reduce their effectiveness.
Also, work together on promotions at points of sale. Many tools for improving the promotion efficiency for the manufacturer are effective and useful for retailers. For example, reducing the depth of a promotion for less price-sensitive products or choosing better shelf placement can improve profitability and margins for both parties.
3. Build an efficient workflow with planograms
A) Automate the process of planogram creation using modern software solutions such as LEAFIO Shelf Efficiency. We advise you to create recommendation planograms for your products for retailers and negotiate about their use. According to our customers, using our software speeds up the work of creating planograms by 80%.
In LEAFIO Shelf Efficiency, the data for creating a planogram (sales, turnover, other indicators) can be entered both manually and in semi-automatic mode using data from your selected point of sale or the average value across the chain, as well as in fully automatic mode using algorithms, rules generated by artificial intelligence based on existing data and forecasts. When creating planograms, the system can also take into account stocks for a certain number of days / lead time, size or lack of warehouse at the store. There is also the possibility of creating and using non-standard commercial equipment.
B) Create format planograms. They can be used in several stores at the same time. This unifies and speeds up the work with the layout. Changes in such planograms will be implemented at once at all similar points of sale.
The use of format planograms will free up time and resources for experiments, which, by the way, you can conduct together with the retailer.
C) Experiment using analytics. Try to apply different techniques and concepts of product display on the shelves. For example, the wedge concept. In it, the layout has the shape of a pyramid. At its top level and in the center are the products that generate the main profit, to the left of the leader are cheaper products, and to the right are more expensive ones. Then, the correspondence between each level of the pyramid in terms of profitability and layout options is determined. In addition, format planograms are easier to control and analyze.
D) Control the implementation of planograms with modern tools. As we have already mentioned, retailers and/or sales representatives are not always able to comply with the agreements or fulfill the requirements of the recommended planograms, and the trivial influence of the human factor cannot be overlooked. Modern software solutions have their own mobile applications, which are tools for instant communication between managers in the office and staff on the sales floor.
The mobile application, which is part of the LEAFIO Shelf Efficiency solution, allows you to control the display in real time: a merchandiser or sales representative can send you real-time reports from their device.
E) Analyze planograms. With the help of modern technologies, this can be done in conjunction with other participants in the distribution chain – wholesale suppliers and retailers up to the level of a specific outlet.
If everyone works together, everyone wins. And our LEAFIO Shelf Efficiency solution can help you achieve this.