Geo-merchandising, the other performance lever for your retail network
You already use geo-marketing for siting your sales outlets and optimizing your network structure. Geo-merchandising enables you to take this a step further by adapting your local offering to maximize each location’s profitability.
Geo-merchandising is a marketing approach that consists in locally adapting your sales outlets’ offering – in terms of product/service range and price architecture – based on the characteristics of the site location and catchment area, namely:
- the area’s socio-demographic make-up (household typology, the population’s age structure, income level, socio-professional categories, active/inactive/unemployed, renters/owners…);
- purchasing behaviors and habits, as revealed by the analysis of known customers’ buying histories (typically using the brand’s loyalty program) and the panelists’ market data;
- the type of site location area (town center, urban periphery, rural area, business district, predominantly residential area…);
- the specific cultural, geographical and climatic characteristics of the area in which the outlet is located influencing footfall and purchasing behaviors (mountain/seaside area, tourist hotspot…);
- competitors’ location and influence.
The aim is to cross-reference these various data to define, for each sales outlet or sales outlet category, the range/offering that will ensure both the optimal use of the available surface area, the highest stock turnover and, ultimately, the best profitability per m2.
Back in 2002, Pierre Volle, a professor at Paris-Dauphine University, emphasized that “in the case of the retailer [who] creates his range without taking account of geographically-related climatic, economic, demographic and psycho-sociological differences, the offering will probably be out of kilter with customer expectations. Consequently, the sales outlet’s actual profitability will be less than its potential.“*
This is especially true today when brands are replete with customer data they can leverage and when they can also deploy mobile technologies to develop omni-channel strategies, the efficiency and effectiveness of which are enhanced by geo-merchandising.
A precision weapon for food and generalist retail
Food retail brands were the first to acquire geo-merchandising technologies to strike the best possible balance between adapting the offering to the local context, pressure from consumer products manufacturers and other suppliers for shelf space, the integrity of their image, brand promise and, obviously, profitability.
Two factors encourage and amplify the use of geo-merchandising in food/generalist retailing:
- The increase in the number of store formats, which all the major food brands have pursued over the past 15 years or so. This diversification requires establishing, for each format, the basic range the consumer expects to find in one of this brand’s stores, independently of any geographical criterion. The breadth and depth of this basic offering necessarily vary according to the sales outlet’s surface area and catchment area profile. Integrated brands (with centralized management of their sales outlets) can therefore provide each store with pre-optimized planograms which, on the one hand, make it easier to put products on the shelves and, on the other hand, facilitate the planning of merchandising operations specific to the store (sales outlet animation, POS, promotions…).
Geo-merchandising also enables the brand to define the latitude left to each store to adapt its offering to specific local circumstances. Knowing that consumers’ current appetite forlocal/regional products is an important factor in attractiveness and loyalty, the local element of the range tends to increase, especially in independent brands such as Système U or E. Leclerc.
- The quest for complementarity and synergies between the physical network and online activities (e-commerce, drive and click-and-collect). Brands now know that their e-commerce site is not the enemy of their physical network. In particular, they have understood how to leverage the geographical dimension of customer knowledge for better targeting of their marketing activities (online and off-line) while simultaneously growing both their stores’ footfall and visits to their e-commerce site.
Indeed, it is already known that locating a store in a territory in which the brand had no previous presence has a very positive impact on visits to its website by the inhabitants of the new sales outlet’s catchment area. It has also been amply demonstrated that using geographical criteria to customize product recommendations on a brand’s e-commerce site generates both online sales AND store visits. This is at the nub of what is called dynamic geo-merchandising, which uses the web user’s IP address or his smart phone’s geolocation to show him what products are available in nearby stores and/or those that are the most successful at a time “t” within his geographical area with people whose profile resembles his own. The potential of this targeting technology is far from having been exhausted, its practical limit being the brand’s actual ability to exploit its targets’ location data in real time and sales and stock data.
An ally for all retail networks
Geo-merchandising is obviously not the preserve of food and generalist brands. Specialist brands also use these technologies, in particular those for which the geographical situation and seasons strongly impact store footfall and the product typology that customers expect to find there. For example:
- With gardening brands, each store must ensure not only that it offers plants that are appropriate to local climatic conditions at the right time but also that it adjusts its product mix to its customers’ practices: even if the vogue for “vegetable patches” is going great guns on urban balconies, potato and leek plants are less likely to find takers in the town center than in a rural or suburban area…
- Likewise, beyond the seasonal dimension, sports shops have everything to gain from developing the shelves dedicated to the most popular activities in their catchment area. It is not as easy as it seems: if no one is surprised that stores in a mountainous area have significant shelf space dedicated to winter sports and hiking, the same will also be seen in Parisian stores – simply because a significant proportion of their customer base pursues these activities and prefers to kit itself out before departure. If that seems to be basic common sense, you still have to be able to quantify these behaviors, requiring detailed analysis of the relevant product categories and quantities.
Geo-merchandising is also used in service activities such as banking and insurance, where territorial grid issues are accompanied by a logic whereby agencies specialize depending on the socio-economic characteristics of the catchment area. In this type of network, the objective is less about constructing a service offering specific to each agency than it is about assigning advisers with the right specialist skills to the right place to satisfy the local public’s expectations. Evidently, asset management advisers and art insurance specialists are more appropriate in agencies in upscale residential areas than in working-class neighborhoods… Geo-merchandising also helps large banking networks to make decisions about agency type – service center with numerous interactive kiosks and few if any staff, specialist agency or generalist agency – best suited to each area.
The pillars of geo-merchandising
At the nexus between statistical sciences, geography and marketing, geo-merchandising is a rigorous discipline requiring specialist knowledge and tools. This is why it is good to recall the following points:
- The unit of analysis and action being the catchment area, any geo-merchandising initiative necessarily begins by defining each sales outlet’s catchment area and its classic segmentation into primary, secondary, and tertiary area. This is the first pillar of a geo-merchandising initiative.
The catchment area’s configuration varies depending on whether it is calculated on an isochrone or isometric basis or based on real data flows (geolocation data). A mapping tool offering these different calculation options will enable the analyst to compare the results and industrialize both the calculations and cartographic representation of the catchment areas of all the sales outlets within the network.
- Geo-merchandising being a multi-criteria optimization exercise (defining the optimal range for each sales outlet as a function of geographical criteria), the second pillar is availability of the data for the appropriate geographical grid. It would be totally counter-productive to create a sophisticated theoretical model that appears satisfactory but which you will be unable to populate.
- As soon as you are confident that the (in-house and external) data that you want to use are available, the aspect requiring the greatest expertise is weighting the various parameters included in the model. If it is up to each brand to make the choices corresponding to its strategic priorities and organizational model, the assistance of a specialist consultancy is often the easiest way to access the required sectoral skills together with the data processing and modelling and scenario simulation tools, that are indispensable in successfully building a relevant model.
- Finally, geo-merchandising only achieves its intended purpose if it is done dynamically and over a sustained period: brands’ priorities change, as do local contexts and consumers’ behaviors. That means regular evaluation of outcomes, comparison with the theoretical potential, adjustment of product and price ranges where the anticipated performance is below par, and periodic updating of the model underpinning the entire approach.
It’s worth the effort. If retail brands, banks and insurance companies are generally very discreet about their use of geo-merchandising, University studies report eminently convincing results.
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