By Bill Scott, President, StoreReport LLC
Recently, my friend Mel Haynes Sr. and I have been having conversations regarding how products can affect behavior in retail. I will call these ‘Behavioral Products.’
I have often said that all products are interlinked with every other product in one way or another. Sometimes the link is glaringly apparent, sometimes the link is subtle and sometimes it is all but invisible; but, the bottom line is, even though we may not notice, Behavioral Products do exist, and we can use them to double, triple or even quadruple profits in retail stores.
Behavioral Products can be permanent or temporary, and the effect one product has on others can vary from one retail location to another, dependent on how the behavior affects consumers in a particular neighborhood.
I have written about how Ben & Jerry’s New York Chunk outsold Cherry Garcia in one store, and in another store of the same chain, located merely a mile away, the situation was reversed.
Here is a simple example: A drink vendor announces a promotion where a certain soft drink will be reduced from $1.99 to 99-cents for the week of the promotion. The vendor’s purpose is to move overstock of a particular product out of his warehouse, and he tells the retailer that the promotion will drive traffic into his stores. However, what the retailer doesn’t realize is that the lower price of the product being promoted, will adversely affect the sales of products that normally produce higher profits, resulting in an overall loss for the retailer, and the advantage of driving more customers into the retailer’s store is usually short-lived (if it affects traffic at all), with the net result being a loss of profits that are permanently unrecoverable.
If a reduction in cost of certain products can result in the cannibalization of profits on other products, is not the reverse also true?
Think about this. Mel Haynes Sr. has come up with a formula that efficiently models the effects of thousands of products on other products in individual retail locations. I alluded to this in a recent article where we found that sales of a particular brand of potato chips increased Coke sales in one store. In that case, the potato chips in question drove Coke sales.
Mel and I discussed an interesting theory that if product A drove product B’s sales, and product B had a much higher profit (in terms of dollars), dropping the price of product A could, in theory, increase the sales of Product B, and the profits from the increased sales of Product B could overshadow the losses of profit in Product A by a wide margin.
By clustering ‘driving products’ of lesser profit, in the vicinity of a target product that produces a higher profit, we are in effect, controlling the sales and increasing profits from the sales of the target product.
This is HUGE, because rather than cramming the store full of products according to Category, we can set up an individual store in a way that will epitomize the profits produced by the store’s sales. In other words, through the manipulation of the prices of the ‘driving products’ we can affect sales and profits from products with greater profit margins, thereby increasing profits over the entire store.
Soon, we will be presenting some pictorial examples in the Convenience Store Supply Chain Forum in LinkedIn that will help you to understand the theory of “Behavioral Products” in greater detail.