Saturday, November 28, 2009

Crossover Merchandising


In times like these when consumers don’t come easy and loss of revenue is easier done than said, some Indian retailers have been smart enough to deploy a strategy that allows them to manoeuvre shoppers’ impulses even as customers undertake pre-planned shopping trips.

If one thought that the key to success for any retail business in India lay in inflating the number of stores, better supply chain management, technology deployment and such incomprehensible jargons, there is something more subtle that has been evident all across, yet has evaded our eyes because we never realised our shopping may have been manipulated by the retailer.

Cross merchandising is a practice that works on the principle that there is an element of lateral thinking and logic in a consumer’s purchase, and thus this technique can be made use of not only to make shopping more convenient for the existing customer base, but also to poach a new set of consumers. While to a retailer, such a practice leads to incremental sales, for the consumer it is shopping assistance without much cognitive effort. Sample the instance of cross-selling, (which though differing from cross merchandising follows the same marketing principle) at McDonald’s, when consumers are unfailingly asked if they want French Fries and a beverage to go along with their order.

Deploying lateral thinking, cross merchandising is thus based on the concept of lateral marketing, which is a work process which, when applied to existing products or services, produces innovative new products and services that cater to new needs and situations and hence, offers a high chance of creating new categories or markets.

Defining cross merchandising from a retailer’s perspective, Samar Singh Sheikhawat, VP, marketing of Spencer’s Retail says, “Typically complementary products that make up similar buying behaviours for the consumers are defined as cross merchandising. It could straddle displaying and selling a product, promoting a basket of goods and visual merchandising as well.”

An extremely interesting characteristic of this practice is that it is intricately related to studying shopping behaviour and adapting merchandising of retail stores as per demands of the catchments. However, the technique also works backwards in that a retailer can educate his consumer as to what all additional products can go along with his usual basket of goods. Viney Singh, MD of Max hypermarkets explains: “Cross merchandising is the practice of displaying products from different categories together, which is aimed at improving the overall customer experience. Hence, we provide such opportunities to the customer to primarily facilitate convenience while shopping. It also generates additional revenue or incremental purchase.”

“A customer may not always remember every item on her shopping list and so a little prompting always helps. Hence, cross-merchandise is a very important aspect of retail, both from the customer journey experience as well as from the retailer’s financial viability. It creates a win-win situation for both the retailer and the customer.”

Thomas Varghese, CEO of Aditya Birla Retail Limited corroborates, “Cross merchandising is the setting up of displays of complementary merchandise so that they are placed near each other. Therefore, the customer shopping for one item gets tempted to ‘cross-over’ to other related product placed near it. It is definitely a powerful medium to boost sales, if deployed correctly.”

Having said that, cross merchandising is a tool that works across categories, but in the process of execution, not every category turns out to be so convenient to cross-present. For instance, in the frozen foods category, there are operational issues that factor in because this segment is highly ‘equipment-dependent’ and this is compounded by the space constraints that many modern food retailers face. Singh states that in this category (frozen foods) it becomes difficult to display the frozen foods’ complementarities along with the refrigeration units where these foods are stored.

While there is substantial unanimity in retailers’ views on the frozen foods segment, there is also subjectivity in the way a retailer perceives the difficulties in cross-presenting different categories.
Cross-aisle merchandising – placing related items on facing shelves – is an offshoot of conventional cross merchandising thinking.

Sheikhawat says that largely all categories are feasible for this practice; however, it is the staples section that is a mite tricky to display in a visually attractive manner. “It is very difficult to bring in the elements of aesthetics and glamour, for instance, in a rice shelf. At best, there is a possibility of putting it together with certain utensils like a rice plate or a storage container, but that still does not really prevent it from looking drab,” he says.

“All categories generally offer some promise to cross merchandise. It is most often the extent that varies,” says Singh. “For instance, in the range of utensils, most SKUs can be cross merchandised, but the same cannot be said for luggage, which is a difficult category in which to do this. Most foods are crossed with general merchandise but due to space constraints, it becomes physically impossible to display the merchandise properly.”

Varghese informs that for him, health and baby food supplements are most difficult to cross-merchandise. “In ‘planned-shopping’ categories like fruits and vegetables and staples etc, it gets tough to cross-present as the customers who come to shop for these categories have a pre-set shopping plan and a budget that has limited flexibility. This concept does really well in impulse purchase items,” he notes.

Impulse planning

While it is largely considered that cross merchandising is more effective in triggering impulse purchases, there are varying opinions on the same. Worldwide, and as Sheikhawat also mentioned earlier, this practice is an integral part of in-store merchandising since it is proven to be a tool for boosting incremental sales. The technique has been a rage among all the retail stores in the west as the motive has been to maximise the gross profit per shopper.

“Cross merchandising is fundamental to retail, and boosts incremental sales and impulse purchases. However, one should be careful to the extent and the way in which it needs to be done. This is very important as consumers may get confused if it is overdone,” Singh says. “Cross merchandising is not limited to tapping impulse purchases only – it helps to give ideas to consumers. They are then free to choose from a range of products that the cross merchandise represents.”

Singh informs that the kitchen linen category at Spar recorded a 22 per cent increase in sales owing to it being cross-presented with kitchen utensils. “This is a form of ‘suggestive selling’ and often it creates a thought process that may not have existed in the customer’s mind previously. This often then translates into planned purchases,” Singh states.

Elaborating on the practice at More stores, Varghese says, “We use different permutations and combinations of presenting snacks and beverages, sweeteners with tea and coffee, noodles with soups, oils with wheat flour, rice with flour, sugar with rice and, oils with fruits and vegetables, etc.”

“Broadly, the categories we do this (cross-merchandise) in at Spar are utensils, kitchen linen, travel, toys, stationery, small appliances and in a more limited way in food and grocery,” Singh elaborates.

“We are currently applying the practice by cross merchandising between and within various non-food categories like utensils with kitchen Linen or Irons with Ironing Boards, cookers and non stick with grinders and mixies, buckets with detergents, cartoon mugs with children’s gifts, lunch bags with lunch boxes /water bottles, note pads with telephones and bath towels and bath salts/oils,” he adds.

“The direction will be to smartly cross merchandise between food and non-food categories, something we have begun to do. For instance, apples and pairing knives, toys and batteries, wines with glasses, cheese with cheese boards and knives, peppermills with peppercorns, and so on.” Some more examples in the food & grocery categories are sauces, mustards and spices being merchandised at Spar delicatessen counters, syrups, toppings, masalas in the frozen foods segment, the pet food category placed next to garden plants, snacks & cold beverages in the liquor section, wine glasses in the wine section, and masalas and dry fish in the fresh fish & meat counters, according to Singh.

What’s the right cross?

After seeing the differences in the extent of cross merchandising at India’s leading retail stores, the next issue that comes to mind is how two merchandise categories are aligned together so that they make for a perfect cross-merchandise display. This is, in fact, the point that Sheikhawat contends is that the biggest challenge in cross merchandising – to understand which category goes well with which one. Thus, while a particular retailer may present cheese with a cheese grater, another might display cheese with wine or olives or even bread, depending on the demands of the respective catchment. Sheikhawat suggests that in a cosmopolitan location, one could probably do an Italian book with olive oil, or an Italian music CD, but in a tier II town one would need to be more grounded in basics – with presentations such as a cola with a pack of chips, and so on. However, Sheikhawat specifies that consumer receptiveness for cross-presented merchandise remains the same across all catchments. Singh agrees. “Products may vary across different catchments, but the concept remains constant as customer behaviour is much the same in all locations,” he points out.

“To be effective, cross-presented merchandise must relate in a logical way. For example, coordinating items that would be used together, such as pasta sauces, pasta cookware and pasta cookbooks; items that are colourcoordinated, a range of products that offer customers choice within a particular category such as cappuccino or espresso coffee-makers and plain or patterned dinnerware that can be mixed and matched, products that offer themed ideas such as baby gifts, stocking stuffers or a fondue story,” he adds.

Sheikhawat believes that cross merchandising, from the display point of view, is more of an art than a science. However, even as an art, the cross merchandising technique has more to do with the category management philosophy, he adds.

The next level

The practice is certainly no cakewalk and there are numerous operational hurdles to it. Singh elaborates that primarily space constraints, assortment issues and certain operational implementation issues have been
deterrents to this practice being embraced in India to its fullest potential. Varghese reiterates this when he says, “There are a number of implementation issues at the store level.”

Elaborating on the assortment issues, Singh says that at times it becomes difficult to cross merchandise the complete assortment of a particular product. For instance, there may be an excellent range of cheese knives available with a store, but at the cross-merchandised point it becomes hard to decide which one to cross present, even as the whole assortment deserves an exposure at such location.

Sheikhawat holds that it is also difficult to templatise the results of cross merchandising, from the viewpoint of indicating its impact on sales, footfalls and such other aspects.

That being said, if the practice in more developed markets is anything to go by, cross merchandising has been used as an extremely flexible tool, which incorporates crossselling, cross-promotions, crosssampling and even cross-presenting non-complementary categories.

Cross-aisle merchandising, which includes placing related items on facing shelves, is another offshoot of the same. This perhaps, could prove useful when presenting the whole assortment becomes important, something that Singh spoke about earlier.

Further, while convenience is the driving factor behind cross merchandising, it cannot be denied that it is also a potent tool to alter shoppers’ preferences and behaviour inside the store. Thus, while the loyalty of a shopper may rise with greater convenience of shopping, a new set of consumers may be created by exposing them to all that the store has to offer. The aspect of loyalty however, can only be better gauged if a retailer has a successful loyalty programme by which one can evaluate a consumer’s basket and then make efforts to expand it through better cross merchandising.

Moreover, the ‘suggestive’ characteristic of cross merchandising has been aggressively utilised by retailers in the west to build traffic and to cater to the existing customer base in a better manner. Many western retailers have been experimenting with ‘category destination programmes’ by re-routing shoppers from high-traffic zones to lowtraffic areas in order to boost the turnover of the low-traffic categories. Thus, shoppers at the relatively high-traffic baby diapers section can be routed to a laundry baskets’ department, for instance, while at the same time being supported with an appropriate advertising display and promotion.

Saumil Thanawala, director, marketing of Amalgam Speciality Foods, however, expresses caution when cross merchandising is being used to promote a relatively weaker brand or category. “Cross merchandising should be done in the right light so that it helps the retailer build consumer loyalty and preserve the brand image as well,” he cautions.

The end result

There indeed is a long way for a niche practice as cross merchandising to evolve in India. There is perhaps, also a need to expand the scope of this exercise, to include superior exposure to a large number of brands, as brand loyalty in India is still low in many categories and there is a huge opportunity for every new brand to leave a mark.

However, before that is achieved, retailers need to put in place more efficient Market Basket Analysis (MBA) methods which, among other things, would help them gauge a shopper’s price point sensitivity; a consumer’s likelihood to substitute items due to cross-promotions, out-of-stocks or item deletions; customer base for different brands and, consumer segment purchase preferences and traffic analysis. This would not only help in better management of categories, but also in building ‘consumer-centric merchandising.’

Last but not the least, the concept of collaboration with brands will need to transcend the battles of margins and slotting allowances. Cross merchandising is more about creating a consumer base for posterity.

Since there are no statutes to dictate and oversee the implementation of cross merchandising, there is always a room to tailor the practice if the retailer is benefiting from it. Sheikhawat and Singh admit that brands and manufacturers are quite receptive to this practice. “Some manufacturers who have been in business for long enough and who understand modern retailing would understand the concept and benefits of cross merchandising,” Varghese concurs.

Having said that, it is equally important to know what the brand manufacturers think. Thanawala contends that cross merchandising is largely made use of by strong brands. “Weaker brands do not feature in this practice, as they are perceived in as slow movers, and hence, are kept away from promotions.”

“Getting across to a retailer with a cross-merchandise idea is usually time consuming; I would rather work with the brand manager I want to partner with, to get the promotion going. This way I can measure the effectiveness and also tweak the promotion based on consumer responses,” he comments.

“Many manufacturers appreciate the concept of cross merchandising,” says Singh. “But, as a whole, its implementation is left more to the retailer’s discretion at this stage. Cross merchandising is very likely to be a win-win gameplan if it is a collaborative effort.”

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