Micromerchandising is entering a new era of high technology and even higher efficiency.
With retailers increasingly able to tap into their own advanced point-of-sale data bases and then turn to third-party firms to supply critical information and analysis, micromerchandising is surging in importance as a potent tool.
The goal of micromerchandising programs is to target specific consumer groups, ranging from a particular store's most loyal customers to neighborhood ethnic groups to high-income families, as a means of spurring sales and building profits.
Although the promise of micromerchandising is not new, the capability of implementing highly successful programs is expanding. More and more retailers are turning to these types of programs to capture incremental sales.
Shaw's Supermarkets, for one, is making considerable use of increasingly detailed demographic data and sophisticated micromerchandising tools as part of its strategy to expand from a primarily suburban chain to one with stores in a large number of ethnically diverse urban areas, said Gary Bienefeld, director of market research for the East Bridgewater, Mass.-based chain.
"Shaw's initially was a suburban chain, but now we've been going into more urban areas and are catering to a large number of new customers. We've had to change our merchandising philosophy to take care of their needs, and micromerchandising has been a big part of that philosophical adjustment," Bienefeld said.
A key micromerchandising priority has been to tie in specialty foods promotions to target specific ethnic groups near particular stores, he said.
"Through research we purchased from a commercially available data base, we found that several of our newer stores are located in neighborhoods with a high percentage of Italian-American and Puerto Rican consumers," Bienefeld said.
"We can tie that information in with store volume, and then recommend specific allocations of specialty food stockkeeping units based on demographic findings and store demand," he said.
A number of other chains also are using demographic data, often in conjunction with third-party companies, to make decisions about how best to implement or expand their micromerchandising programs.
Stop & Shop Supermarkets, Quincy, Mass., has been using demographic data to reconfigure some of its stores to better meet the needs and demands of consumers in various neighborhoods.
"Since we've been using the research, we have been merchandising more value-added items like flowers, videos and imported foods in our stores in the more well-to-do areas. Similarly, in stores in less well-to-do areas, we've been doing more price specials," said a source familiar with the chain's operation who asked not to be named.
Food Emporium, a division of Montvale, N.J.-based A&P, for its part is now combining a discount frequent-shopper card-based program with detailed neighborhood demographic research from an outside company to tailor store-by-store merchandise mixes.
As one result of the program, Food Emporium has now added a wide range of new baby categories, such as additional baby food lines and toys for infants and toddlers, to many of its stores in neighborhoods with a high concentration of young married couples.
The growing success of micromerchandising programs can be traced directly to advances in the ability to gather and analyze information, both store-based and neighborhood or regional demographic data, retailers and industry observers interviewed by SN said.
Much of the in-store information is derived from card-based systems, ranging from check-verification to full-fledged frequent-shopper programs. Other vital information, though, is obtained from outside research companies who can analyze the data in detail, supply additional crucial neighborhood demographic data, or both.
Advances in technology and the analysis and application of demographic and point-of-sale data has resulted in the development of increasingly sophisticated and successful micromerchandising programs. Among the keys to this new era of micromerchandising prowess are:
· The ability to process research findings much more quickly, thus ensuring a more effective response to market conditions, including marketing campaigns of competitors.
· The ability to validate and statistically quantify information about a store's consumer demographics and shopping patterns. Until recently, determining these types of specifics was more a matter of theory, feel or guesswork rather than scientific fact available on an almost just-in- time basis.
· The ability to rely on new, more accurate information and forecasting programs to design merchandising campaigns and meet projected customer demand.
· The ability to rely less on just zip-code clusters, which often do not truly represent store market areas, in favor of more reliable demographic information.
"The old way [of micromerchandising] was to assume that a store's demographic profile conformed to the zip code demographics. But that has now been proven to be way off," said one retailer at a large chain in the Midwest.
"You could have one store a block inside the outer boundary of one zip code, yet the brunt of the customers might be coming from a neighboring zip code with a different ethnic makeup or income profile," said the consultant, who asked not to be named.
"Technology has made us far better equipped to look at who shops where and why they buy what they buy," he said.
The practical applications of the research now available to retailers ranges from what or how much in-store media to purchase, based on store potential, to revising inventory levels, to coordinating direct-mail campaigns based on consumers' income levels, ethnicity, degree of home ownership, or other variables.
While the exact methods and type of information and data sources used to implement micromerchandising programs vary, many chains, large and small, are moving forward aggressively with new programs to do a better job in reaching consumers.
Some launch micromerchandising campaigns based on demographics of individual stores, while others base their approach on "clusters" involving several stores.
To a large extent, many of Kroger Co.'s marketing divisions are now using data about individual store neighborhoods from outside demographic research firms to improve their micromerchandising success rate. Household statistics for a given radius from each store -- most commonly three to five miles -- are used to generate micromerchandising information. Because high income generally correlates with education, and education often correlates with healthy dietary practices, Kroger is expanding its health food sections in several well-to-do stores in the Atlanta market area, for instance.
In addition, the program is being backed up by a direct-mail couponing campaign to frequent shoppers at the stores involved in the program, said a source at the chain.
Dominick's Finer Foods, Northlake, Ill., on the other hand, is taking a slightly different approach to defining its trading areas and developing more sophisticated programs. It is relying on demographic information from a company to break down its store trading areas into "quartiles."
Quartiles, based on neighborhood population, are designated in geographic areas radiating outward from the specific store location. For instance, in one Chicago supermarket, the store's first quartile ends within a few blocks of the location. The next three quartiles end at two, four and six miles from the store, respectively. The number of frequent shoppers within each of the quartiles, as well as other demographic variables, are then analyzed and a micromerchandising program devised.
Not every retailer, though, is relying on outside research and information firms to acquire and analyze demographic data. Some retailers, especially those in areas that may not have a high level of demographic variance between stores, are conducting the research and implementing micromerchandising programs on their own.
"We are investigating micromerchandising through our own customer base using our own scanning data," said Steve Brinn, vice president of research at Hannaford Bros., Scarborough, Maine. "In our particular situation, with the markets we compete in, we don't have a lot of demographic variance in most of our stores."
That doesn't mean Hannaford is not implementing micromerchandising programs though, Brinn stressed. "There are applications from this information of considerable interest to our category managers in terms of fine-tuning our offerings."
Pet food was one key example cited by Brinn. Hannaford found that dog ownership correlates strongly in home-owning families headed by males. Cat ownership, on the other hand, is more common among female renters.
"We might use that information to compare the potential for dog food sales from store to store. We could compare category and product sales figures from store to store, and use that information to evaluate store performance or develop promotional programs. We could look at product movement at the specific stores, and be able to tell where we were or weren't doing well," Brinn said.
At that point, corrective action could be taken where needed, ranging from adding supplies or lines to increased point-of-purchase advertising to running more aggressive price promotions.
Yet not every retailer is ready to take the plunge and implement extensive micromerchandising programs, even if they have much of the necessary basic information available. "Through our frequent shopper programs, we have the capability of generating data profiles of 700,000 customers by store sets," said Wes Vosburgh, director of marketing services for Smitty's Super Valu, Phoenix. "Whether or when we use this information for detailed micromerchandising programs, though, will depend on many variables. We have not yet made a firm decision about our future involvement with it."
According to at least one industry observer, there are two key obstacles hampering some retailers from rolling out more advanced and far-reaching micromerchandising programs. They are cost and complexity.
"All the information now suddenly available enables retailers to micromerchandise their stores and configure their inventory better. But the data-processing task to spin off actual, useful data can be quite immense," said one consultant, who asked not to be named.
"The cost of manipulating the data to be useful can be exceedingly high. So with many retailers, there is a real cost-benefit equation going on, and many of them say they don't really need all that information," he said.
What is needed now for micromerchandising programs to take off on an even wider scale is "an internal realization at the retailer headquarters level that obtaining and using demographic information is worth it.
"So many retailers are under the gun, working on very tight margins. They know [the use of information to devise micromerchandising programs] is an opportunity, but it becomes 10th on their must-do list each day."
But many retailers, clearly, are exceedingly bullish on both the technology and the applications of data to micromerchandising, whatever the particular method.
"We're feeding specific store and customer demographic information in with our space management program," said a retailer at a large chain on the West Coast.
"From the big picture perspective, we are looking at all the store variables, from section size to specific items. We know there's not a single best-approach yet. We know the ways we collect and use data are new and still evolving. But we also know this is definitely the way to go," he said.
