Merchandising: The 8 P’s to Profitability (Part 1)

Merchandising: The 8 P’s to Profitability

According to American Marketing Association, merchandising encompasses "planning involved in marketing the right merchandise or service at the right place, at the right time, in the right quantities, and at the right price."

Merchandising, while it encompasses the best placement for your product in order to garner the most sales, goes way beyond just this and begins long before you ever put the product on a shelf.  The quote above begins with the words ‘planning involved in marketing the right merchandise’ and we are going to dive deep into all areas that play a role in merchandising today.

In today’s ever-evolving world of commerce, we have to look at every area within our business to improve profitability. To get the most from our efforts and optimize our profitability, let’s look at the following 8 steps are believed to be crucial to this process.

The 8 P’s to Profitability.

  • People
  • Product
  • Placement
  • Price
  • Promotion
  • Presentation
  • Passion
  • Pride

People – Everything any business does revolve around people.  In the context of merchandising, hiring the right staff to represent our brand is crucial.  Employees are the face of our business and can make or break us.  The hire slow, fire fast method is optimal – take your time to find the right person and remember if you hire for a cultural fit, you can always train for skillset, that isn’t true the other way around.  Additionally, if you hire someone and realize they are not a fit, you must let them go quickly so as not to disrupt the culture you have already built or strive to achieve.

Once hired, training and engaging with the new hire is imperative.  Giving an employee clarity around what is expected of them and training them properly will give them the confidence they need to properly engage with our customers.  You’ve heard the saying; happy employees make for happy customers. 

Staffing correctly will also increase your profitability.  Utilizing daily/weekly sales flow to determine peak times will allow you to schedule staff accordingly.

Product – Right product…there is so much that goes into these 2 little words when it comes to merchandising.  Let’s start with buying; most business owners believe that profits are made during the sale of an item, while it’s true, this is when revenue is actually generated, profit can begin with the purchase of an item.  Buying items correctly and at the lowest possible price are imperative to a business’s profitability.  Don’t disregard payment terms either as they will also yield higher margins overall.

Whether a business focuses on a particular niche or is more of a general store, knowing the customers’ needs will drive the assortment.  Looking at this will drive both the macro and micro of a product mix.  For example, let’s say your niche product is bicycles – you have hundreds in stock all properly displayed.  This would be the macro of your business, however, you can take advantage by supplementing your assortment by stocking items such as; clip-on water bottles, replacement tubes, and patch kits, pumps and tools, as well as many other add-on items.

To capitalize on micro-seasons one might also look to carry seasonal items such as cooling bandanas in the summer; even go as far as having ones in a flag pattern to capture the Memorial Day – Flag Day – Independence Day seasons. 

The point being, there are many ways to improve sales and margin by following what big box stores do around seasonality, aka micro-seasons. 

All of this will lead to a bigger ‘basket’.  The fight for share of wallet spend is real and by supplementing your assortment with seasonal items such as these will improve your chance of gaining more dollars during the sale as well as placing you higher in the mind of the customer as the place to fulfill their needs.

Placement – Now we’re getting to what you normally think of when we say Merchandising.  In the previous section, we covered right product and somewhat, right time. Now let’s get to the right place. 

Product placement is crucial in increasing profitability.  When designing the product placement within a store, one should think about how to create a customer journey.

In today’s world of interruption marketing and the low attention span of consumers, the front of the store or window space needs to grab the consumers’ attention, scratch their record if you will.

Remember back in the days of vinyl records when there would be a scratch on the record and the turntable’s needle would it hit it.  That sound of a record skipping would have us up and moving towards the turntable as quickly as possible to fix it.  It would jolt us into action.  This is what the entrance to a storefront should do to a passing consumer.  Grab their attention and move them to action.

Let’s look at the key placement areas within a store.

  1. Storefront or window display area
  2. Shelving within the aisles
  3. Flex areas
  4. Endcaps
  5. Clearance

The front of the store should have items that a customer desire or wants, but may not need.  Items they need will be placed at the rear of the store, causing them to walk all the way through gazing at items they long to obtain.  Think of a grocery store, milk and eggs are always in the rear of the store, but you have to walk thru the mouthwatering section of baked goods and the smells of fresh bread and rotisserie chicken wafting throughout to get to what you actually came in for. It’s hard to resist a loaf of freshly baked bread no matter who you are.

This is how we want to position items within your store.  Emotional, high ticket, luxury items up front, essentials in the rear.  Positioning items in this way will increase sales significantly.  Humans buy on emotion and then justify with facts, so having emotional purchases up front will have the consumer loading their basket from the start.

For main aisle/shelving, merchandising like items together is the standard; also consider placing your best sellers within that section at eye level – fringe items should be placed lower or higher on the self.  This methodology was perfected by Sam Walton.  I think it’s safe to say that it has been successful.

Flex areas can be utilized for seasonal items or special/bulk buys that you may have purchased.  This section could include stack outs, stack ‘em high and let them fly is a term commonly used in retail.  There is something that triggers in our brain when we see a huge stack of items with a greatly perceived value.  This can also be achieved using dump bins full of smaller items, priced the same or at least similarly.  The key to a dump bin is to not let it get below ½ full; it will lose its effectiveness if this happens.  Once the bin gets below half full and you have no additional items to fill it with, these should be moved to your clearance section of the store.

End cap utilization is crucial.  This is typically the most profitable place in the store and should be utilized for high margin, high volume items.  Do not waste this space on slow moving items.

Instead, clearance areas should be utilized to showcase slow moving, lower margin items.  These areas are usually found off of the beaten path, if you will.  Perhaps a corner of the store that is not in the main foot traffic areas.  Proper signage to help the frugal shopper find this area is key and will be discussed in a later section.

We’ve covered the first 3 P’s to profitability and proper merchandising.  In the next article, we’ll cover the remaining P’s.  As you begin to implement all 8 of the P’s to profitability, you will see your overall sales as well as profits increase.

Previous article Merchandising: The 8 P’s to Profitability (Part 2)

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