Aligning Merchandising &
Marketing Decisions With
Shopper Preferences
Total Store Optimization Moves Retail
Beyond Category Management
EXECUTIVE BRIEF
SPONSORED BY
Managing assortment, pricing and promotions on a category-by-category
basis is no longer sustainable in today’s digitally competitive retail
environment. Shoppers are too easily lured away to a competitor if the
store does not provide the specific products they are looking for, offered at
the right prices. Retailers need to be able to hone their strategies to deliver
a more individualized, shopper-oriented experience on their path
to customer-centricity.
Traditional supermarkets already are feeling the impact of many new types
of competitors, including online retailers, big box stores adding grocery
items and organic/specialty brands. During the past decade, supermarkets
experienced a significant decline in “primary store” status among shoppers,
dropping from 67% in 2005 to 49% in
In addition, retailers and suppliers need to collaborate more effectively
to make better shopper-centric decisions. But unfortunately, they often
are still reluctant to exchange vital data: % of retailers provide no
POS, loyalty or shopper insight information to CPG partners, while %
provide a “minimal amount,” according to data from Deloitte and the Food
Marketing Institute (FMI).
Total Store Optimization Moves Retail Beyond
Category Management
Aligning Merchandising & Marketing
Decisions With Shopper Preferences “From 2005
to 2016,
supermarkets
experienced a
decline in ‘primary
store’ status,
dropping from
67% to 49%.”
— DELOITTE/FOOD
MARKETING INSTITUTE
ALIGNING MERCHANDISING & MARKETING DECISIONS WITH SHOPPER PREFERENCES
1 Winston Weber/Deloitte/Food Marketing Institute Survey, 2015
2
Additionally, digital-based insights are significantly underutilized: 63% of
respondents said “none” or “limited” when asked to what extent they apply
digital-based consumer and shopper data for category planning. But when
retailers and suppliers realize the advantages of exchanging vital data —
and find more effective ways to use that data — both sides will win.
Taking a Total Store Optimization approach allows retailers to make
decisions across the entire store — the same way customers shop. Total
Store Optimization is based on drilling down to the level of individual
shopper data and using advanced analytics to understand customer
behavior — the granular-level data and analytical insights are then
used to simultaneously provide price, assortment and promotion
recommendations across all categories at the same time, thereby
providing a balanced set of recommendations across the entire store. With
Total Store Optimization, retailers can boost top-line sales and revenue,
increase customer lifetime value and improve supplier relationships.
This Executive Brief explores the benefits of
Total Store Optimization in four key areas:
ASSORTMENT PRICING PROMOTIONS MARKETING
ALIGNING MERCHANDISING & MARKETING DECISIONS WITH SHOPPER PREFERENCES 3
“Precima looks at the whole
store to understand the full
impact of promotions and
pricing tactics on category
performance and customer
lifetime value based on deep
models of customer buying
propensities. The approach
puts buyers and marketers
on a common footing with
shared customer analytics.”
— GREG GIRARD,
PROGRAM DIRECTOR,
MERCHANDISE STRATEGIES,
IDC RETAIL INSIGHTS
Because consumers see little variation among different brands of
bottled water, and because 12-pack and 24-pack sizes of these items
take up large amounts of shelf space, retailers can reduce the number
of brands they carry without risking shopper disappointment. Armed
with shopper-level data about product preferences, retailers can be
confident customers will switch their bottled water purchase to the
available brands/sizes. With additional “real estate” to play with, retailers
can expand their assortment to include more facings of healthy lifestyle
beverages, which offer greater opportunities for high-margin sales.
Shoppers seek more choices in some categories than others, and these
preferences can vary widely from store to store. Applying Total Store
Optimization principles to assortment allows retailers to devote the appropriate
amount of shelf space to individual brands and product types, offering an
appealing mix to customers while maximizing overall category profitability.
Total Store Assortment Optimization
Maximizes Shelf Productivity
CASE IN POINT
“Because consumers
see little variation
among different
brands of certain
products, retailers
can reduce the
number of brands
they carry without
risking shopper
disappointment, and
use the additional
‘real estate’ to
expand assortments
of products offering
higher margins.”
ALIGNING MERCHANDISING & MARKETING DECISIONS WITH SHOPPER PREFERENCES 4
Pricing is one of the most powerful “levers” retailers have to stimulate demand
and boost traffic. As many as 49% of retail “winners” use pricing to drive demand2,
according to RSR Research. But today’s pricing decisions need to be balanced
within the context of the entire store. For some products, consumers expect
lower prices because they place a lower value on the entire category. For other
products, prices can be higher because shoppers place a higher value on the
overall category (. fresh produce, meat and bakery items, organic foods,
ethically sourced household products). Retailers need to achieve the right balance
of prices across the entire store to deliver improved price perception, grow
market share, achieve performance targets and earn their customers’ loyalty.
Retailers routinely lower prices on traffic-building products and use them as “loss leaders” that
are designed to bring customers into the store. The retailer hopes that these customers will
then buy other items at the regular price, which will allow them to make up for the losses on
the loss leaders, but it is rare for a retailer to actually analyze the decision to see if it does, in
fact, make financial sense. Taking a total store approach to pricing allows retailers to ensure
that this formula is actually working to the store’s benefit, aligning prices with shoppers’
determination of value across the entire portfolio of products in the store.
CASE IN POINT
Total Store Price Optimization
Improves Customer Price Perception
And Achieves Performance Targets
“49% of retail
‘winners’ use
pricing to drive
demand.”
— RSR RESEARCH
2 Retail Pricing 2017: The Dawn Of Personalized Prices, RSR Benchmark Report, March 2017
ALIGNING MERCHANDISING & MARKETING DECISIONS WITH SHOPPER PREFERENCES 5
Advancing Retailer-Supplier Collaboration
Retailers adopting Total Store Optimization principles may find they come up short if they don’t involve a key
stakeholder: their suppliers. Supplier sales teams who are compensated on hitting volume targets will push back
against attempts to take a shopper-centric approach if the new decisions result in fewer cases being shipped.
Getting suppliers on board requires retailers to share data and continuously educate their trading partners. Retailers
that can more accurately match a supplier’s products with customers who have a propensity to buy those products
will create a “win-win” for both. In some cases, this may require re-allocating promotional dollars to different grocery
banners or specific stores. Ultimately, better allocation of products and promotional funding tailored to each
retailer’s specific shoppers will mean more sales, more frequent turns and more satisfied customers.
A total store approach to promotion planning allows retailers to spend their finite
promotional resources wisely. The goal is to create promotions that work best for the
entire store, and that appeal to the retailer’s most loyal and high-value customers.
There’s a pressing need to improve promotions for both retailers and their suppliers.
“Improved access to data and analytics now allows CPGs and retailers to identify good
and bad promotions, and the results do not look so good,” according to a February
2017 report from the Promotion Optimization Institute (POI) and Precima,
titled Personalized Offers: The Cure For Tired, Ineffective Promotions. “According to an
industry analysis by Nielsen of over 100 million promotions, fully two-thirds of trade
promotions do not so much as break even. Further, 22% of promotions did not
generate any sales lift, let alone break even.”3
The ability to analyze the performance of all promotions simultaneously allows retailers to determine which
promotions are working and should be continued or expanded, which are not performing but can be improved by
fixing their promotion mechanics, and which should be stopped due to persistently low performance. In addition, if
the retailer has a customer identifier (. a loyalty card), it is also possible to start to “slant” promotions toward the
retailer’s most loyal customers, selecting promotions that disproportionately appeal to the loyal shoppers and also
by tailoring the discount depth to the right level for the loyal customers.
Additionally, supermarkets can take advantage of their role within a community to create promotions that will
resonate with shoppers. The POI report identifies offers that include:
• Local projects like taking a portion of revenues to fund something
charitable like a food bank, homeless shelter or the scoreboard at
the local youth sports venue.
• Fun things such as in-store cooking classes.
• Meeting a celebrity cook or sports star at the store.
CASE IN POINT
Total Store Promotion Planning
Channels Resources To Prime Targets “Fully two-
thirds of trade
promotions do
not break even;
22% do not
generate any
sales lift.”
— NIELSEN
ALIGNING MERCHANDISING & MARKETING DECISIONS WITH SHOPPER PREFERENCES 6
3 Cracking The Trade Promotion Code, The Nielsen Co., updated November 6, 2014
Today’s advanced analytics enable retailers to track individual responses to
each element of a marketing campaign — from measuring open rates and click-
throughs on an email blast to tracking a shopper’s browsing behavior on a web
site. Those retailers with loyalty programs have long enjoyed the ability to identify
their top customers and analyze their purchasing patterns, but this ability is now
extended via e-Commerce and smartphone apps. Personalized marketing allows
companies to combine new technologies with customer data to personalize
marketing campaigns. Retailers can:
• Consistently create campaigns that will resonate with specific shopper groups;
• Provide cross-sell and upsell recommendations that individual customers will
highly value;
• Thank loyal customers with personalized rewards; and
• Offer incentives to encourage shoppers to consolidate their weekly grocery
spend at the store.
The ability to target individual customers via a unique identifier (an email address or smartphone
app) allows retailers to create personalized promotions that can be executed across multiple touch
points, including the web, email, paper and mobile devices. “Additionally, because personalized
offers by definition are targeting an individual through use of a unique identifier, they are fully able
to marry up shopper strategies with product loyalty dynamics across in-store and on-line channels,”
according to the POI/Precima report. “This means a possibly different offer for a ‘switcher,’ ‘loyalist’
or person who has never tried the product. Past purchase behavior can be used to trigger an offer,
and that offer can be extended dynamically by store, day of the week, daypart or anything else.”
Retailers have little choice but to take a holistic total store approach to their key merchandising
and marketing decisions. Shoppers today expect personalization in virtually all their interactions
with brands, and supermarkets are no exception. Retailers that are unable to provide the products
shoppers want, at the prices they are willing to pay, will find their customer base dwindling.
Retailers that can adopt a total store approach will be able to increase sales and profitability in the
short term, and boost customer lifetime value for the long term.
CASE IN POINT
Personalized Marketing Improves
Campaign Results “Because
personalized offers
target an individual
through use of a
unique identifier,
[retailers] are fully
able to marry up
shopper strategies
with product loyalty
dynamics across
in-store and on-line
channels.”
— PROMOTION
OPTIMIZATION INSTITUTE
AND PRECIMA
ALIGNING MERCHANDISING & MARKETING DECISIONS WITH SHOPPER PREFERENCES 7
Retail TouchPoints is an online publishing network for retail executives, with
content focused on optimizing the customer experience across all channels.
The Retail TouchPoints network is comprised of a weekly newsletter, insightful
editorial blog, special reports, web seminars, exclusive benchmark research,
and a content-rich web site featuring daily news updates and multi-media
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Precima is a global retail strategy and analytics company that provides
tailored, data-driven solutions to retailers. Leveraging deep analytics,
Precima helps companies improve their competitive position across
assortment, price and promotion optimization, targeted marketing, and
supplier collaboration. Precima is part of LoyaltyOne, an Alliance Data
Fortune 500 Company.
Precima can help you deliver on the full promise of customer-centricity
with Total Store Optimization using machine learning to optimize
merchandising and marketing decisions across the entire store for all
categories simultaneously, the same way your customers shop the store.
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