How Marketplace dulls the edge of Merchandising (2)

In the first part of the blog, we saw that traditionally, a merchant’s role had three important components to it:

1. Select merchandise and make it available to the customer

2. Protect the profitability of the retailer

3. Protect the branding and values of the retailer

We discussed how the market place, and a number oriented approach to merchandising has taken away the role of the “artful” merchandiser, who had to make several judgement calls.

In this piece, we will examine how pricing, and thus the profitability of the retailer has been impacted by the marketplace.

Out of literally thousands of items that a retailer can sell, the traditional approach was to select a few, perhaps a couple of hundred thousand, and focus on making profits from these. Some of these items were priced lower to attract traffic. Some items were sold just because their customers would expect the retailer to offer these items. Yet others were stocked and sold to be in tune with seasons, whilst some of these items were sold to make it convenient to the consumer, for example, ready-to-eat-meals, ties and stockings, single serve beverage cans, etc.

But, the most important was those items that the retailer was known for, where consumers expected value and an expectation of exclusivity.

In general, the traditional approach was to make margins from the last category, the convenience category, and the seasonal category during the season. There was a definite expectation that when new items were introduced, the margins would be high, and that these margins would decrease as the merchandise became less novel and more accepted. On seasonal items, the expectation was that, during the season, the margins were high, and that after the margin, any merchandise remaining would be disposed off at increasingly lower margins.

Before the advent of comparison shopping and dynamic pricing, prices used to fluctuate depending on the lifecycle of the product or seasonality.

With the advent of comparison shopping, where prices are widely available on apps, price transparency is common place, and consumers can easily migrate to those places where lower prices are available. During the early days of online shopping, consumers would walk into physical stores to look at the product, learn about its features, then use an app to locate the lowest price, and buy the same product from the lower priced retailer (which often was Amazon). Called showrooming, this caused the best retailers to revisit their pricing strategies. Price matching became common, and retailers often coped by encouraging add-on sales.

When online retailers changed their prices, so did the brick and mortar retailers. By offering superior service, and better product knowledge to their consumers, retailers managed to survive and thrive in the era of extremely competitive pricing and margin protection.

Market place, comparison shopping and dynamic pricing has taken away the smugness of most retailers, who now have to compete for their consumer’s attention in order to remain profitable and survive.

Post by Mani Subramaniam (@ManiS ), President, Business Focus at Litmus7