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Retail Merchandising: Set Up Your Store For Retail Success
Retail merchandising is necessary for brick and mortar retailers to be able to compete with online shopping sites. And yet, a lot of retailers would be hard-pressed to answer the question, what is retail merchandising? Retail merchandising covers everything from how you visually arrange your merchandise to the traffic patterns in your store, how you display items to promote add-on sales, to signage, and for apparel retailers – the power of the fitting room. It is all behind the scenes data collection that proves what is effective and what isn’t. This post serves as a tactical primer for retailers looking for visual merchandising strategies and ideas.
Retail merchandising, when done right, removes confusion of what to buy from shoppers, encourages a customer to shop in your store rather than in another, and most importantly, converts more shoppers into customers.
It’s a coordinated effort that keeps you from carrying a ton of SKUs, slapping them on a wall or table, and expecting them to sell. Too many choices make shoppers feel overwhelmed.
Why should merchandisng matter to you? The quicker you can cut down on a shopper’s choices, the quicker you can make them relax and consider purchasing your merchandise. The less time you devote to how you arrange your store and display your products, the more overwhelmed your shoppers will feel when trying to know what to look at. And an overwhelmed shopper never becomes a customer – they just leave.
You can attract as many new bodies to your shop as you want, but if they discover a hodgepodge of merchandise that takes too much to figure out, if the meet with too much frustration trying to find what they were looking for, or if they encounter only flat or uninteresting displays, your merchandise will sit. Merchandise that sits for too long is like spoiled milk; it starts to smell and loses all value until it is thrown out.
Your shoppers shouldn’t notice great merchandising, but it should focus their eyes on a display. The lighting should draw them toward a fixture; the signage should pique their curiosity, and together make them want to buy more.
In order to implement a strong retail merchandising plan, you have to have someone who understands the science of which colors are in fashion, what trends they can tie into, the cause and effect of fast-moving or dead products, as well as someone who has the creativity to create the excitement of serendipity when shopping in your brick and mortar store.
At its most basic a retail merchandising plan should include:
An overall plan of how traffic will move through your store.
A department plan that changes with the seasons and holidays.
A budget for store fixtures, props, lighting, and signage.
A merchandise planning system which will help maximize turn, limit out-of-stocks, increase margins, and minimize markdowns.
An open-to-buy system and predictive analytics to determine the variety of merchandise available to shoppers.
The time needed to merchandise a store will vary due to a variety of circumstances including the total number of SKUS, special requirements for individual displays, especially those needing security, as well as your ability to move your fixtures easily. Large stores have entire teams devoted to the four separate areas of retail merchandising while single-operator locations struggle to do something more than just get the merchandise out and priced.
The thing to remember is that there is no merchandise in your store that a customer can’t purchase online.
Therefore, when they do drive to your store, they expect to get something more than they can glean off a website. That’s where the art and science of retail merchandising gives brick and mortar retailers an advantage over their online competitors.
To begin merchandising your store, always start with the front doors, for this is the first chance your shoppers have to understand the alien planet that is your store.
Newcomers hate to have to ask where something is. Is your directional signage easy to understand and well-placed?
People like to shop in bright energetic spaces. Is there adequate lighting to achieve this?
With shoppers wanting to proceed counter-clockwise through a store, is the counter location causing friction between those browsing and those queuing up to pay?
There should be visual barriers between departments to make a large store seem more intimate. Are those backdrops or barriers interesting enough to draw shoppers to them?
Displays are your silent salespeople because they can show an entire system or series of add-ons to lift average ticket. Are the relationships in your displays obvious?
Well-placed, well-worded signs help intrigue, answer questions, and entice shoppers to look, touch or hold. Do yours?
Apparel stores best chance at converting lookers to buyers is with bright, air-conditioned and clean fitting rooms. Are yours up to the challenge?
You’re always working on three things with your plan: the current promotion or event, the one upcoming, and a review of the one just passed. That’s why it’s always best to set up a full year calendar as part of your retail merchandising plan noting holidays, seasons, local events, and promotions.
If you’re looking to really master retail merchandising, there are several degree programs where you can go to deepen your knowledge and skills.
Visual Merchandising: Curating Your Brand Experience
Visual merchandising is everything a shopper sees at your store that hopefully leads to a remarkable shopping experience. It is the unspoken language retailers use to communicate with their customers. In the advent of omnichannel retailing, it also connects to the online brand experience to provide a seamless, consistent look and feel between the web and the physical store.
how to visual merchandise your retail store
It’s easy to confuse the broader retail merchandising plan with visual merchandising. But visual merchandising is only that part of the retail merchandising plan which includes rearranging merchandise, shelving, and fixtures to maximize sales as well as maintaining the cleanliness and functionality of the store fixtures, signage, and lights.
So is visual merchandising the same as displays? No, visual merchandising is more of a high-level view that includes eye-catching visual displays but continues to to lead the customer through the entire store. Specific product displays focus on just one department or brand.
One thing many retailers miss is that visual merchandising is a team effort; you must train all store associates about visual display standards and maintenance. Otherwise, they’ll simply say It’s not my job or refuse to sell a shirt off a mannequin.
A visual merchandiser is responsible for creating an environment that sells, one that allows shoppers to relax and consider all your store has to offer by crafting areas of discovery. The best visual merchandisers creatively design displays, create planograms for window displays, create both display and directional signage, buy fixtures, and generally decide what goes where, why, and for how long.
In the end, they must be both business savvy and creative in constructing an environment that stimulates a consumer’s desire to buy what they came in for as well as the add-ons they didn’t know they needed…and all at full price.
Here are 7 tips and tricks for visual merchandising your brick and mortar store:
Great merchandising invites shoppers into a store, so avoid putting a display table perpendicular just inside your entrance.
Moving a product from its regular shelf location to a featured end cap has been proven to lead to an average sales increase of 25%, so regularly move your products around.
Digital displays can help tell a fuller, specific product story but can also detract customers from the products they are near, so make sure your digital displays are supporting but not the main show. If conversion doesn’t improve, change messaging or location.
Look through your whole store for distractions. Are there too many messages to try thisor do that or buy this or look here? Streamline a shopper’s experience so they linger, not bolt for the door.
Select fixtures with wheels so you have unlimited opportunities to change your entire store around quickly and efficiently.
Feature your best merchandise at the front of the store as shopper interest wanes the further they go into the middle of a store.
Put sale items in the back so thrifty consumers have to move through your store to get to them.
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Great Displays: Stop Your Customers In Their Tracks
A great display takes the customer from either not noticing or feeling stupid about a product. It gives them the bright idea about how it would look in their homes, how they could use it in their business, how they would feel wearing it, and especially how they could smartly combine several items. Displays help build sales because they stop the customer in their tracks and persuades them to select an item they hadn’t necessarily considered. Properly built merchandising displays give them hope that what they purchase will deliver more than just a price.
the power of great display merchandising in a retail storeSloppy or poorly coordinated displays rob your store of its ability to make additional profit. I saw an end cap at a grocery store that had Oreos, toilet paper, and bleach. You never want a shopper to scratch their head, trying to figure out why your items are displayed the way they are.
For that reason, you want to know the different types of displays to choose from:
Five Types of Displays
1. Complementary displays that say, This makes this better.
2. Coordinated displays that say, These are all the items you need for this to work.
3. Creatively constructed displays of one product. Think 6-packs of lemonade stacked as a school bus.
4. Product in use displays that show the product in its environment. Think mixer, spatulas, and cookie cutters on a countertop or lawn mower, edger and fertilizer on grass sod.
5. Surprise prop displays where you add a totally unrelated item to your product. Think a pink stuffed toy pig sitting on the chair next to the BBQ.Welcome customers like they’re coming to your home.
Is there a difference between what should you do when setting up your display windows, display cases, shelf or table displays? Not really, the key is to create a story using different items that all work together.
Here’s how to create effective and interesting retail displays:
1. Begin by asking yourself these four questions:
1. Is it high profit? Will it deliver more profit if you pull it off the shelf and feature it?
2. Is it a limited-time item that can only sell for a short period?
3. Is it a want, an item that a customer might covet in their heart of hearts but probably doesn’t have on their shopping list?
4. Is it something that can be bundled?
2. Put new arrivals first
3. Use a color story of contrasting colors
4. Vary heights and add at least one prop to add interest
5. Light your display like it’s show time
6. Add well-placed signs
7. Keep it simple. Don’t group more than five different products together.
While window displays in Manhattan, London and Chicago are legendary due to their scale and resources, anyone can do a display with very little expenditure of money as long as you follow the seven step approach outlined above.
With labor scheduling budget cuts, remember your displays are your silent salespeople. A well crafted display grabs a shopper’s interest and shows rather than tells.
You might be tempted to get your whole staff involved in visual merchandising and displays. Avoid this temptation unless you’re willing to teach them everything about your retail merchandising and display plans. Otherwise, they’ll get the idea to create a display when the store is slow, and the result won’t be as well thought-out as you’d like.
There can be exceptions of course, so if you find someone interested and creative, give them some training about how you are trying to focus the customer’s eyes, why you choose the colors you do, and the different heights you can use to achieve a longer linger time from the casual browser.
Three things you can teach your retail associates about displays:
When something is sold off a display, put another item on it. You never want naked mannequins or empty tables.
If items come from another department, write down where they came from so other employees know where to find them, so they won’t tell a shopper I don’t know.
Take a picture of each display so everyone in the department knows what it should look like and can keep it that way.
Store Signage: Direct, Inform and Inspire.
There are three types of signage in a retail store: directional, informative, and invitational. The first is used to identify what is found in various departments. The second is just like it sounds, signs that inform like customer service, returns, BOPIS, and even layaway or custom order signs. The third is used to entice a shopper to come closer, to point out benefits over features of a display of products, and even to make a shopper laugh.
great retail store signage example
When you are thinking about how to create store directional or informative signage for your brick and mortar store, begin by thinking like a new shopper to your store.
What would they be most interested in knowing?
What if they wanted to go to the bathroom?
What would they need to know to get to the department they are interested in?
Then write down the ten most common questions you receive in a day. I’ll bet many are either looking for directions or store information.
Next ask your staff what are the most common questions they receive every day that are not product-specific.
Now you can prioritize all those concerns and make signs that address the most important ones first.
Invitational signs are rare in many retailers’ stores because they take a bit more work than slapping a sale price on day-glo yellow posterboard, but they can deliver many more profitable sales. You find these outside on sidewalk A-frames, and in both window and product displays.
All three types of signs share the same design characteristics and here’s how to create them.
The nine best practices for creating signage:
1. Find a color palette and stick with it.
2. Use big enough font so no one has to squint to read it.
3. Keep the word count short.
4. Make sure the sign applies only to what it is in front of, on top of, or next to.
5. Limit your use of the word No. For example, instead of No Refunds after 14 days say Refunds available within 14 days.
6. Explain benefits over features. For example, instead of 39 Herbs and Minerals say Thickens Balding Hair.
7. Use humor. For example in a floral shop, ask How Mad Is She?
8. Use analogies. For example declare, Like A Shot of Espresso For Your Skin!
9. Test signage for clarity by using your desktop printer before committing to having them professionally printed.
The five best practices to avoid for your signage :
1. Don’t allow hand-drawn signs.
2. Don’t use the words Do Not.
3. Don’t be English-centric if you’re in an area that has a high population that speaks another language. Add translations.
4. Don’t use ten identical signs when one will do the job.
5. Don’t just have a sale price; show the original and the percentage discount.
12 Tips For Becoming The Top Retail Salesperson
From how to effectively approach a customer, to why you should never come out of the stockroom empty-handed. Discover the essential tips you need to know to become the top salesperson at your store.
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Fitting Rooms: Create A Welcoming Experience
I’m sure some of you will be surprised that fitting rooms are considered part of retail merchandising, but when it comes to clothing, the sale is only made once someone tries it on. The fitting room is a huge advantage for brick and mortar retailers. An Accenture study revealed 70% of online apparel is returned due to fit issues. However, when the apparel is tried on in-store, that drops to the single digits.retail store fitting room is part of retail merchandising
The proof of your retail merchandising comes together in the fitting room which moves your shopper from browser to customer. You are taking the vision you created in your store that stimulated their buying sense and fulfilling it in your 5’x8’ fitting room.
Just like a well-designed display, the fitting room experience has to continue the engagement from the salesfloor, so here are three tips to make that happen:
Keep the fitting room floors spotless – pin, hanger, and clothing free.
Provide lighting that helps the selling process by making the customer look good. Backlit mirrors are the best.
Install good quality mirrors inside the dressing room so the shopper looks realistic.
And always remember…
If a shopper has to wait long, they’ll walk away.
If the room has bad lighting, conversions will suffer.
If the room doesn’t have air conditioning, it will be either too hot or too cold – never good for half-naked people to feel uncomfortable.
If you abandon them, they’ll get frustrated and leave.
You’ll have to work with your Director of Operations and store managers to make sure all associates are properly trained to monitor and service the fitting room visitors to increase conversion rates.
Retail Merchandising: Pulling It All Together
Retail Merchandising refers to all the activities both seen and unseen which contribute to the sale of products in your store. It includes the visual merchandising which creates the environment to sell, the displays which stops shoppers in their tracks, the signage that directs, informs, or inspires them, and the fitting rooms where the final decisions are often made.
how to visually merchandise a brick and mortar store
Use these tips and tricks as well as best practices to merchandise your store like a pro. And if you’d like me to come speak to your group about how to make displays that convert along with signage that entices, visit my speaking page.
Marketing tips, ideas, tricks, advice
5.7 Developing Strategy Through External Analysis
5.7 Developing Strategy Through External Analysis
Understand the basics of general environment analysis.
See the components of microenvironment analysis that support industry analysis.
Learn the features of Porters Five Forces industry analysis.
In this section, you will learn about some of the basic external inputs for strategy formulationthe determinants of a firms opportunities and threats. We will focus on three aspects of external analysis here, though you recognize that these should be complemented by internal analysis as well. For the external environment, it is best to start with the general environment, and then work your way into the focal industry or industry segment.
The General Environment
When appraising the external environment of the organization you will typically start with its general environment. But what does this mean? The general environment is composed of dimensions in the broader society that influence an industry and the firms within it. (Fahey, 1999; Walters & Priem, 1999) We group these dimensions into six segments: political, economic, social, technical or technological, environmental, and legal. You can use the simple acronym, PESTEL, to help remind you of these six general environment segments. Examples of elements analyzed in each of these segments are shown next.
Firms cannot directly control the general environments segments and elements. Accordingly, successful companies gather the information required to understand each segment and its implications for the selection and implementation of the appropriate strategies. For example, the terrorist attacks in the United States on September 11, 2001, surprised businesses throughout the world. This single set of events had substantial effects on the U.S. economy. Although individual firms were affected differently, none could control the U.S. economy. Instead, companies around the globe were challenged to understand the effects of this economys decline on their current and future strategies. A similar set of events and relationships was seen around the world as financial markets began to struggle one after the other starting in late 2008.
Although the degree of impact varies, these environmental segments affect each industry and its firms. The challenge to the firm is to evaluate those elements in each segment that are of the greatest importance. Resulting from these efforts should be a recognition of environmental changes, trends, opportunities, and threats.
Analyzing the Organizations Microenvironment
When we say microenvironment we are referring primarily to an organizations industry, and the upstream and downstream markets related to it. An industry is a group of firms producing products that are close substitutes. In the course of competition, these firms influence one another. Typically, industries include a rich mix of competitive strategies that companies use in pursuing strategic competitiveness and above-average returns. In part, these strategies are chosen because of the influence of an industrys characteristics (Spanos & Lioukas, 2001). Upstream markets are the industries that provide the raw material or inputs for the focal industry, while downstream markets are the industries (sometimes consumer segments) that consume the industry outputs. For example, the oil production market is upstream of the oil-refining market (and, conversely, the oil refiners are downstream of the oil producers), which in turn is upstream of the gasoline sales market. Instead of upstream and downstream, the terms wholesale and retail are often used. Accordingly, the industry microenvironment consists of stakeholder groups that a firm has regular dealings with. The way these relationships develop can affect the costs, quality, and overall success of a business.
Porters Five-Forces Analysis of Market Structure
You can distill down the results of PESTEL and microenvironment analysis to view the competitive structure of an industry using Michael Porters five forces. Here you will find that your understanding of the microenvironment is particularly helpful. Porters model attempts to analyze the attractiveness of an industry by considering five forces within a market. According to Porter, the likelihood of firms making profits in a given industry depends on five factors: (1) barriers to entry and new entry threats, (2) buyer power, (3) supplier power, (4) threat from substitutes, and (5) rivalry (Porter, 1980).
Compared with the general environment, the industry environment has a more direct effect on the firms strategic competitiveness and above-average returns, as exemplified in the strategic focus. The intensity of industry competition and an industrys profit potential (as measured by the long-run return on invested capital) are a function of five forces of competition: the threats posed by new entrants, the power of suppliers, the power of buyers, product substitutes, and the intensity of rivalry among competitors.
Porters five-forces model of competition expands the arena for competitive analysis. Historically, when studying the competitive environment, firms concentrated on companies with which they competed directly. However, firms must search more broadly to identify current and potential competitors by identifying potential customers as well as the firms serving them. Competing for the same customers and thus being influenced by how customers value location and firm capabilities in their decisions is referred to as the market microstructure (Zaheer & Zaheer, 2001). Understanding this area is particularly important because, in recent years, industry boundaries have become blurred. For example, in the electrical utilities industry, cogenerators (firms that also produce power) are competing with regional utility companies. Moreover, telecommunications companies now compete with broadcasters, software manufacturers provide personal financial services, airlines sell mutual funds, and automakers sell insurance and provide financing (Hitt, et. al., 1999). In addition to focusing on customers rather than specific industry boundaries to define markets, geographic boundaries are also relevant. Research suggests that different geographic markets for the same product can have considerably different competitive conditions (Pan & Chi, 1999; Brooks, 1995).
The five-forces model recognizes that suppliers can become a firms competitors (by integrating forward), as can buyers (by integrating backward). Several firms have integrated forward in the pharmaceutical industry by acquiring distributors or wholesalers. In addition, firms choosing to enter a new market and those producing products that are adequate substitutes for existing products can become competitors of a company.
Another way to think about industry market structure is that these five sets of stakeholders are competing for profits in the given industry. For instance, if a supplier to an industry is powerful, they can charge higher prices. If the industry member cant pass those higher costs onto their buyers in the form of higher prices, then the industry member makes less profit. For example, if you have a jewelry store, but are dependent on a monopolist like De Beers for diamonds, then De Beers actually is extracting more relative value from your industry (i.e., the retail jewelry business).
The likelihood of new entry is a function of the extent to which barriers to entry exist. Evidence suggests that companies often find it difficult to identify new competitors (Geroski, 1999). Identifying new entrants is important because they can threaten the market share of existing competitors. One reason new entrants pose such a threat is that they bring additional production capacity. Unless the demand for a good or service is increasing, additional capacity holds consumers costs down, resulting in less revenue and lower returns for competing firms. Often, new entrants have a keen interest in gaining a large market share. As a result, new competitors may force existing firms to be more effective and efficient and to learn how to compete on new dimensions (for example, using an Internet-based distribution channel).
The more difficult it is for other firms to enter a market, the more likely it is that existing firms can make relatively high profits. The likelihood that firms will enter an industry is a function of two factors: barriers to entry and the retaliation expected from current industry participants. Entry barriers make it difficult for new firms to enter an industry and often place them at a competitive disadvantage even when they are able to enter. As such, high-entry barriers increase the returns for existing firms in the industry (Robinson & McDougall, 2001).
The stronger the power of buyers in an industry, the more likely it is that they will be able to force down prices and reduce the profits of firms that provide the product. Firms seek to maximize the return on their invested capital. Alternatively, buyers (customers of an industry or firm) want to buy products at the lowest possible pricethe point at which the industry earns the lowest acceptable rate of return on its invested capital. To reduce their costs, buyers bargain for higher-quality, greater levels of service, and lower prices. These outcomes are achieved by encouraging competitive battles among the industrys firms.
The stronger the power of suppliers in an industry, the more difficult it is for firms within that sector to make a profit because suppliers can determine the terms and conditions on which business is conducted. Increasing prices and reducing the quality of its products are potential means used by suppliers to exert power over firms competing within an industry. If a firm is unable to recover cost increases by its suppliers through its pricing structure, its profitability is reduced by its suppliers actions.
This measures the ease with which buyers can switch to another product that does the same thing, such as using aluminum cans rather than glass or plastic bottles to package a beverage. The ease of switching depends on what costs would be involved (e.g., while it may be easy to sell Coke or Pepsi in bottles or cans, transferring all your data to a new database system and retraining staff could be expensive) and how similar customers perceive the alternatives to be. Substitute products are goods or services from outside a given industry that perform similar or the same functions as a product that the industry produces. For example, as a sugar substitute, NutraSweet places an upper limit on sugar manufacturers pricesNutraSweet and sugar perform the same function but with different characteristics.
Other product substitutes include fax machines instead of overnight deliveries, plastic containers rather than glass jars, and tea substituted for coffee. Recently, firms have introduced to the market several low-alcohol fruit-flavored drinks that many customers substitute for beer. For example, Smirnoffs Ice was introduced with substantial advertising of the type often used for beer. Other firms have introduced lemonade with 5% alcohol (e.g., Doc Otis Hard Lemon) and tea and lemon combinations with alcohol (e.g., BoDeans Twisted Tea). These products are increasing in popularity, especially among younger people, and, as product substitutes, have the potential to reduce overall sales of beer (Khermouch, 2001).
In general, product substitutes present a strong threat to a firm when customers face few, if any, switching costs and when the substitute products price is lower or its quality and performance capabilities are equal to or greater than those of the competing product. Differentiating a product along dimensions that customers value (such as price, quality, service after the sale, and location) reduces a substitutes attractiveness.
This measures the degree of competition between existing firms. The higher the degree of rivalry, the more difficult it is for existing firms to generate high profits. The most prominent factors that experience shows to affect the intensity of firms rivalries are (1) numerous competitors, (2) slow industry growth, (3) high fixed costs, (4) lack of differentiation, (5) high strategic stakes and (6) high exit barriers.
Numerous or Equally Balanced Competitors
Intense rivalries are common in industries with many companies. With multiple competitors, it is common for a few firms to believe that they can act without eliciting a response. However, evidence suggests that other firms generally are aware of competitors actions, often choosing to respond to them. At the other extreme, industries with only a few firms of equivalent size and power also tend to have strong rivalries. The large and often similar-sized resource bases of these firms permit vigorous actions and responses. The Fuji/Kodak and Airbus/Boeing competitive battles exemplify intense rivalries between pairs of relatively equivalent competitors.
Slow Industry Growth
When a market is growing, firms try to use resources effectively to serve an expanding customer base. Growing markets reduce the pressure to take customers from competitors. However, rivalry in nongrowth or slow-growth markets becomes more intense as firms battle to increase their market shares by attracting their competitors customers.
Typically, battles to protect market shares are fierce. Certainly, this has been the case with Fuji and Kodak. The instability in the market that results from these competitive engagements reduce profitability for firms throughout the industry, as is demonstrated by the commercial aircraft industry. The market for large aircraft is expected to decline or grow only slightly over the next few years. To expand market share, Boeing and Airbus will compete aggressively in terms of the introduction of new products and product and service differentiation. Both firms are likely to win some and lose other battles. Currently, however, Boeing is the leader.
High Fixed Costs or High Storage Costs
When fixed costs account for a large part of total costs, companies try to maximize the use of their productive capacity. Doing so allows the firm to spread costs across a larger volume of output. However, when many firms attempt to maximize their productive capacity, excess capacity is created on an industry-wide basis. To then reduce inventories, individual companies typically cut the price of their product and offer rebates and other special discounts to customers. These practices, however, often intensify competition. The pattern of excess capacity at the industry level followed by intense rivalry at the firm level is observed frequently in industries with high storage costs. Perishable products, for example, lose their value rapidly with the passage of time. As their inventories grow, producers of perishable goods often use pricing strategies to sell products quickly.
Lack of Differentiation or Low Switching Costs
When buyers find a differentiated product that satisfies their needs, they frequently purchase the product loyally over time. Industries with many companies that have successfully differentiated their products have less rivalry, resulting in lower competition for individual firms (Deephouse, 1999). However, when buyers view products as commodities (as products with few differentiated features or capabilities), rivalry intensifies. In these instances, buyers purchasing decisions are based primarily on price and, to a lesser degree, service. Film for cameras is an example of a commodity. Thus, the competition between Fuji and Kodak is expected to be strong.
The effect of switching costs is identical to that described for differentiated products. The lower the buyers switching costs, the easier it is for competitors to attract buyers through pricing and service offerings. High switching costs, however, at least partially insulate the firm from rivals efforts to attract customers. Interestingly, the switching costssuch as pilot and mechanic trainingare high in aircraft purchases, yet, the rivalry between Boeing and Airbus remains intense because the stakes for both are extremely high.
High Strategic Stakes
Competitive rivalry is likely to be high when it is important for several of the competitors to perform well in the market. For example, although it is diversified and is a market leader in other businesses, Samsung has targeted market leadership in the consumer electronics market. This market is quite important to Sony and other major competitors such as Hitachi, Matsushita, NEC, and Mitsubishi. Thus, we can expect substantial rivalry in this market over the next few years.
High strategic stakes can also exist in terms of geographic locations. For example, Japanese automobile manufacturers are committed to a significant presence in the U.S. marketplace. A key reason for this is that the United States is the worlds single largest market for auto manufacturers products. Because of the stakes involved in this country for Japanese and U.S. manufacturers, rivalry among firms in the U.S. and global automobile industry is highly intense. While close proximity tends to promote greater rivalry, physically proximate competition has potentially positive benefits as well. For example, when competitors are located near one another, it is easier for suppliers to serve them and they can develop economies of scale that lead to lower production costs. Additionally, communications with key industry stakeholders such as suppliers are facilitated and more efficient when they are close to the firm (Chung & Kalnins, 2001).
High Exit Barriers
Sometimes companies continue competing in an industry even though the returns on their invested capital are low or negative. Firms making this choice likely face high exit barriers, which include economic, strategic, and emotional factors, causing companies to remain in an industry when the profitability of doing so is questionable.
Attractiveness and Profitability
Using Porters analysis firms are likely to generate higher profits if the industry:
There is limited rivalry.
Buyers are relatively weak.
Suppliers are relatively weak.
There are few substitutes.
Profits are likely to be low if:
Profits are likely to be low if:
The industry is easy to enter.
There is a high degree of rivalry between firms within the industry.
Buyers are strong.
Suppliers are strong.
It is easy to switch to alternatives.
Effective industry analyses are products of careful study and interpretation of data and information from multiple sources. A wealth of industry-specific data is available to be analyzed. Because of globalization, international markets and rivalries must be included in the firms analyses. In fact, research shows that in some industries, international variables are more important than domestic ones as determinants of strategic competitiveness. Furthermore, because of the development of global markets, a countrys borders no longer restrict industry structures. In fact, movement into international markets enhances the chances of success for new ventures as well as more established firms (Kuemmerle, 2001; Lorenzoni & Lipparini, 1991).
Following study of the five forces of competition, the firm can develop the insights required to determine an industrys attractiveness in terms of its potential to earn adequate or superior returns on its invested capital. In general, the stronger competitive forces are, the lower the profit potential for an industrys firms. An unattractive industry has low entry barriers, suppliers and buyers with strong bargaining positions, strong competitive threats from product substitutes, and intense rivalry among competitors. These industry characteristics make it very difficult for firms to achieve strategic competitiveness and earn above-average returns. Alternatively, an attractive industry has high entry barriers, suppliers and buyers with little bargaining power, few competitive threats from product substitutes, and relatively moderate rivalry (Porter, 1980).
External environment analysis is a key input into strategy formulation. PESTEL is an external environment analysis framework that helps guide your prospecting in the political, economic, social, technological, environmental, and legal spheres of an organizations external environment. Working inward to the focal organization, we discussed the broad dimensions of the stakeholders feeding into the firm. Porters five forces analysis considers (1) barriers to entry and new entry threats, (2) buyer power, (3) supplier power, (4) threat from substitutes, and (5) rivalry as key external environmental forces in developing strategy.
What are the six dimensions of the environment that are of broad concern when you conduct a PESTEL analysis?
Which of the PESTEL dimensions do you believe to be most important, and why?
What are the key dimensions of a firms microenvironment?
What are the five forces referred to in the Porter framework?
Is there a dimension of industry structure that Porters model appears to omit?
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BTL refers to a series of marketing techniques known collectively as below-the-line marketing. Below-the-line marketing includes direct marketing by mail or email, sales promotion, marketing communications, exhibitions and telemarketing. Above-the-line marketing refers to advertising in media such as print, cinema, radio, television, outdoor posters and the Internet. Marketing campaigns that use both above-the-line and below-the-line techniques are known as through-the-line campaigns.
The terms above-the-line and below-the-line originally referred to the way advertising agencies were remunerated for their services. Agencies received commission from the media in return for placing advertisements. The level of commission was sufficient to cover the costs of creating and producing the content for advertisements, as well as providing the agency with a fee and profit contribution. Agencies retained the commission and clients received the creative and production costs free. Because no commission was available on non-media activities, agencies charged clients for all creative and production costs.
The basis of agency remuneration has evolved, and advertising agencies now base their charges on a combination of fees and retained commission. However, clients have recognized the importance of below-the-line marketing and work with companies that offer specific services, such as direct marketing agencies, sales promotion agencies, marketing communications consultancies and telemarketing agencies.
Companies use below-the-line campaigns to reach audiences that are difficult or costly to contact through advertising media. A direct marketing campaign, for example, targeting a selected group of key customers with a limited-time offer represents a precise form of marketing with minimal waste. A sales promotion campaign offering discounts on a product in a single retail chain drives consumers to a series of defined locations, allowing precise measurement of the campaigns effectiveness.
Combining above -the-line and below-the-line techniques in a single, integrated campaign can improve marketing effectiveness. An advertising campaign to launch a new product, combined with a retail incentive program and an in-store consumer promotion will encourage retailers to carry additional stocks of the advertised product. Through-the-line campaigns are most effective when advertising and below-the-line content use the same creative approach and communicate consistent messages across all media.
The increasing importance of social media is focusing attention on communicating with customers though multiple channels, rather than relying on individual above-the-line or below-the-line channels. Marketers also recognize the importance of building dialog with customers, rather than marketing through one-way communications.
What Are the Different Types of Advertising?
Advertisers pay for advertising to accomplish a wide array of goals. Ad objectives generally boil down to long-term branding communication or short-term direct response advertising. Branding is about building and maintaining a reputation for your company that distinguishes it in the marketplace. Sales promos are short-term inducements to drive revenue or cash flow. Based on your company’s objectives, budget and target audience, you normally advertise through one or more types of media. Calculating your return on investment in dollars is difficult, but you need to establish measurable goals, such as a percentage increase in awareness, to evaluate success.
Television and radio are two traditional broadcast media long used in advertising. Television offers creative opportunities, a dynamic message and wide audience reach. It is typically the most expensive medium to advertise through, though. Because local affiliated stations normally serve a wide local audience, you also have to deal with waste when trying to target a small town marketplace. TV watchers normally have a negative attitude toward commercials and many have DVRs at their fingertips. Radio and TV both have fleeting messages, meaning they disappear once the commercial spot ends. Radio is relatively affordable for small businesses and allows for repetition and frequency. You don’t have the visual element of TV and you have to deal with a distracted audience, since most listeners are driving.
Magazines and newspapers are the two traditional print media. Magazines offer a highly selective audience who is generally interested in ads closely related to the topic of the magazine. Visual imagery is also stronger in magazines than newspapers. You have little wasted since magazines are very niche and you can target a narrow customer segment. On the downside, magazines are costly and require long lead times, which limits timely promotions. They also have limited audience reach. Newspapers are very affordable for local businesses and allow you to target a geographic segment if you have a universal product or service. Newspapers are also viewed as a credible medium, which enhances ad acceptance. You can usually get an ad placed within a day or two of purchase. Declining circulation, a short shelf life and limited visual creativity are drawbacks.
Support media include several options for message delivery than normally add to or expand campaigns delivered through more traditional media. Billboards, transits, bus benches, aerial, directories and trade publications are common support media. Each has pros and cons, but collectively, they offer ways to reach a wider audience in a local or regional market or to increase frequency of message exposure to targeted market segments.
Direct marketing is an interactive approach to advertising that has picked up in usage in the early 21st century. It includes direct mail, email and telemarketing. These are direct response efforts to create an ongoing dialogue or interaction with customers. Weekly or monthly email newsletters, for instance, allow you to keep your brand, products and other messages in front of prospects and customers. Telemarketing is a way to survey customers and offer new products, upgrades or renewals. Direct mail is the most common format of direct marketing where you send mailers or postcards to targeted customers promoting products, deals or promotions. Direct marketing has become more prominent because it allows for ease in tracking customer response rates and helps advertisers better measure return on investment.
Another newer advertising technique is product placement. This is where you offer compensation to a TV show, movie, video game or theme park to use your product while entertaining audiences. You could pay a TV show, for instance, to depict your product being used and discussed positive in a particular scene. This ad method is a way for companies to integrate ads with entertainment since customers have found ways to avoid messages delivered through more conventional media.
The Internet is used by online and offline companies to promote products or services. Banner ads, pop up ads, text ads and paid search placements are common forms. Banner, pop up and text ads are ways to present an image or message on a publisher’s website or on a number of websites through a third-party platform like Google’s Adwords program. Paid search placements, also known as cost-per-click advertising, is where you bid a certain amount to present your link and text message to users of search engines like Google and Yahoo!
Businesses can also create different target groups, and send ads on social media platforms to users that would be most interested in their products and services. Targeting options can include targeting based on geographic location, buying tendencies, and other consumer behavior. One effective method of placing social media ads is known as retargeting, which focuses on website visitors that left without buying a product or service, or without signing up for some type of free offer like subscribing to a newsletter. Businesses can place a pixel on the visitors browser, and send targeted ads to that visitor as he or she browses other websites. Sponsored ads work in a similar way to retargeting, but the difference is that businesses pay to have these ads appear on specific websites that their target audience is likely to visit.
812 Benefits of Sales Promotion
A successful promotion has the ability to nurture relationships with consumers through retention and engagement. Promotions can often shape the characteristics of brands, for example, McDonald?s Monopoly board is something
INTRODUCTION OF SALES PROMOTION
Sales promotion consists of a diverse collection of incentive tools, mostly short term, designed to stimulated quicker and/or greater purchase of particular product/service or the trend. Sales promotion is a process of persuading of sales to potential customer to buy the product.
The topic is about the sales promotion activity that makes awareness of the product of the company. The topic itself describe that how to increase the sales growth of the company product and it is also about the make awareness to the customer about the company products.
Sales promotion plays a very important role in the company. So in the current context every company makes sales promotion in different ways like advertisement by media, news paper , magazine.
Sales promotion is an important component of a small medium and large business’s overall marketing strategy, along with advertising, public relations, and personal selling. The American Marketing Association (AMA) defines sales promotion as “media and non-media marketing pressure applied for a predetermined, limited period of time in order to stimulate trial, increase consumer demand, or improve product quality.” But this definition does not capture all the elements of modern sales promotion. One should add that effective sales promotion increases the basic value of a product for a limited time and directly stimulates consumer purchasing, selling effectiveness, or the effort of the sales force. It can be used to inform, persuade, and remind target customers about the business and its marketing mix. Some common types of sales promotion include samples, coupons, sweepstakes, contests, in-store displays, trade shows, price-off deals, premiums, and rebates.
Businesses can target sales promotions at three different audiences: consumers, resellers, and the company’s own sales force. Sales promotion acts as a competitive weapon by providing an extra incentive for the target audience to purchase or support one brand over another. It is particularly effective in spurring product trial and unplanned purchases.
Most marketers believe that a given product or service has an established perceived price or value, and they use sales promotion to change this price-value relationship by increasing the value and/or lowering the price. Compared to the other components of the marketing mix (advertising, publicity, and personal selling), sales promotion usually operates on a shorter time line, uses a more rational appeal, returns a tangible or real value, fosters an immediate sale, and contributes highly to profitability.
In determining the relative importance to place on sales promotion in the overall marketing mix, a small business should consider its marketing budget, the stage of the product in its life cycle, the nature of competition in the market, the target of the promotion, and the nature of the product. For example, sales promotion and direct mail are particularly attractive alternatives when the marketing budget is limited, as it is for many small businesses. In addition, sales promotion can be an effective tool in a highly competitive market, when the objective is to convince retailers to carry a product or influence consumers to select it over those of competitors. Similarly, sales promotion is often used in the growth and maturity stages of the product life cycle to stimulate consumers and resellers to choose that product over the competitionrather than in the introduction stage, when mass advertising to build awareness might be more important. Finally, sales promotion tends to work best when it is applied to impulse items whose features can be judged at the point of purchase, rather than more complex, expensive items that might require hands-on demonstration.
Back in 1950s, it was said that doing business without sales promotion is like winking at a girl in the dark; you know you what you are doing, but nobody else does. The message was: crowded scenario of multiple ads even winking in broad daylight goes unnoticed. Since everyone is sales promotion, the idea is to do it with innovation ‘Come on, turn on the light, it pays to sales promotion. Today, in this complex world amidst heavy rush or everything, having a densely.
Sales promotion is of immense utility both to large and small business. There can be no doubt that sales promotion efforts would result in creation of additional sales. All forms of promotion of sale of goods is in one way or the other, supported by extensive advertising campaign. It is not possible to imagine survival of any business, which is in the business of “make and sell” in the absence of advertising efforts. Advertising has extended its coverage to include non-business enterprises also e.g.. Public Water Works advertises the need to preserve precious water and to cultivate the habit of drinking clean water free from any form of pollution. Countless illustrations can be provided wherein non-business enterprises have recognised the importance of advertising and their use it as a tool to promote ideas and services.
Sales promotion is an economic activity and it generates employment. Thousands of men and women are directly or indirectly, employed in professional sales promotion. sales promotion is an economic proposition. People who invest their money in sales promotion anticipate positive results. Hence, sales promotion must be result-oriented. Every newspaper or magazine survives on the advertisements that it receives. sales promotion are definite source of revenue to the publishers. Because of the advertisements inserted in newspapers and magazines, they are sold at lower price, which can be afforded by the public. Advertising is of paramount importance because it creates better-informed public by making available innumerable publications at an affordable price. Considering the response that advertisements generate, it can be stated that “advertising does not cost too much”.
In older to cut down production cost per unit there is a need to increase the total sales turnover. When overall sales increase, production cost per unit is automatically slashed and more people buy the goods. Apart from towering production costs, advertising also pays for entertainment and education through use of media like radio and TV.
Consumer is the king in the market. He cannot be compelled to buy anything. At the most, he can be persuaded to patronize a certain brand. It is here that advertising plays a prominent role.
There is no standard format to be followed to make advertising liked by every person. Advertising is a creative field. Individual likes and dislikes determine success of advertising or its failure. Advertising scores over personal selling because it provides freedom of choice to the consumer. Decision to make purchases is independently arrived at by the consumers. No civilized society can record constant progress and ensure better standard of living to its people in the absence of information and education provided by advertising
Consumer sales promotions are steered toward the ultimate product userstypically individual shoppers in the local marketbut the same techniques can be used to promote products sold by one business to another, such as computer systems, cleaning supplies, and machinery. In contrast, trade sales promotions target resellerswholesalers and retailerswho carry the marketer’s product. Following are some of the key techniques used in consumer-oriented sales promotions.
PRICE DEALS: A consumer price deal saves the buyer money when a product is purchased. The main types of price deals include discounts, bonus pack deals, refunds or rebates, and coupons. Price deals are usually intended to encourage trial use of a new product or line extension, to recruit new buyers for a mature product, or to convince existing customers to increase their purchases, accelerate their use, or purchase multiple units. Price deals work most effectively when price is the consumer’s foremost criterion or when brand loyalty is low.
Buyers may learn about price discounts either at the point of sale or through advertising. At the point of sale, price reductions may be posted on the package, on signs near the product, or in storefront windows. Many types of advertisements can be used to notify consumers of upcoming discounts, including fliers and newspaper and television ads.
Price discounts are especially common in the food industry, where local supermarkets run weekly specials. Price discounts may be initiated by the manufacturer, the retailer, or the distributor. For instance, a manufacturer may “pre-price” a product and then convince the retailer to participate in this short-term discount through extra incentives. For price reduction strategies to be effective, they must have the support of all distributors in the channel. Existing customers perceive discounts as rewards and often respond by buying in larger quantities.
Another type of price deal is the bonus pack or banded pack. When a bonus pack is offered, an extra amount of the product is free when a standard size of the product is bought at the regular price. This technique is routinely used in the marketing of cleaning products, food, and health and beauty aids to introduce a new or larger size. A bonus pack rewards present users but may have little appeal to users of competitive brands. A banded pack offer is when two or more units of a product are sold at a reduction of the regular single-unit price. Sometimes the products are physically banded together, such as in toothbrush and toothpaste offers.
A refund or rebate promotion is an offer by a marketer to return a certain amount of money when the product is purchased alone or in combination with other products. Refunds aim to increase the quantity or frequency of purchase, to encourage customers to “load up” on the product. This strategy dampens competition by temporarily taking consumers out of the market, stimulates the purchase of postponable goods such as major appliances, and creates on-shelf excitement by encouraging special displays. Refunds and rebates are generally viewed as a reward for purchase, and they appear to build brand loyalty rather than diminish it.
Coupons are legal certificates offered by manufacturers and retailers. They grant specified savings on selected products when presented for redemption at the point of purchase. Manufacturers sustain the cost of advertising and distributing their coupons, redeeming their face values, and paying retailers a handling fee. Retailers who offer double or triple the amount of the coupon shoulder the extra cost. Retailers who offer their own coupons incur the total cost, including paying the face value. In this way, retail coupons are equivalent to a cents-off deal.
Manufacturers disseminate coupons in many ways. They may be delivered directly by mail, dropped door to door, or distributed through a central location such as a shopping mall. Coupons may also be distributed through the mediamagazines, newspapers, Sunday supplements, or free-standing inserts (FSI) in newspapers. Coupons can be inserted into, attached to, or printed on a package, or they may be distributed by a retailer who uses them to generate store traffic or to tie in with a manufacturer’s promotional tactic. Retailer-sponsored coupons are typically distributed through print advertising or at the point of sale. Sometimes, though, specialty retailers or newly opened retailers will distribute coupons door to door or through direct mail.
CONTESTS/SWEEPSTAKES: The main difference between contests and sweepstakes is that contests require entrants to perform a task or demonstrate a skill that is judged in order to be deemed a winner, while sweepstakes involve a random drawing or chance contest that may or may not have an entry requirement. At one time, contests were more commonly used as sales promotions, mostly due to legal restrictions on gambling that many marketers feared might apply to sweepstakes. But the use of sweepstakes as a promotional tactic has grown dramatically in recent decades, partly because of legal changes and partly because of their lower cost. Administering a contest once cost about $350 per thousand entries, compared to just $2.75 to $3.75 per thousand entries in a sweepstake. Furthermore, participation in contests is very low compared to sweepstakes, since they require some sort of skill or ability.
SPECIAL EVENTS: According to the consulting firm International Events Group (IEG), businesses spend over $2 billion annually to link their products with everything from jazz festivals to golf tournaments to stock car races. In fact, large companies like RJR Nabisco and Anheuser-Busch have special divisions that handle nothing but special events. Special events marketing offers a number of advantages. First, events tend to attract a homogeneous audience that is very appreciative of the sponsors. Therefore, if a product fits well with the event and its audience, the impact of the sales promotion will be high. Second, event sponsorship often builds support among employeeswho may receive acknowledgment for their participationand within the trade. Finally, compared to producing a series of ads, event management is relatively simple. Many elements of event sponsorship are prepackaged and reusable, such as booths, displays, and ads. Special events marketing is available to small businesses, as well, through sponsorship of events on the community level.
PREMIUM: A premium is tangible compensation that is given as incentive for performing a particular actusually buying a product. The premium may be given for free, or may be offered to consumers for a significantly reduced price. Some examples of premiums include receiving a prize in a cereal box or a free garden tool for visiting the grand opening of a hardware store. Incentives that are given for free at the time of purchase are called direct premiums. These offers provide instant gratification, plus there is no confusion about returning coupons or box tops, or saving bar codes or proofs of purchase.
Other types of direct premiums include traffic builders, door openers, and referral premiums. The garden tool is an example of a traffic-builder premiuman incentive to lure a prospective buyer to a store. A door-opener premium is directed to customers at home or to business people in their offices. For example, a homeowner may receive a free clock radio for allowing an insurance agent to enter their home and listening to his sales pitch. Similarly, an electronics manufacturer might offer free software to an office manager who agrees to an on-site demonstration. The final category of direct premiums, referral premiums, rewards the purchaser for referring the seller to other possible customers.
Mail premiums, unlike direct premiums, require the customer to perform some act in order to obtain a premium through return mail. An example might be a limited edition toy car offered by a marketer in exchange for one or more proofs-of-purchase and a payment covering the cost of the item plus handling. The premium is still valuable to the consumer because they cannot readily buy the item for the same amount.
CONTINUITY PROGRAMS: Continuity programs retain brand users over a long time period by offering ongoing motivation or incentives. Continuity programs demand that consumers keep buying the product in order to get the premium in the future. Trading stamps, popularized in the 1950s and 1960s, are prime examples. Consumers usually received one stamp for every dime spent at a participating store. The stamp company provided redemption centers where the stamps were traded for merchandise. A catalog listing the quantity of stamps required for each item was available at the participating stores. Today, airlines’ frequent-flyer clubs, hotels’ frequent-traveler plans, retailers’ frequent-shopper programs, and bonus-paying credit cards are common continuity programs. When competing brands have reached parity in terms of price and service, continuity programs sometimes prove a deciding factor among those competitors. By rewarding long-standing customers for their loyalty, continuity programs also reduce the threat of new competitors entering a market.
SAMPLING: A sign of a successful marketer is getting the product into the hands of the consumer. Sometimes, particularly when a product is new or is not a market leader, an effective strategy is giving a sample product to the consumer, either free or for a small fee. But in order for sampling to change people’s future purchase decisions, the product must have benefits or features that will be obvious during the trial.
There are several means of disseminating samples to consumers. The most popular has been through the mail, but increases in postage costs and packaging requirements have made this method less attractive. An alternative is door-to-door distribution, particularly when the items are bulky and when reputable distribution organizations exist. This method permits selective sampling of neighborhoods, dwellings, or even people. Another method is distributing samples in conjunction with advertising. An ad may include a coupon that the consumer can mail in for the product, or it may include an address or phone number for ordering. Direct sampling can be achieved through prime media using scratch-and-sniff cards and slim foil pouches, or through retailers using special displays or a person hired to hand out samples to passing customers. Though this last technique may build goodwill for the retailer, some retailers resent the inconvenience and require high payments for their cooperation.
A final form of sample distribution deals with specialty types of sampling. For instance, some companies specialize in packing samples together for delivery to homogeneous consumer groups, such as newlyweds, new parents, students, or tourists. Such packages may be delivered at hospitals, hotels, or dormitories and include a number of different types of products.
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