In the last issue of The Natural Foods Merchandiser, we introduced a way of strategically grouping natural products categories based on the way consumers use them and the role they play in the store. We dipped into the marketing implications and suggested that the classification system be used to inform pricing and add/delete strategies. Now we take the plunge into using category classification as a marketing tool.
First, a review. All the categories in a store can go into one of six classifications:
- Everyday Luxuries—High profitability; high traffic.
- Hidden Gems—High profitability; low traffic.
- Core Values—Moderate profitability; high traffic.
- Gap Stoppers—Moderate profitability; low traffic.
- Loss Leaders—Low profitability; high traffic.
- Fixer Uppers—Low profitability; low traffic.
Before proceeding, let's dispense with Fixer Uppers. No product or category should ever stay permanently in this classification. If your customers perceive any real value in these products, they will be willing to pay at least an average margin for them. If they don't perceive this real value, you shouldn't have these products in your store. Raise the price on Fixer Uppers or delete them.
The following diagram shows how you might lay out a category set based on the different classifications. Let's use the dairy department as an example.
Notice that the Gap Stoppers (buttermilk) are moved out of the prime real estate. They should be relatively easy to get to, but with no great emphasis. Keep the selection pretty tight—you can't afford to be tracking lots of vendors for items with slow turns.
The Loss Leaders (cow's milk, soy-milk) likewise get more marginal treatment. They should be easy to notice, because they do affect your price image, but you are not bending over backward to sell lots of them. Keep the selection to a few, well-respected brands. Meanwhile, sneak in some higher-margin Hidden Gems (kefir, smoothies) to suggest alternatives.
Core Values (plain yogurt) and Everyday Luxuries (packaged flavored yogurt) are the products on which you actually make most of your money. Be sure these have lots of visibility and variety. With Core Values, use the same device of "suggesting" unique Hidden Gem alternatives. This might mean putting higher-margin pizza cheese in close proximity to the cheddars and Swiss.
In addition to being spaced throughout, the Hidden Gems get prominent visibility just above the higher-volume stuff. This gives them the best chance of being tried. They also add excitement and variety to the category, so place them where your customers will be most likely to become aware of them.
Finally, use your topmost shelf as a place for backstock on all of your higher-volume items, regardless of margin. This will help you avoid putting lots of facings where the shelf space is at a premium.
A word about facings: Unless you have an enormous store, you would almost always rather have one carob soymilk next to one vanilla rather than two vanillas. Lots of variety in Everyday Luxuries, Core Values and Hidden Gems keeps these categories interesting for your customers.
The exception would be a product with such high traffic that you just can't keep enough of it on the shelf without a couple more linear feet. This may occasionally be true, though the situation might be avoided by having stockers hit the floor a little more regularly.
Now you are positioned to take this model to the next level. Use creative cross-merchandising to link higher-margin, value-added products to ordinary ones.
An obvious example is placing pasta sauces (Everyday Luxuries) next to the pasta (Core Values), but with a lot of unique specialty pastas (Hidden Gems) mixed in. Let traditional department boundaries blur a little as you think about the ways in which consumers actually use different products. Some items that "go with" lots of other items (like lemons or olive oil) might appear in many parts of the store. You will have room for this now that you have gotten rid of all those redundant facings.
Think of sampling in the same way. If you put samples of Core Value cheddar cheese out, your customers will happily eat them, but they probably won't buy any more than they otherwise would. On the other hand, if you offer samples of frozen Asian appetizers, or if you blend ordinary organic pasta with shallots and exotic Hungarian pasta sauce, you are encouraging your customers to try items with high value (and margin) that they might have overlooked.
Finally, don't use your endcaps just as a way of lumping together items on promotion. Think of ways to put themes together (Summer Picnics, Back-to-School, Winter Health, Mexican Fiesta), so that your Hidden Gems and Everyday Luxuries can piggyback on your promoted Core Values.
Category classification can also inform decisions on promotions.
Hidden Gems—Use relatively small promotions, in conjunction with sampling and cross-merchandising, to encourage trial. The promotions should be small and short so you don't change your customers' expectations for how these intrinsically high-value, high-margin items are priced.
Everyday Luxuries—Price promotions with an endcap in these categories will definitely yield a lot of success, particularly if you are using "3 for $5" or "Buy 2, get 1 free" promotions. Someone might actually want to buy three jars of pasta sauce, but they wouldn't buy three jars of mayonnaise. These promotions are more strategically successful if they emphasize new items in the category that don't yet have full visibility. But be careful about running too many price promotions on particular items or categories. They will start to erode consumer price expectations.
Core Values—Promotions in this category serve to moderate your price image. If a manufacturer is running a deal on these items, pass it all on and give the promoted items good visibility. You may not have margin room to do anything beyond what the manufacturer does, however.
Gap Stoppers—It is unlikely that you will do many promotions in this category, unless, for example, it is running a seasonal special on pectin for canners. Even in this case, traffic comes more from giving seasonal visibility to these categories, where it makes sense, rather than putting a big deal on them.
Loss Leaders—You probably won't have the opportunity to run promotions on these categories, since margins are already shaved pretty thin. You do, however, want to make your everyday low price visible both in the store and in any advertising you do.
The key is to continually ask yourself, "What is the role that this category plays in my department and in my store?" and ensure that your marketing strategy is consistent with that role.
Sherwood Smith is president of Blue Sky Marketing, a full-service marketing firm serving the natural products industry, in Traverse City, Mich. He can be reached at [email protected].
Natural Foods Merchandiser volume XXIV/number 9/p. 54, 56