Consumers typically shop multiple categories on each trip to the store, the items in their cart representing a wide selection of products available at the chosen retailer. This is called the market basket.
There's a tremendous opportunity to better understand consumer shopping behavior and take full advantage of this important phenomenon, the goal being to have consumers purchase more of the items on their shopping list in your store and not with competitors. This can be accomplished through cross category promotion.
Savvy retailer to the rescue
Smaller manufacturers don't always have the ability to promote across different categories or brands given their limited product selection and buying power, nor do they always have the relationships or network to effectively promote with complementary items. This is where the savvy retailer can help.
Larger CPG companies are able to take advantage of these synergies to help grow sustainable sales for their brands as well as for the retailer. There have been countless market basket studies performed that highlight the value of promoting items together across categories. For example, promoted diapers might achieve a 175 percent lift (sales increase). Promoted baby wipes might achieve a 125 percent lift. But, when promoted together, the two items might achieve a 240 percent lifft. Both diapers and wipes found in the same customer’s shopping basket means more money spent at that retailer. This is in addition to all of the other items in their shopping basket, which is why families make such good customers.
Think of products that naturally go well together like milk and cereal, peanut butter and jelly, chips and dip, etc. Savvy retailers can and should help coordinate promotions with manufacturers to sell complementary items to maximize sales.
A lot of retailers think of margin (the percentage profit) from an individual item standpoint. This limits the item’s ability to compete effectively in the market and might actually hurt sales performance. Margin should be managed at the category level, spreading the margin goal across all of the items in the category and allowing you to compete more aggressively on popular top-selling items in the market.
Your shelf stable non-dairy beverage category has 10 flavors, for instance, compared to only three flavors at your competitor. They can only promote plain, unflavored and vanilla. To compete effectively, you aggressively promote the top three flavors at a more competitive price and then mention that you have other flavors available but that they are not on sale.
This allows you compete more effectively while building excitement around the unique flavors, all while achieving a higher overall category margin than your competitor and giving customers another reason to become loyal shoppers—a wide variety of unique items. This strategy gives the small retailer a competitive advantage.
Assessing margin goals by market basket size is an even better approach. It allows you to target your consumer’s unique purchase habits. This strategy also allows you to better understand your customer’s needs. A satisfied customer is the best form of consumer loyalty.
What strategies do you use to manage your margin goals?