5 Steps To Creating A Vegetarian "Destination" Category By Michael Langenborg |
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There are 5 steps you can take to create a profitable consumer "Destination" category that defines your store as "the store of choice" for consumers. It means the consumer views your store as the best solution to fit a critical purchase requirement. 1. Positioning Strategies - To Know Your Categories Is To Know Your Customers. Shopability..It's Why Customers Come To Your Store. 2. Assortment Strategies - Categories Reflect Their Importance To Your Shoppers. Eliminate Duplication And You Will Improve Turns. 3. Shelf Management Strategies - How Do You Tell If Your Set Is Too Big Or Small? To Consumers, Less Is More 4. Pricing Strategies - What's the best price? It's whatever the customer is willingto pay. It's Not Inventory Turns, It's Dollar Turns That Matter Most 5. Promotion Strategies - Knowing How To Promote Is As Important As What to Promote Setting The All-Important Subcategory Strategies.Promote Subcategories Appropriate To Their Sales Peaks. The following tactical guidelines should be followed to increase sales, boost overall margins and grow GMROI within the category of interest.
Planning individual categories is the cornerstone of category management. It's also important to understand that the "destination" categories selected will affect what the store stands for and establish its unique point of differentiation versus other retailers in the minds of your shoppers. For example, by recognizing that your customers are shopping at your store because of your superior selection, assortment and understanding of medicinal teas makes the tea section a "destination category" because the consumer is either unwilling or unable to purchase that specific item at any other retail outlet. The result is that any inconvenience, higher price, or extra time and effort spent buying from your store are far less important than just being able to find the medicinal tea they're looking for that you have in stock. Using the "Consumer Category Roles" table you can begin to map out a matrix of categories that would best suit your individual customer base. Remember, only a few categories can be true destination role providers. Choose carefully. Headline: Shopability..It's Why Customers Come To Your Store. illustration: happy smiling face woman When your store is set-up to respond to consumer preferences, the store runs more smoothly — allowing you to manage proactively, not reactively. The net effect is increased customer loyalty to your store, because:
The average retail store may be subdivided into about 200 categories. A natural food store may have as few as 30. But whatever the number, to be successful with category management the categories must be defined by the Consumer Purchase Criteria (CPC). The CPC is a hierarchical representation of important product characteristics for consumers. Pricing, merchandising, shelf layout and promotional calendars are significantly influenced by the order in which consumers rank those characteristics. More importantly, if the store delivers on the top priorities it can nurture a loyal customer base. An example of the consumer decision process across the 5 major subcategories of tea appears in the chart. Eliminate Duplication And You Will Improve Turns. Illustration: Inventory Reduction & Improved Turn Data Source: SPINS Distributor Data, Total Year 1997 The Inventory Reduction & Improved Turn Data chart shows the favorable changes to turns when the number of items carried in each subcategory is reduced. Dramatic increases in sales per SKU and inventory movement per SKU take place. The effect on GMROI will be examined later. Knowing what your customers buy don't buy may be more critical than what they do buy. A step-by-step process of reducing item duplication can be done without reducing your store's image of variety. Eliminating SKU duplication not only reduces inventory, but can increase sales. By strategically analyzing your product mix and modifying it to reflect your fastest moving and most popular items, turns increase dramatically and the cost to maintain, finance and carry inventory decreases. 3. Shelf Management Strategies Box: Shelf Management Strategies
How Do You Tell If Your Set Is Too Big Or Small? Headline: To Consumers, Less Is More Illustration: SKU Reduction Pie Chart
Source: Willard Bishop Consulting, Ltd. In-store Intercepts & FMI An uncluttered shelf is your best salesperson because it silently and effortlessly provides your customers with the products they are looking for. When selected properly, duplicate items can be removed from the shelf without most customers ever noticing. In fact, an FMI study revealed that after duplicate and slow-moving items were removed, 80% of the shoppers saw no change and 16% perceived the variety as increasing. All customers found the category easier to shop and some shoppers thought even more items were available than before. To shoppers, less is more. To further ensure the right SKU's were selected to maintain, we suggest monitoring customer requests as a proven technique for tracking consumer satisfaction with your store's variety after any SKU reductions you initiate. A 180-day review cycle of SKU performance is highly recommended. Box: Pricing Strategies
What's the best price? The best price is whatever the customer is willing to pay. Illustration: Pricing Strategies for Tea Subcategories copy: When you think of pricing only in terms of price reductions, you may be missing an opportunity to earn a higher margin and still satisfy your customers basic product need. For example, in a destination category like Medicinal Blends a featured ad price for a tea may be $2.29 and the SRP could be $2.99. That 70-cent spread may not be as motivating to your customers as item availability, category variety or a consumer trial program, such as sampling. Use the Pricing Strategies chart to help guide your pricing decisions within the various subcategories. Subhead: It's Not Inventory Turns, It's Dollar Turns That Matter Most Illustration: GMROI chart Copy: Most retail operations focus on Gross Margin as a key barometer to product sales success. While this measure has merit there is a more powerful analytical tool that takes into account the amount of cash invested in inventory that is not turning regardless of gross margin. The statistic is known as Gross Margin Return On Investment or GMROI. Simply stated, GMROI shows the amount of Gross Profit dollars generated on an annual basis for each dollar of inventory purchased. The formula to calculate GMROI is provided below: Subhead: Not All Gross Margins Are Created Equal Copy: The GMROI formula reveals that the greatest effect you can have on improving profitability is by better managing inventory. While higher sales will have a positive impact on GMROI, proper inventory management will exponentially improve GMROI. It all circles back to meeting your customers expectations and needs. Remember one thing: It's not always about price. Box: Promotion Strategies
Subcategory strategies may be your most closely guarded competitive secret as they will ultimately determine your ability to compete. This is the area where creative retail marketers armed with knowledge can excel. For example, a retailer may have a category called medicinal tea. He or she may want to make the store "the place to shop for medicinal tea" in its trading territory. The category would, therefore, have a "Destination" role. Decisions about pricing, assortment, shelf layout and promotion would be made with this category role in mind. Setting The All-Important Subcategory Strategies. Within the category individual products would be assigned to achieve specific subcategory strategies, such as:
Illustration: Seasonality Chart copy: Develop a promotional strategy that takes into consideration the performance of the individual subcategories over time. The "Seasonality Chart" to the right shows that Black tea peaks at a much different time of year than Medicinal Blends. With the effective use of feature and display promotions that match individual subcategories seasonality, you can dramatically increase sales and encourage the purchase of additional items. Always consider seasonality when planning your promotional calendar.
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