Right Price, Right Promotion, Wrong Product!


By Doug Erickson, executive vice president of global sales and marketing, Galleria Retail Technology Solutions

Retailers are investing millions on strategic marketing initiatives, particularly in the areas of advertising, price, promotion and supply chain optimization. However, these strategies are falling short at the final hurdle - the shelf.

Manual assortment planning systems are preventing retailers from planning at the level of granularity required to achieve the benefits of these strategic initiatives. Additionally, due to lower levels of merchandise strategy adoption, retail operation costs within the store are growing as store set teams are forced to make decisions without visibility of the necessary supporting information. To realize the full ROI of strategic initiatives, retailers need to get serious about store-level execution. If executed properly, the following strategies can help retailers improve in-store execution providing tremendous financial and operational gains.

1. Supply Chain Optimization
When optimizing existing supply chain solutions and processes, retailers often use a combination of sources including accurate historic EPOS data, forecasted future performance, case pack quantities and frequency of delivery patterns. These methods help retailers identify the required amount of inventory to satisfy demand in each store.

In theory, ensuring products are delivered 'just in time,' in the optimal quantity, retailers can improve availability, prevent lost sales, increase consumer loyalty and decrease in-store retail operations costs. However, in practice, planning at a generic level dooms these strategies to failure. When using a generic planogram, implementation teams are advised to allocate facings based on an average performance, instead of store specific demand. This causes the number of merchandised facings (i.e. units) on the planogram to differ from the actual inventory required, which can lead to overstocks being held in the backroom and out-of-stocks on the shelves. In addition, generic planograms often lead to an over allocation of space to slow moving items; tying up valuable working capital and causing markdowns.

Retailers must ensure that optimal forecasted stock numbers for each store are used in the space planning process. This strategy guarantees the planogram accurately reflects each store's unique demand and space available.  This requires the planograms to be created on a far more granular level, potentially down to a store-specific level. Only by automating the planogram process can a retailer achieve such levels of optimization.

2. Consider Assortment with Price
While pricing strategies alone can determine the optimal price for key product lines, retailers should consider combining price optimization with assortment and space planning to account for product mix and substitution potential. By combining pricing with merchandising strategies, retailers can better model a category and determine where they may be underperforming and how pricing has influenced sales in any given category. In this case too, the planogram will reflect both price and assortment to ensure proper execution. 

3. Approach Promotions Carefully
Promotions are an added challenge for retailers since they are difficult to manage but have the potential to be highly effective. When implemented well, promotions have a dramatic impact on sales, while poorly executed campaigns can be detrimental. Demand forecasting methods help retailers ensure optimal promotion performance with high product availability and low shrink rate. For example, using demand forecasting with a combination of historic and demographic data can help a retailer guarantee availability and the correct amount of both promoted and non-promoted products.

4. More than Just Markdown
Retailers often use markdowns as a short-term fix to a more serious, lasting problem. Looking further up the supply chain during the store planning process will help ensure the correct products are included in the available assortment from the outset. Such a forward-looking strategy will help retailers achieve accurate inventory control as well as reduce or even eliminate markdowns altogether.

5. Attract and Retain Customers
Advertising is one of the most popular and obvious ways for retailers to entice customers into the store. As customers ourselves, we are all too familiar with this scenario: We receive a paper or electronic flier notifying us of a promotion on our favorite ice cream. However, when we arrive at the store, we find that the product is sold out. For retailers, this out-of-stock situation can be quite damaging to the store's sales and reputation. Luckily, it is preventable.

Tailoring assortments is a key way for retailers to support advertising strategies. By planning the correct assortment in the right place at the right time, retailers can rest assured that the product is on the shelf when customers respond to the promotion. Failure to ensure the product is in stock can lead to customer dissatisfaction and ultimately customer loss.

The five strategies discussed are a few of the many that retailers can implement to overcome compliance obstacles to execute at a store-specific level. With the high demand for store resources to create store-specific strategies, retailers are finding it easier to cut corners and settle for less than optimal efficiency. However, automating assortment and space planning at store level is the crucial first step toward improving the customer experience and alleviating the demand on resources.

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