Articles Tagged: sales

Within the last century, we seem to have discovered the process by which fame is manufactured. Discovering that we…can so quickly and so effectively give man fame; we have willingly been misled into believing that fame – well-knownness - is still a hallmark of greatness.

Executive Summary

Russel Products Ltd, a furniture manufacturing company based in the UK has experienced a loss in sales revenue during the past 18 months.  During the same period, the company has replaced the Managing Director and some of the sales managers have left the company to join the competition.  As a consequence, morale and motivation are low among employees.

It is evident that Russel Product need to make some changes within the organisation.  The main focus is on the sales force, in terms of improving working conditions so as to motivate the employees; and on restructuring the sales force, which is of considerable size, currently.  Other areas that need to be tackled by the company include: acquiring a database which will allow Russel Product to manage customer information; and set a sales forecasting & budgeting system.

ABSTRACT

Grocery retailing is dominated by four major operators, which are constantly engaged in marketing, advertising and sales promotion activities to increase sales and boost profitability. A major constraint on the sales of any food item is the amount of display space that is allocated to it. This project investigates the relationship between display space and sales. It begins by exploring the factors which have an influence on people on deciding where they are going to buy their food. The project draws conclusions from the secondary and primary data that has been collected and makes recommendations on how grocery retailers can maximise the sales and profit potential of the display space in their stores.

ACKNOWLEDGEMENTS

I would like to thank my tutor and the managers and staff of my local Asda store for helping me to structure this project and gather the primary data that was necessary to facilitate the stated objective of the research.
 

1. INTRODUCTION

In food retailing the major constraint on how much sales and profit any given store can generate is the amount of display space that is available. Food retailing is very competitive on price terms and the gross profit margins that are available on most grocery items is very small compared to other forms of retailing (i.e. furniture, electrical, clothes etc). Therefore, in order to make optimum use of the available display, food retailers must offer a range of products and services that satisfies the needs of its customers, and which maximises the sales and profit potential of each store.

The Objective Of The Project

The objective of this project is to determine whether there is a causal relationship between the weekly sales level of a grocery item and the amount of display space that is allocated to it.

For example, if there were 5 facings of item X and 1,000 units were sold each, would the sales of X increase to 1,200, if the number of facings were increased to 6? However, with each grocery item, there will be an upper limit to the maximum number that can be sold within one week. Therefore, simply increasing the number of facings for X will at some point generate diminishing returns.

For example, the maximum weekly sales for X could be 1,400. Therefore, increasing the number of facings of X to 10 would not produce sales of 2,000 units. The other important factor of course, is that if you increase the number of facings for X, then you must by default reduce the display for some other grocery item.

Also it needs to be recognised that there many reasons (e.g. convenient location, opening times, quality of customer service etc) why people decide to shop at a particular store. Obviously if potential customers are not enticed into your store in the first place, then it does not matter of how facings of item X are on display, as these people will be shopping elsewhere.

The Structure and Content of the Project

It is important to establish a robust research framework, within which to conduct the investigation, analyse the findings, draw conclusions and make recommendations on how retailers should proceed in the future. Therefore, the project is structured as follows:

•    Secondary research – What do people want from their grocery store?
•    Primary research – Does increasing the amount of display space increase sales of grocery items?
•    Conclusions
•    Recommendations for future action
 
2.    SECONDARY RESEARCH – WHAT DO PEOPLE WANT FROM THEIR GROCERY STORE?

    What is Secondary Data?

Secondary data sources can come from within the organisation, internal secondary data, or from outside the organisation i.e. external secondary data. Secondary data may also be called the by-product statistics, for example, the collection of the number of unemployed is a by-product of paying out benefits and recording the total. There are many sources of secondary data e.g. Monthly Digest of Statistics, Regional Trends etc.

There are two advantages of using these data sources:
•    One, they provide the opportunity to develop our understanding and knowledge of the hypothesis we are investigating.
•    Two, often they are easy to access and are cheaper to acquire then the collection of primary data.

Facilitating The Requirements Of This Project

To facilitate the requirements of this project – the following website (www.igd.com) was accessed. The purpose of IGD is to inspire people through knowledge and leadership. It is a key research organisation for the food and grocery industry. It provides a variety of services – notably, which suited the requirements of this project, free fact sheets. When conducting an investigation, it is necessary to begin by gathering relevant background information.

With regard to this project, we need to understand what factors influence people when deciding upon where they are going to buy their groceries. IGD have compiled a fact sheet, entitled Value versus Price – which, examines the issues involved. As stated earlier, the value a retailer offers - is judged on more than just price. For example, convenience, customer service, store environment, freshness, safety, choice, ease of use and availability are recognised as adding value to the shopping experience and the products shoppers buy.

The graph below shows that the most important three things shoppers want from retailers are: high quality products; lowest price; and high standard of customer service.

 

Factors Affecting Customers’ Choice Of Food Outlet

1 – High quality products
2 – Lowest price
3 – High standard of customer service
4 – Lots of choice
5 – Buy one – get one free
6 – Nice shopping environment
7 – Brands I know
8 – Good car parking facilities
9 – Guarantee that what I want will always be available
10 – Long opening hours
11 – Extra services
12 – Lots of innovation
13 – None of these

Source: IGD Consumer Research 2004

The above data tells us that there are 12 factors that have an influence on the retail outlet, food shoppers decide to use. Factors 2 (Lowest price) and 5 (Buy one – get one free) are concerned with price. This means that price has a major influence on choice of retail outlet. However, price must be weighted within all of the other factors. That is, whilst low prices remain a top priority, it does not necessarily mean that consumers will continuously swap grocery retailers in pursuit of the cheapest prices available.

It is likely for the vast majority of consumers that the weighting of the other 10 factors will be more important than a small percentage increase in prices across a range of goods. It is only when the price differential between their current preferred retailer and a major competitor becomes noticeably bigger across a range of items that an existing customer will consider switching to the rival. Further research by IGD has revealed that in recent years, price has emerged as a key competitive edge for UK grocery retailers.

However, when devising pricing strategies, grocery retailers cannot afford to ignore the weighting of the other 10 factors. Thus two common pricing strategies have emerged – EDLP (Every Day Low Pricing) and Hi-Lo (High background – low promotion). The research has shown that few retailers operate a single pure pricing strategy, with most combining EDLP and Hi-Lo to form a hybrid positioning although generally tending towards one type.

Shoppers’ Preference

Whilst there was a general acceptance amongst shoppers that low prices and promotions offer savings on their shopping, there was mixed opinions amongst shoppers as to which was considered to offer them the greatest benefit.

 

1.    EDLP
2.    Promotions

Source: IGD Consumer Research 2003

These preferences can be further divided, as shown below.

Reasons for Preference of Low Prices or Promotions

60% Low Prices

34% - Low prices and limited or no promotion because they shop to a budget
15% - Low prices and limited or no promotion because promotions are not for people like me and / or I do not have the space
11% - Low prices and limited or no promotion because I think supermarkets with lots of promotions charge more for other items

40% Promotions

23% - Lots of different promotions because I like to stock up
9% - Lots of different promotions because I think I save more money than I would with low prices
8% - Lots of different promotions because it gives me a chance to try new products

Source: IGD Consumer Research 2003

    Summary

The findings from the secondary research may be summarised as follows:

•    12 factors influence customers’ choice of food outlet
•    High quality products, lowest price and high standard of customer service are the most important factors influencing customers’ choice of food outlet
•    Customers do not seek to totally satisfy a single factor in their choice of food outlet – rather they will apply a weighting to each of the factors
•    This implies that brand loyalty is important – i.e. a customer will only switch to a rival when their current preferred retailer no longer satisfies their overall weighting of the factors
•    Price has become much more important as a competitive factor in recent years – 2 key pricing strategies have emerged – EDLP and Hi-Lo
•    Retailers have tended to develop hybrid pricing strategies to satisfy their marketing and sales objectives and to maintain their competitiveness within the market
•    Preferences among consumers for low prices or promotions can each be divided into 3 sub-categories
 

3.    PRIMARY RESEARCH – DOES INCREASING THE AMOUNT OF DISPLAY SPACE INCREASE SALES OF GROCERY ITEMS?

    What is Primary Data?

Primary data is the collection of information which is not available from secondary data sources. There a number of ways in which primary data can be collected – personal interviews, telephone interviews, postal questionnaires, on-line questionnaires etc. Secondary data sources should always be consulted before carrying out primary research. This is because secondary sources can highlight the key factors which need to be considered when designing primary data collection methods.

As stated earlier, when conducting an investigation, background / secondary data, informs the research process. The section 2 summary highlights the importance of price in determining customers’ choice of food outlet. Therefore, it can be concluded that it is not simply the number of facings that is dedicated to a particular grocery item that affects its sales. The price of an item also has a major impact on its demand. Charging lower prices will mean higher sales but proportionately less profit.

There are valid commercial reasons for substantially lowering prices and increasing sales. Notably - to achieve an increase in market share or to establish a foothold in a new market. However, to be sustainable in the longer term, lower prices must produce higher profits, through a substantial increase in volume sales. This can be achieved by a combining the following factors – reduced prices, increased display space and highly effective merchandising.

    The Questionnaire

To fulfil the requirements of the project, the following questionnaire was complied.

Question 1

Which category best describes you?

1. Low Prices
1.1 - Low prices and limited or no promotion because they shop to a budget
1.2 - Low prices and limited or no promotion because promotions are not for people like me and / or I do not have the space
1.3 - Low prices and limited or no promotion because I think supermarkets with lots of promotions charge more for other items

2. Promotions
2.1 - Lots of different promotions because I like to stock up
2.2 - Lots of different promotions because I think I save more money than I would with low prices
2.3 - Lots of different promotions because it gives me a chance to try new products

Question 2

For each of the following products, would you buy more of the item if the number of facings was increase from 4 to 8 and the price remained the same?

Galaxy Chocolate 150g        Yes / No
Pek Chop Pork 170g            Yes / No
Apple and Blackcurrant Juice        Yes / No

Question 3

For each of the following products, would you buy more of the item if the number of facings remained at 4 but the price was reduced by 20%?

Galaxy Chocolate 150g        Yes / No
Pek Chop Pork 170g            Yes / No
Apple and Blackcurrant Juice        Yes / No

Question 4

For each of the following products, would you buy more of the item if the number of facings increased from 4 to 8, the price was reduced by 20%, and additional promotional material was used to highlight the display?

Galaxy Chocolate 150g        Yes / No
Pek Chop Pork 170g            Yes / No
Apple and Blackcurrant Juice        Yes / No

The Design and Purpose Of The Questionnaire

The design of the questionnaire is linked to the findings in section 2. The first question deals with the categorisation of each respondent. The rationale being that those respondents who place themselves in any of the following categories i.e. 2.1 to 2.3 – should be more tempted by promotional deals than any respondents in categories 1.1 to 1.3. The respondents are then presented with three different scenarios for three grocery items to determine whether they would increase their weekly consumption.

The results of this questionnaire will help the store management to make more informed decisions about the amount of display space to allocate to specific grocery items. It will also allow them to assess the effectiveness of in-store promotional campaigns in terms of increasing sales and profitability.

    Sampling Techniques

In order to make effective business decisions regarding their products, services, prices etc, food retailers need to collect data about consumers’ preferences, future intentions etc. Identification of the relevant population is essential since data collection is a costly exercise. Since everyone in the UK needs to go food shopping the relevant population could be 40 million. If a food retailer was only concerned if the people who currently buy its product and services, the relevant population might be 3 million. In either situation, it is obviously impossible to include everyone in a survey.

When the relevant identified population is too large for a cost-effective census to be conducted a sample of that population must be selected, and individual responses generalised to represent the facts about, or the views, preferences etc of, the entire population. Sampling procedures can be divided into two broad categories – those where individuals are selected by some prior random method prior to the collection stage, and those where the individuals are non-randomly selected at the collection stage.

To ensure that the sample is representative of the population the most usual non-random sampling is the selection of a quota sample. In this case various characteristics of the population are noted, for example, the divisions on sex, age, income etc, and the sample aims to include similar proportions of people with these characteristics. The survey conducted by IGD which showed that 60% of shoppers preferred low prices and 40%, is an example of a quota sample and can be considered to be representative of the population i.e. UK food shoppers.

3.5 The Results Of The Questionnaire

Q1     No of respondents    % of respondents    Q2    No of respondents    % of respondents
1.1    29    28%    a. Yes    11    11%
1.2    13    13%    a. No    93    89%
1.3    11    11%    b. Yes    2    2%
2.1    23    22%    b. No    102    98%
2.2    15    14%    c. Yes    3    3%
2.3    13    13%    c. No    101    97%
Total    104    100%               
                          
Q3    No of respondents    % of respondents    Q4    No of respondents    % of respondents
a. Yes    13    13%    a. Yes    30    29%
a. No    91    88%    a. No    74    71%
b. Yes    4    4%    b. Yes    18    17%
b. No    100    96%    b. No    96    92%
c. Yes    4    4%    c. Yes    13    13%
c. No    100    96%    c. No    91    88%

Due to time constraints, random sampling was used to compile the questionnaire results. Out of 143 people that were asked, 104 agreed to take part in the survey. The survey results cannot be considered to be representative of the population i.e. UK food shoppers. In order to achieve a representative sample – quota sampling would have been used. However, such an approach was simply too time consuming for this project.

The further limitation of the survey is that the results to question 1 do not correspond to proportions of people in the IGD survey that prefer low prices or promotions. The answers collected for questions for 2 to 4, have not been subdivided in accordance with the categorisation of shoppers in question 1. It would have been possible to achieve this categorisation - however, time and resource constraints have limited the processing of the results.

What Do The Results Tell Us?

The results for the first grocery item in the survey, i.e. Galaxy chocolate, are much more positive than for the other two products. For these items increasing the number of facings and reducing the price do not motivate shoppers to buy more of these products. It is only when the number of facings are increased; the prices are reduced and additional promotional is used, that there is any type of positive shift by consumers to buy more of these items.

 

1 = Yes
2 = No

As the chart shows, for Galaxy Chocolate the response to questions 2 – 4 is much more positive than for the other two items.  Increasing the number of facings and reducing the price has a much more significant impact on shoppers’ buying intentions, than for the other two items. When these two factors are combined with increased promotional material, 30% of the respondents said that they would increase their weekly purchase of this item as a result of this “package”.
 

4.    CONCLUSIONS AND RECOMMENDATIONS

4.1 Conclusions

•    The information generated by the secondary and primary research indicates that there is a direct relationship between the amount of display space allocated to a food product and its level of sales.
•    However, there is only a significant movement in shoppers’ intentions to buy more of a food item, when additional factors are added (i.e. the price is reduced by a substantial amount and in-store promotional activity is increased). Then it only works for certain food items.
•    UK consumers have grown in sophistication and are influenced by 12 factors, when it comes to selecting a food retailer.
•    Lower prices have become more important but in themselves will not encourage large numbers of consumers to permanently switch food retailers.

4.2 Recommendations

As stated in the introduction, the major restraint on food retailers is the amount of display space that can be allocated to each item in the range of products they offer to their customers. To maximise the sales and profit potential of their display a food retailer must consider all of the factors listed below:

Traffic flow:
•    In order to begin making changes to the product placement in a store, retailers need to map out an overall plan.
•    To do this, retailers need to recognise the current traffic flow of the store and develop a plan to direct traffic flow so that customers will shop the entire store and with their attention focused where the retailer would like it to be.
•    By strategically placing demand / destination products and impulse items throughout the interior of the store, it is possible to balance the traffic flow and increase the overall sales by making best use of every square foot.

Fixturing:
•    This is the furniture that holds and displays the majority of a store’s merchandise.
•    The most successful fixture systems are installed to be flexible and offer retailers the opportunity to make major display reconfigurations with little or no investment.
•    Retailers need to use the flexibility of these fixtures on a frequent basis to add interest and excitement to the store.

Graphics and Signage:
•    These items communicate a store’s image.
•    They can be used to educate customers about merchandise for sale, announce special promotions or to direct traffic flow through the store.
•    Graphics and signage should present a uniform level of quality.
 
Similar Product Merchandising
•    Merchandising similar products together can create a dramatic impact and educate the customer to the depth of product a retailer is carrying within a given category.

Cross-Mix Merchandising
•    This involves displaying a variety of seemingly unrelated products to create a comprehensive visual story.
•    This type of merchandising communicates breadth of product and educates the customer about merchandise they may be unaware that the retailer is carrying.

Planogram
•    The placement of merchandising that is arriving to the store can be planned out on paper by using a planogram.
•    A planogram is a retailer’s blueprint which visually communicates how merchandise and props fit onto a store fixture.
 

REFERENCES

Fact Sheet – Every Day Low Pricing versus Promotions – IGD, 10/09/2004 (www.igd.com/CIR.asp)

Fact Sheet – Value versus Price – IGD, 10/09/2004 (www.igd.com/CIR.asp)

Display and Merchandising Guide – (www.glmshows.com/press/DisplayHandbook)

Retail Vision – Retail Management Consultants (www.retail-vision.co.uk)

Quantitative Methods for Business Decisions – Jon Curwin and Roger Slater – 1991 (Chapman & Hall)