The shelf may well be the most precious real estate in the consumer-retail value chain: In some categories, as much as 80 percent of all purchase decisions are made at the point of sale. Regardless of how much effort went into promotion or product design, the shelf is the point where the consumer meets the retailer, the brand, and the product. The outcome of all those relationships and the buying decision depends entirely on what happens halfway down Aisle 2.
Yet surprisingly little is known about that interaction. In fact, many crucial shelf-space questions are still surprisingly difficult for retailers and manufacturers to answer on the basis of anything but gut instinct. How much is this store’s shelf space worth? What products and brands would make the most profitable use of my space? What products and assortments drive the greatest growth at the shelf? How do I make sure that these are the products my customer wants? These essential questions are still very difficult for retailers and manufacturers to answer.
It doesn’t have to be this way. If retailers and manufacturers had an objective and easily duplicated metric for shelf-space profitability, they could craft better decisions about which products to stock and how to best make use of all that space. Retailers would know which products to carry and which brands to push. Manufacturers would know which promotions were working and which products were underperforming.
The idea isn’t new. In fact, a number of companies have tried to develop ways to find this missing benchmark but have never been able to create a solution simple enough to make the measurement useful. Technological approaches to measuring shelf profitability, such as the use of data from RFID tags, have turned out to be too expensive and complex to serve the purpose. Furthermore, the high level of distrust that typically exists between retailer and manufacturer has made it difficult for the two parties to collaborate deeply on anything, including data sharing.
Fortunately, there are relatively simple ways to measure shelf-space profitability (SSP). The first step is to calculate the cost per linear foot of space in the store network, including all product-related costs: for instance, total store costs, internally funded marketing support, distribution, and servicing and repairs. Next, to understand the overall costs associated with selling a particular product across the store network, apply these total costs to the space allocated to the product in a store. Apply this shelf-space cost to the net cash margin that the product or brand generates across the network to find the SSP for a given manufacturer, category, brand, or set of products and thus better understand growth and profit contribution. By using this metric, retailers and manufacturers are able to learn not only which items are most profitable, but which are most profitable given the amount of space each item uses.
Better information about product performance enables retailers to make better stocking decisions. Better stocking decisions, in turn, make it easier to build a strong relationship not only with manufacturers but with consumers as well. Stocking the right products in the right places is a good way to engender consumer loyalty toward both the store and the brand. Everyone wins with good shelf-space profitability metrics: The store earns a reputation for carrying a strong assortment of goods that are always available, and the manufacturer
can focus on stocking product lines that are recognized as winners.
Source: Booz Allen
Yet surprisingly little is known about that interaction. In fact, many crucial shelf-space questions are still surprisingly difficult for retailers and manufacturers to answer on the basis of anything but gut instinct. How much is this store’s shelf space worth? What products and brands would make the most profitable use of my space? What products and assortments drive the greatest growth at the shelf? How do I make sure that these are the products my customer wants? These essential questions are still very difficult for retailers and manufacturers to answer.
It doesn’t have to be this way. If retailers and manufacturers had an objective and easily duplicated metric for shelf-space profitability, they could craft better decisions about which products to stock and how to best make use of all that space. Retailers would know which products to carry and which brands to push. Manufacturers would know which promotions were working and which products were underperforming.
The idea isn’t new. In fact, a number of companies have tried to develop ways to find this missing benchmark but have never been able to create a solution simple enough to make the measurement useful. Technological approaches to measuring shelf profitability, such as the use of data from RFID tags, have turned out to be too expensive and complex to serve the purpose. Furthermore, the high level of distrust that typically exists between retailer and manufacturer has made it difficult for the two parties to collaborate deeply on anything, including data sharing.
Fortunately, there are relatively simple ways to measure shelf-space profitability (SSP). The first step is to calculate the cost per linear foot of space in the store network, including all product-related costs: for instance, total store costs, internally funded marketing support, distribution, and servicing and repairs. Next, to understand the overall costs associated with selling a particular product across the store network, apply these total costs to the space allocated to the product in a store. Apply this shelf-space cost to the net cash margin that the product or brand generates across the network to find the SSP for a given manufacturer, category, brand, or set of products and thus better understand growth and profit contribution. By using this metric, retailers and manufacturers are able to learn not only which items are most profitable, but which are most profitable given the amount of space each item uses.
Better information about product performance enables retailers to make better stocking decisions. Better stocking decisions, in turn, make it easier to build a strong relationship not only with manufacturers but with consumers as well. Stocking the right products in the right places is a good way to engender consumer loyalty toward both the store and the brand. Everyone wins with good shelf-space profitability metrics: The store earns a reputation for carrying a strong assortment of goods that are always available, and the manufacturer
can focus on stocking product lines that are recognized as winners.
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