IN-STORE AND ONLINE


RETAILING

ERIK MODIG
erik.modig@hhs.se
@ erik_modig
 Why is Retailing so important?

Most western countries: 1/3-1/2 of GDP

1 out of 10 adults work in retail

Turnover:
+ IBM
+ CISCO SYSTEMS
+ DELL COMPUTER
+ HEWLETT PACKARD
+ MICROSOFT

+ 20 BILLIONS

= WALMART
Total sales one BRAND
Total sales one STORE
 Consumer decision process

Evaluation Post-
Need Information
of Purchase Purchase
Recognition Search
Alternatives Evaluation
 Consumer decision making in stores

-  Many purchase decisions made in stores

-  Up to 65% of purchase decisions to some extent made in

stores

-  Typical in-store customer decision: few seconds, liKle

analysis of alternaLves

-  Retailer decision-making on all levels typically based on

experience rather than research

 Why do we shop?
Arnold & Reynolds, 2003

•  “Shoppers are moLvated by a variety of psychosocial needs

others than those related to acquiring a product”
 6 shopping moLvaLon categories
Arnold & Reynolds, 2003

•  Adventure shopping (shopping for sLmulaLon & adventure)

•  Social shopping (shopping with friends & family)
•  GraLficaLon shopping (shopping for stress relief & as a treat
to oneself)
•  Idea shopping (shopping to keep up with trends and new
fashion)
•  Role shopping (enjoyment of shopping for others)
•  Value shopping (shopping for sales & hunLng for bargains)
 EXAMPLE: CRUSHED TOMATOES

BRAND A BRAND B BRAND C

12
EXAMPLE: STORE 1

5:- 5:-

BRAND A BRAND B

13
 EXAMPLE: STORE 1

# SOLD ITEMS
1200

1000

800

600

400

200

0
BRAND A BRAND B

14
EXAMPLE: STORE 2

5:- 5:-

BRAND C BRAND B

15
EXAMPLE: STORE 2

16
 EXAMPLE: STORE 2

# SOLD ITEMS
2500

2000

1500

1000

500

0
BRAND C BRAND B

17
EXAMPLE: STORE 3

5:- 5:-

BRAND A BRAND C

18
EXAMPLE: STORE 3

19
 EXAMPLE: STORE 3

# SOLD ITEMS
3500

3000

2500

2000

1500

1000

500

0
BRAND A BRAND C

20
 Why Retailing Strategies?

•  80 % of shopper Lme is spent navigaLng the store instead of

considering items for purchase

•  Average shopping trip covers only 25% of the store

•  Typical supermarket stocks 30 000- 50 000 items – Typical

household buys 3-400/year

= Room for improvement!

Page 21
 Big Head – Long Tail

RANKING PER ITEM

12,000,000

10,000,000

8,000,000
SALES

6,000,000

4,000,000

2,000,000

0
1 4 50 600 3000 6000 9000 12000 15000 18000 21000 24000
RANKING

Page 22
 Understanding in-store retailing
Ailawadi & Keller, 2004

•  Access
•  Store atmosphere
•  Price and promoLon
•  Cross-category assortment
•  Within-category assortment
•  Brand assortment
–  Manufacturer brands
–  Private label
 Access
Ailawadi & Keller, 2004

•  LocaLon and ease to access basic criteria in store choice

•  Consumers opLmize total shopping cost
•  Store choice based on type of shopping
•  Convenience, drug, supermarkets less flexible in locaLon
than mass merchandisers and warehouse clubs
 Store atmosphere
Ailawadi & Keller, 2004

•  In-store environments influence consumers

–  Pleasantness, arousal and dominance
•  Elements in the environment
–  Layout, colors, lighLng, music, smell, employees, other
consumers
•  Impact on consumers
–  Psychological cost
–  Whether or not to visit
–  Time and money spent
–  PercepLons of price, quality and service
 Price and promoLon
Ailawadi & Keller, 2004

•  Price important factor to aKract consumers

•  Price percepLons not formed from actual price
•  Non-price related cues used to form price percepLons
–  Store environment, Service offerings, Quality levels,
Colors, LocaLons etc.
•  Price promoLons, low effect on store switching
–  Purchase decision (buy or not)
–  Purchase Lming
 Cross-category assortment
Ailawadi & Keller, 2004

•  Amount of different product categories offered

•  Important compeLLve advantage:
–  Retailer more recalled and considered
–  Helps Lme-constrained consumers
–  Purchases from not planned categories
•  NegaLve aspects:
–  Higher costs
–  Low fit between categories, negaLve store image
–  InformaLon overload
 Within-category assortment
Ailawadi & Keller, 2004

•  Amount of different products offered within categories

•  CompeLLve advantage:
–  Variety seeking consumers perceive greater uLlity
–  Uncertain consumers have more flexibility
•  NegaLve aspects:
–  Higher costs
–  InformaLon overload
•  Possible to reduce number of products without affecLng
percepLons of assortment size
 Brand assortment
Ailawadi & Keller, 2004

•  Brands offered influence consumer percepLons of retailer

image
•  Manufacturer brands
•  Private labels
•  Benefits with private label:
–  Higher margin
–  Control the value chain
–  Unique assortment
 Retailing strategies

1.  Layout strategies and space opLmizaLon

2.  Assortment

3.  Display and Space management

4.  Price percepLons

5.  Omnichannel strategies

Page 30
 Retailing strategies

1.  Layout strategies and space op3miza3on

2.  Assortment

3.  Display and Space management

4.  Price percepLons

5.  Omnichannel strategies

Page 31
 Layout strategies

Store design is a trade-off between:

–  Ease of finding merchandise
–  Providing interesLng shopping experience

Store layout influences consumer behavior and increase
likelihood of:
–  VisiLng enLre store
–  AKenLon focused on important merchandise

Grid layout

PosiLve:
•  Easy to move and
locate products
•  Minimize Lme spent
on shopping
•  Cost efficient
•  Well-defined traffic
paKern

NegaLve:
•  Shoppers not
exposed to all
merchandise
•  Not an exciLng design
Free-form layout

PosiLve:
•  Easy to move in
any direcLon
•  Inspiring and
relaxing
environment
NegaLve:
•  Shoppers not
exposed to all
merchandise
•  Space for product
placements
sacrificed
Racetrack layout

PosiLve:
•  Massive
exposure to the
assortment
NegaLve:
•  Consumers gets
exhausted
 Store Space OpLmizaLon

•  Space within stores is a limited resource

•  Important to opLmize the layout, a balance between:
–  Giving customers enough space
–  Efficiently using the limited space displaying merchandise

Based on the behavior among shoppers!
 Consumer behavior

1.  Entrance
–  High speed
entering the store
–  A stopping
3. distance
2.  The strike zone
–  Creates first
impression
3.  Shopping arena
–  Follows main path
–  Makes short visits
in between aisles
4.  The end
2. –  Move faster
4. –  Want to end the
shopping trip
1.
 In-Store Product placement

2. 1.  Impulse merchandise

–  Bought without prior
plans
1. –  Placed in heavily
trafficked areas
2.  Demand merchandise
–  Purchase oqen
2. planned
–  Placed in between
aisles and in the back
of the store
–  Pulls shoppers to the
area
3.  Special merchandise:
–  Purchase oqen
1. planned
3.
–  Long buying process
1.
–  Placed in low-traffic
areas to minimize
distracLons
 Retailing strategies

1.  Layout strategies and space op3miza3on

2.  Assortment

3.  Display and Space management

4.  Price percepLons

5.  Omnichannel strategies

Page 39
 Retailing strategies

1.  Layout strategies and space opLmizaLon

2.  Assortment

3.  Display and Space management

4.  Price percepLons

5.  Omnichannel strategies

Page 46
 Assortment percepLons

Number of
Articles (SKU)

Favourite Assortment
Store choice
available perceptions

Category (Broniarzyk, Hoyer & McAlister1998)

space
 Experiment
Perceived assortment variaLon

•  A test panel visited two test stores

•  Test store 1: Normal assortment range
•  Test store 2: Number of items reduced by
–  25 %
–  50 %
–  75 %
•  They kept the same shelf space and the test panel’s favorite
brands in both stores
 Results
Perceived assortment variaLon

•  Assortment reduced 50 %:
–  Test panel did not noLce any reducLon
•  Assortment reduced 25 %:
–  Test panel in fact experienced a small expansion
What products are affected by more space
– space elasLcity
 Live tesLng

•  Removed 50% of low performing SKUs in five categories

(sweets, beer, soda, salty snacks and cigareKes).

•  Did not affect percepLons of assortment variaLon. People

considered it easier to shop in stores with reduced
assortment.

•  Sales increased by 2% and 8%

 What SKUs should be delisted?

•  Boatwright and Nunes (2001) argued that reducLons should

be done not based on brand alone but also on size and
flavor.
•  As a result they removed worst performing SKUs (not worst
performing brands). For example, 12-packs of sprite were
removed but other sprite products and other 12-packs
remained.
 What SKUs should be delisted?

•  42 best-selling categories included

•  Nr. of SKUs reduced from 4181 to 1852

•  Sales up 11%, over 10% in more than half the categories

•  This method avoids potenLal sales decline of removing an

enLre brand by removing only brand-size combinaLons
 Retailing strategies

1.  Layout strategies and space opLmizaLon

2.  Assortment

3.  Display and Space management

4.  Price percepLons

5.  Omnichannel strategies

Page 55
 Facings

Facings = Number of items visible

More efficient than
price reducLon

Average sales increase with 20%
 How do we opLmize the assortment
within a given space?

•  Customers DO appreciate perceived variety!

•  Can we make it look bigger than it is?

•  Do you think customers devote much or liKle cogniLve effort

to analyzing the assortment?

•  Customers use a number of signals to interpret the

assortment in order to avoid cogniLve overload.
 How do we opLmize the assortment
within a given space?

•  HolisLc processing
–  colorplay
–  visual order etc.
•  AnalyLcal processing
–  focuses on a limited area.

The target object appears different and different cues are used.
Differences and similariLes between
variaLons of the assortment

Different planograms
 HolosLc processing

Customers analyse assortment by:

1)  Color
2)  Shape
3)  Text

How many items?
 OrganizaLon and symmetry
Kahn and Wansink, 2004

30

25

20

15 6 colors
24 colors
10

0
Organized Disorganized
 OrganizaLon and symmetry
Kahn and Wansink, 2004

120

100

80

60 7 colors
10 colors
40

20

0
Asymmetric Symmetric
OrganizaLon and symmetry
 OrganizaLon and symmetry

AKenLon: +28%
Purchase: + 22%
 Conclusions

•  Actual variaLon is important!

•  However, organizaLon leads to ”local” comparisons

•  Customers who want to make purchases perceived greater

variaLon in the organized planograms

•  OrganizaLon of the shelf thus deceives the eye so that large

porLons of the assortment avoids analysis.
 LocaLon in displays

•  LocaLon in display more important than number of facings

•  Affects sales up to three Lmes more
 Moving from worst to best posiLon

VerLcal posiLon more important than horizontal posiLon

 Special displays

End-of-aisle display Point-of-purchase display/

Free-standing display
 Special displays

•  Island/pallet display Shelf ads

 Display and Space management

Consumer exposure to in-store visual media

End aisle display

Free-standing product display racks

Floor ads

Pallet of featured product

Shelf ads

Share exposed (%)

Coupon dispensers

Refrigerator door ads

In-store flyers

Video displays

Shopping cart ads

0 10 20 30 40 50 60 70 80 90 100
74
 Sales Effects from Special Displays

Sales Increase (%)

Detergents

Salad oil

Mayonnaise

Softener

Whitener

Paper tissue

Dog food

Freeze/cooling bags

0 200 400 600 800 1000 1200 1400

75
 Special display vs. price reducLon




•  Special displays more effecLve than price reducLons


SALES INCREASE (%)
400

350
300

250
200
%

150

100
50
0
Soap Pie shells

Special display Price reduction

Item becomes more visible = Moved into consideraLon set

 Chevalier’s study – Special displays

Category Brand Sales increase Brand Sales increase

Bleach Clorox 268% Store brand 393%

Facial Lssues Scotes 352% Store brand 291%
Soqener Dowdy 709% NuSoq 451%
Food oil Crisco 626% Wesson 1179%
PlasLc bags Baggies 575% Glad 792%
Mayonnaise Hellmans 240% Cain’s 257%
Detergent Ivory 1022% Joy 1372%
Dog food Top choice 343% Special cuts 282%
 Chevalier’s study - Findings

•  Display elasLcity differs more between categories than

between products within a category

•  Display elasLcity greater for products on mature markets

•  Display elasLcity stronger on mature markets if market

shares are roughly even
n
According to H1b using an attention-capturing component,
n G r a b bscreen,
such as a digital ing aK e n L o nthe
increases w iratio
t h a of
d dpassers-by
i L o n a l who
d d e v i sfrom
make a purchase e s a special display. From Table 1 it is clear
e that also the ratio of passers-by who make a purchase increases
n
l
a Table 1
e Number and ratios of customers looking at, stopping by, and picking a product
e from a special display when the very same display is combined with a digital sign
or not (H1a and H1b).
s
s TV off TV on P

N % N %

Customers 2 660 100 2 606 100

Looks 678 25.49 883 33.88 0.000
Stops 304 11.43 355 13.62 0.016
d Buys 123 4.62 163 6.25 0.009
;
 What should be on display?

Complementary effects – Walters (1991)

Product on sale Increase in sales of complementary product (pasta
suace and cake fros3ng)
Spaghet 67%
Cake 50%

Product on sale Increase in sales of complementary product

(spagheE and cake)
Pasta sauce 33%
Cake frosLng 17%
 In store demonstraLons

Without With Increase

Products displayed 1,34 4,49 235%
Personnel 3,62 4,50 24%
Sign 2,38 4,54 91%
In-store TV 4,13 5,63 36%
”Traffic” ”Department”
LocaLon of 3,49 5,58 60%
demonstraLon

Baseline: Without demonstraLon an average of 0,5 pizzas per 100

customers were sold.
 Retailing strategies

1.  Layout strategies and space opLmizaLon

2.  Assortment

3.  Display and Space management

4.  Price percep3ons

5.  Omnichannel strategies

Page 82
 Price and quality percepLons

Store environment and atmosphere can affect customer

percepLons of:

•  Product price
•  Product quality
•  Service quality

Especially price percepLons are oqen formed from non-price
related cues
 Do consumers know the price?
Vanheule and Dréze, 2002

•  Depends on category (but rather low knowledge)

•  Price knowledge is poorer if there is a large spread of prices

in the category

•  Number of arLcles in category have a slight effect on price

knowledge

•  Frequent promoLons increased price knowledge

 Store A Store B Store C Store D Store E
Actual -14,6% -8,7% -6,1% -3.1% +6,8%
deviaLon
from market
average
Perceived -10,1% -2,6% +0,2% +6,6% +7,5%
deviaLon
from market
average
 The effects of various promoLonal tools

Soap Pastry case Apple juice Rice

No Increase No Increase No Increase No Increase

Regular price 36 100% 25,75 100% 28,17 100% 32,5 100%

Half Margin 36,08 100% 32,75 127% 44,42 158% 49,92 154%
Cost price 61,58 171% 43,67 170% 48,83 173% 59,08 182%
 The effects of various promoLonal tools

Soap Pastry case Apple juice Rice

No Increase No Increase No Increase No Increase

Regular price 36 100% 25,75 100% 28,17 100% 32,5 100%

Half Margin 36,08 100% 32,75 127% 44,42 158% 49,92 154%
Cost price 61,58 171% 43,67 170% 48,83 173% 59,08 182%

Soap Pastry case Apple juice Rice

No Increase No Increase No Increase No Increase

Normal Shelf 22,75 100% 19,75 100% 30,75 100% 33,17 100%
Double Facings 32,17 141% 25,5 129% 35,58 116% 41,42 125%

Special Display 78,75 346% 56,92 288% 55,08 179% 66,92 202%
EXAMPLE: STORE 1

5:- 5:-

BRAND A BRAND B

88
 EXAMPLE: STORE 1

# SOLD ITEMS
1200

1000

800

600

400

200

0
BRAND A BRAND B

89
 Price dependent on posiLon

•  Experiment with Shampoo

 Price dependent on posiLon

•  Experiment with Shampoo

29:90

29:40

26:90
 Raising the price?
Ailawadi et al. (2001)

•  24 categories, 118 brands

•  Cut down on special offers by 15,7%, coupons by 54,3%=>
net prices hiked by 20%

•  Results? Lost 18% in market share…

•  This was primarily due to the problem of recruiLng

customers (the penetraLon)

•  Net profit?
 Integrated retail markeLng

250

200

150 InteracLon
Display
100 Ad
10% discount
50

0
20% 78% 105% 203%
 Retailing strategies

1.  Layout strategies and space opLmizaLon

2.  Assortment

3.  Display and Space management

4.  Price percepLons

5.  Omnichannel strategies

Page 94