Retailers are always looking to bring in more earnings, either through their existing revenue streams, or by introducing new products and/or services. Today more than ever, the retail industry seems to be focusing more towards the latter: in order to stay competitive and keep revenues rising, retailers are expanding through increased product and service assortment.
Within retail, buyers are evaluated and measured by the revenue and operating margins associated with the products they procure. If they decide to onboard a new product in order to increase assortment, what is the next step? How will the item be sold? What does the retailer need to do to ensure this new product will stand out amongst the hundreds of other already existing products or services?
Whether through advertising, discounts, or special events, heavy promotional efforts might be needed. When they start selling the product, it must be on the shelf in the right location, in every store. Many of these new products or services will go hand-in-hand with existing goods in the retailer, and they should be placed to encourage bundling, creating the “Halo” effect. For example, when Best Buy implemented their Geek Squad service, they made sure to put it right next to the computer section, an area where most people need the Geek Squad assistance.
If the new product isn’t in the right place, or is not shining the way it was intended by the merchandising teams, and the retailer did not follow the agreed upon plan-o-gram, odds are the product will not sell, and the goal of increasing revenue will not be achieved.
How will a retailer know which stores are selling more of this new product, which are selling less, and most importantly, why is this so? Is their promotional effort insufficient? Is the product display lacking in appeal? Are they out of stock? And if the poorly-performing store alters their practices to reflect what the successful store is doing, will they sell more?
The traditional way to determine the cause of the problem is to go to the stores and observe their practices. These store visits cost a lot of hours, and some retailers are engaging their vendors to help the merchandising team making these visits. However, this is an insurmountable task for many global retailers with thousands of store locations. While they may be able to compare same store sales, retailers lack the ability to perform item level analysis to determine root causes impacting the difference in sales.
Profit amplification makes the task of identifying “why” obtainable and easier to accomplish. The algorithms in the solution will search for patterns of what product is selling more (or less), in what stores, and provide reasons as to why. With the patterns identified, one can take this information and analyze the stores on the bottom, prioritizing them as opportunities and translating them based on best practices to tasks to be performed either by vendors, merchandising teams or the store associates themselves. The opportunities will also enable the retailer to do a value-visit to the necessary locations, as opposed to randomly visiting stores that will most likely result in wasted time and resources. Visiting the identified stores allows the retailer to pinpoint exactly what needs to be changed in the store to raise the new product line’s sales, increasing total revenue, therefore profits, as a whole.