By Bill Scott, founder of StoreReport LLC & Scott Systems Inc.
Convenience stores make the perfect test labs for statistical analysis, because they offer an environment where the slightest change may have immediate, far-reaching and noticeable effects. In these compact environments, the addition of one inappropriate item can have a ripple effect that generates tsunamis throughout the entire store.
For example, when a manufacturer announces a promotion that forces a store to drastically reduce the retail price on a single item, the effects on other items within the category and even outside of the category may have consequences that are almost impossible to detect until the end of the month when you see a drop in a category’s overall profitability.
Moving more products off your shelf does not necessarily mean greater profits for you, and you should be aware of this. Suppliers may juggle their prices to get your attention, but the advantages often stop there. According to Barton Weitz and Robin Wensley, in their book ‘Handbook of Marketing’, “Promotions induce a brand switch by increasing the utility of a brand that otherwise would not have been purchased.” But, are you sure this is what you want?
With only 30% of the items in categories producing a profit, the effects of a promotion on an item producing significant profits can result in a disaster. These results may appear to be trivial in a grocery store environment just as a huge boulder tossed into the ocean has little effect on its environment, but if you drop the same bolder in a small pond, for example a convenience store, you could suffer a serious loss in the category.
For that reason alone, it makes sense: the result of introducing promotional items in such a tiny landscape should be carefully studied beforehand. This takes time and effort you may not have at your disposal, and it makes the problem even more critical.
The next time your supplier announces a promotion, stop and ask yourself, “Who’s going to benefit by this reduction in prices? The supplier or the store?”