Winning, keeping, and maximizing retail shelf space is key to your success as a CPG brand. Similarly, retailers (like Whole Foods) are focusing on ways to maximize profitability and reduce operating costs at their locations — enter retail optimization, a way of refining the operations of retail stores. Understanding what it is and how it’s done can give you a competitive edge on the shelf.
Retail optimization is the process of using data to make changes to retail stores to improve the shopper experience, increase efficiency of operations, and grow profits. Retailers have many sources of data available to them. For example, they can observe traffic patterns picked up by security cameras or gather analytics from their POS systems, the software used to process retail transactions.
By compiling and analyzing all of the information available to them, retailers can develop informed strategies to turn more browsers into buyers and encourage customers to spend more at the checkout counter.
Bricks-and-mortars take different approaches to retail optimization, but the process usually involves studying demand, engagement, operations, and conversion. Let's take a look at each.
Optimizating a retail space begins with getting customers in the door (i.e. increasing demand). Retailers conduct market research to get to know their ideal customers, paying attention to traffic in the surrounding area, and tracking how many people step through their doors. From there, they assess how many of the available shoppers in the area they attract and incorporate this data into their marketing plan.
For example, say a store determines that 1000 people frequent a particular shopping center per day. On average, they have 200 people come into the store during opening hours. That means only 20% of the people who visit the plaza enter. The store might then come up with ways to draw in customers, such as flashier signs or giving out free samples outside of the door.
Retailers examine how long customers remain in the store and what paths they travel while they shop. They then seek to strategically position top sellers and profitable items in the most frequently traveled areas. In addition, retailers closely monitor how long customers wait for service at checkout lines to improve customer satisfaction and foster customer loyalty.
Controlling costs is as important to retailers' success as driving sales. Streamlining operations improves efficiency and cuts down on wasted time maximizing the return on investments in labor. Retailers carefully monitor staffing levels to ensure that they have enough team members onsite to serve customers, stock shelves, handle shipments, and keep the store clean and presentable.
Improving conversion means getting shoppers to buy more. Retailers seek to increase the size of the average order through sales and promotions, assigning premium shelf space to top-performing CPG brands, and creating plenty of end caps and checkout line displays.
To understand how retail optimization affects your business, let's imagine that you're back in school. The end of the year approaches, and a final exam looms in the near future. You have a lot riding on the score, and you intend to study hard. But with a whole year's worth of facts and figures to review, how do you know where to begin?
You try to put yourself in your teacher's shoes and make an educated guess about what they might include. Unfortunately, you put your efforts into reviewing the wrong things. On test day, only a few questions relate to what you studied, and you end up with a poor grade. Your disappointing performance wasn't because you didn't care about the test. You just lacked the right strategy.
Now, let's say your teacher gave you a test plan that told you how many questions there would be, what chapters in your textbook were most important, and how many questions would relate to each chapter.
With the test plan, you don't have all the answers, but you do know what the teacher intends to test you on. Once test day arrives, you're in a much better position to earn an A+.
Retail optimization is your test plan. When you understand what retailers prioritize when optimizing their stores, you can create an informed retail strategy. By analyzing the same metrics that retailers do, you can gain insight into your strengths and weaknesses, so you can do more of what's working and develop solutions to fix what's not.
Tracking the right data can help you determine which products to bring to the front of the shelf and make wise decisions regarding trade promotion spending. Over time, analyzing metrics may help you maintain existing shelf space, expand your footprint, and allow you to make the most of your trade promotions budget.
So what are the right metrics to track? Conversion is the area of retail optimization that impacts CPG brands the most. Let's take a look at some of the key metrics that retailers look at when optimizing for conversion.
Through optimization, retailers prioritize brands that drive sales. Know the total number of products you sold in units, so you can assess your performance.
To optimize, retailers look to devote more shelf space to brands that put their top sellers front and center. The ratio of product types sold to your product mix helps you identify what sells and what doesn’t so you can showcase what sells and create strategies to promote what doesn’t.
The average sale value tells retailers how much customers tend to spend in one transaction. Retailers use this data for both their marketing strategies and to assess the effectiveness of their optimization efforts. By tracking this metric, you can assess your own pricing structure to better fit your customers' budgets.
Retailers committed to optimization will use this metric to identify which products are selling at a clip and which ones linger on the shelves too long. Monitoring your inventory levels in real-time helps you meet customer demand and identify slow sellers to boost through trade promotions.
Retailers use information about the locations, income levels, ages, and genders of customers to guide their marketing efforts. When you know who shops where you can deploy more targeted trade promotions.
As a part of retail optimization, retailers pull information from a variety of sources. With Vividly, you can, too. Our trade promotion management software gathers point-of-sale data from multiple places, including retail platforms and data syndicators. Compile the data for easy analysis, and create a retail strategy with an eye to both promotion management and retail optimization.
Learn more about the difference Vividly can make, and maximize your success on the shelf.
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